Short-term Profit versus Long-Term Sustainability: CSR & Successfully Competing for the Future

As an article in yesterday’s Washington Post, entitled Opportunity for Corporate Fraud Has Shrunk – But it’s Still There (Thursday, January 26, 2006; D01) says, “Despite new laws and regulations, companies still face enormous pressure to meet short-term financial goals, creating a powerful motive for accounting fraud. Outsized executive compensation grows by the year, offering another rich incentive to cook the books.”

Even when companies perform well in an increasingly competitive business environment, it is not uncommon for their stock prices to fall when they do not exceed Wall Street’s expectations. The intense pressure to show profits, the relentless push to show continuous growth, no matter what, has no doubt fueled the spectacular failures of companies like Enron, Worldcom, Global Crossing, Adelphi, and others. Pressure of this kind can lead executives to take actions that bring short-term reward, at long term cost.

Much, but not all, of the issue may be boiled down to a question of corporate ethics and leadership. What are the priorities of a given company? Are they solely to maximize executive compensation and shareholder value? Or, is the business focused on doing the right thing, which pays off by building a brand that engenders customer trust and loyalty? The question is how seriously is a culture of doing the right thing embedded within the DNA of a given corporation?

This is where the issue of corporate social responsibility (CSR) comes in. CSR, as readers of this blog know, is the idea that business has an intrinsic responsibility to manage its processes so as to limit damage to economic, social, and environmental systems; and further, that overall business strategy should be aligned with larger social goals. Even though Enron talked a good CSR game in its day, it’s clear that CSR principles were not really integrated into its business strategy and operations.

At DCSBN we believe CSR, at its core, is representative not just of ‘doing the right thing,’ but as an increasing amount of evidence shows, it’s good business practice. In some senses, CSR can be considered an enlightened form of self-interest: ‘Do good and you shall do well.’ But, perhaps its even more important to understand that CSR is about successfully competing for the future: Today’s cutting-edge business leaders are convinced that a focus on a triple bottom line of people, planets and profit will help them realize enhanced performance at lower cost, appeal to a growing number of environmentally- and socially-conscious consumers, attract and retain top-flight talent, proactively mitigate risk, and take advantage of sustainability-driven innovations to develop tomorrow’s markets.

Stop and think about this last point for a moment: Five years ago, caught in the grip of SUV-fever, few would have predicted the current demand for hybrid automobiles. Today, as they are outpaced by nimbler competitors like Toyota and Honda, which offer cheaper yet reliable cars that get great gas mileage, Ford and GM managers are probably wishing they had in the words of a recent Arthur Little report ‘seized the innovation high ground,’ to “create new market space, products and services which are driven by underlying social, environmental, economic trends.”

DCSBN at Hotel Rouge!

The first DCSBN event of 2006 was an overview of the DCSBNk and what we are up to in 2006 followed by an evening of networking at the Hotel Rouge in Washington DC . Over 75 people attended a short presentation about the network and the networking and socializing lasted for several hours thereafter in lounge as attendees enjoyed the hospitality of one of DCSBN's newest members, Kimpton Hotels.

DCSBN will offer more social and learning opportunities throughout the year. Check out our web site for the Building a Better World Speakers Series, tours of sustainable businesses, our Sustainable Cuisine events as well as the 2006 Spring CSR Symposium - DCSBN's annual and Washington DC's premiere sustainability event.

"Getting Smart At Being Good"

From Time Magazine

The rapid growth and mainstreaming of corporate social responsibility (CSR) in corporate America was recently underscored by Wal-Mart's announcement that it would offer employees better medical benefits, invest $500 million annually in energy efficiency, and slash its solid waste and greenhouse-gas emissions.

While much of the business culture has publicly embraced the notion that CSR is good for business, there remain some critics, such as Cypress Semiconductor CEO T.J. Rodgers, who maintain that shareholders entrust managers solely to maximize long-term returns. Rodgers has been an important part of the debate over CSR in the past decade, including having recently joined Milton Friedman and Whole Foods Market CEO John Mackey to debate the issue in Reason magazine. Whereas Rodgers assailed the notions behind CSR, Mackey--himself an avowed libertarian--argued that his approach brought Whole Foods' investors much more wealth than the approach used by Cypress, which in fact saw losses for three years before turning a small profit in 2004.

The business argument behind CSR is also articulated by Nike's vice president for corporate responsibility, Hannah Jones, who says, "Don't do it as a reputation-management tool. Do it because it genuinely contributes to your business strategy." This means not only working to protect the brand, as Nike has done after long being the subject of protests, but also attempting to secure the future--as in the case of corporations' response to AIDS, a disease that Trevor Neilsen of the Global Business Coalition Against HIV/AIDS says "is like a laser-guided missile targeting the most productive segments of our economies and societies."Proponents also say that CSR can help cultivate new markets, pointing for example to Crest's gains in the Hispanic market after beginning a national dental-health program for underserved children. Other benefits from CSR, according to proponents, include the ability to raise standards and to serve as an inspiration to the work force.