The FINANCIAL — The way many companies think about Corporate Social Responsibility (CSR) is as follows: if we do something good or charitable for society, take lots of pictures, and make sure there is media coverage, customers, suppliers, or people connected to our business in other ways, will think we are good, and do more business with us.
Of course many companies won’t exactly put it that way: if you publicly say that your only goal is to increase sales, this would defeat the purpose, because most people believe that doing something good is only truly praiseworthy if you do it for altruistic reasons, without some ulterior motive. I call this the short-term, PR model. Is that really the way we should look at Corporate Social Responsibility though?
To answer this question, there is another question that needs to be answered first: what is the purpose of a company? In many countries, publicly-owned companies (of which any individual can buy stocks) are legally obliged to strive to optimize shareholder returns. The people who govern the company have a “fiduciary duty” to act in the interest of the owners of the company.. If they breach this fiduciary duty, they can even face criminal charges. If in fact this is the only (legal) goal a company has, the purpose of Corporate Social Responsibility cannot be any other than the one described in the first paragraph: it would be a breach of fiduciary duty to do something that wouldn’t benefit the company.
However, shareholder value maximization is not the only existing paradigm for thinking about Corporate Social Responsibility. Another paradigm that we can use is a stakeholder model: instead of just maximizing value for its shareholders, a company should also focus on maximizing value for its other stakeholders, such as customers, employees, suppliers, and the communities it operates in.
This is the model we use at GeoCapital Microfinance: we try to have a positive impact on all our stakeholders. For example, when we noticed that many of our clients lacked basic financial literacy, and did not understand or even read their contracts before signing them , we started a financial literacy course called “You and Your Money”, which eventually grew into a separate NGO, “GeoCapital Education”. This nonprofit organization now organizes a number of different trainings in the community we operate in. We as an organization did not gain anything from this in the short term. In fact, because some of our clients started to save money after attending our workshops, they reduced their borrowing!
In general, the stakeholder model involves “doing the right thing”. When a low-level employee gets seriously ill, especially in Georgia, the shareholder model would just tell you to cut that employee loose: employment laws are flexible, labor is cheap, and unemployment is high, so you are very likely to find a replacement within a very short amount of time. However if you think for a second about the right thing to do, this is obviously very different: you make sure the employee gets healthy soon, and doesn’t get into financial trouble just because he or she fell sick.
Depending on the sector, the stakeholder model might involve changing the business model so that the operations cause minimal damage to the community, or fixing any damage that has been done. This is especially the case for companies that have a serious impact on the environment, such as oil companies or manufacturing companies.
In fact, using the stakeholder model I just described is not very different from something that I would call a long-term shareholder model. In the long run, a company that takes its responsibilities towards its stakeholders seriously will deliver superior returns, because a company can only thrive if it operates in a thriving community, with happy employees, satisfied customers, and without damage to its physical and social environment.
Don’t think of Corporate Social Responsibility as a public relations effort, or the responsibility of a specific “CSR department” within your company. This amounts to nothing more than buying off your sins. To the contrary, social responsibility should be ingrained in the DNA of your company, and guide everything you do, in order to both care for your stakeholders and improve long-term sustainability and profitability of the company.
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