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    Corporate Governance (Corporate Social Responsibility – CSR)

 

  • Corporate Social Responsibility (CSR) is generally considered to be a mid-20th century business philosophy which in turn relies on and expands an earlier general business philosophy.

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  • CSR goes farther than sustainability, in that CSR seeks to promote social consciousness for both the business and employees, such as: encouraging employees to participate in local community volunteer work; engaging in charitable projects; investing in environmentally conscious businesses; lowering the carbon footprint of the business operations; promoting business practices to enhance the positive reputation of the business; purchasing fair trade products; and, upgrading labor policies.

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  • However, CSR is in turn an earlier business philosophy than environmental social governance (ESG), and consequently CSR is as not as well-developed as ESG; CSR aims for a qualitative (meaning improving both – primarily – the quality of the social impact of the business on both the local and global community and the workers, and – secondarily – the quality of the bottom line of the business) voluntary implementation of CSR policies, as measured internally by subjective CSR auditors of the business itself, as best as they can (since the CSR principles themselves are somewhat amorphous), whereas the progress of a business to voluntarily adopt ESG policies is quantitative (meaning that external ESG rating entities apply frameworks of hypothetically-objective proprietary tests, developed by each of the ESG rating entities themselves, to data points of the business requesting the ESG rating, for the purpose of awarding a final – hopefully high – ESG rating to the business requesting the ESG rating), and is more-focused on the bottom line profitability of the business requesting the ESG rating.

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  • CSR integrates many not-necessarily-business activities, considerations and tools – such as: charitable donations; charities; community development; educational programs; ethical sourcing of materials; grants; labor fairness; not-for-profit entities; personal donations; volunteerism – into day-to-day business operations, in an effort to use the economic resources of a business to promote improvement of the social consciousness.

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  • Although CSR progress within a business is more difficult to qualify than it may be to quantify ESG ratings, CSR progress can indeed be measured, through techniques such as: benchmarking the CSR progress of the subject business against the CSR progress of similarly-situated businesses; establish an internal committee to formulate proprietary key performance indicators (KPIs) – such as (before, during and after the implementation of the CSR policies): customer retention rates; customer satisfaction rates; employee engagement rates; employee retention rates; online brand feedback; online search results about the business – to measure data points of the business that the committee may feel are important; set up an employee engagement protocol for the employees to provide feedback about the CSR issues that are being implemented within the business; install CSR software platforms that include customizable modules that may be modified as necessary to track the CSR implementation within the business.

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  • The CSR business philosophy requires that a business has a responsibility to do good through self-control in all business and social practices, and should also be socially-accountable to anyone who may be in any way affected by the operations of the business, whether locally or globally.

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  • Most CSR initiatives generally include activities in one or more of the following categories:

    • civil, human and social rights – aimed at addressing the situations of both the employees and workers who produce goods for the business (with consideration for issues such as: child labor; fair compensation; forced labor; hours of work; slave labor; working conditions; and the like), but also the situations of those people in the global community who will ultimately use those goods;

    • economic – making all corporate financial decisions with the consideration of the possible social impacts of such financial decisions, and not just with the sole consideration of pure profitalone;

    • environmental – typically addressing issues such as; achieving a “circular economy” (one aspect of which is that materials are reused or recycled with the ultimate goal of eliminating waste); carbon neutrality (which involves reducing or removing emissions to offset a company’s carbon footprint); improving the efficiency of recycling efforts; reducing all net emissions; increased use of sustainable packaging; waste reduction efforts; and the like;

    • ethics – ensuring that a business is operating in a fair and upright manner towards all people with whom it or its products or operations comes in contact, such as: customers; employees; investors; laborers; shareholders; shippers; stakeholders; suppliers; workers; and the like;

    • philanthropy – which generally encompasses charitable donations by both the business and its employees of both money and charitable works, generally benefitting the immediate community in which the business is located anywhere on the globe, and philanthropic CSR initiatives may also have the added benefit of increasing overall employee engagement, enthusiasm and satisfaction; and,

    • sourcing and supply chain – generally concerned with quality and traceability of materials and transparency of sources and vendors.

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  • The voluntary adherence to CSR practices may materially contribute positively to the triple bottom line (TBL) of a business – a theoretical accounting principle in which profit is considered not only in terms of pure profit, but also in relation to the environmental and social impacts of the financial decisions of the business in both non-financial respects (such as: attraction of enthusiastic employees; community appreciation; consumer appreciation; consumer loyalty; enhanced reputation; positive press coverage; retention of enthusiastic employees) and also in financial respects (theoretically, all the previously-referenced non-financial aspects may enhance the reputation of the business, resulting in better brand recognition, greater ability to attract and retain employees, improved financial performance, increased sales and customer loyalty, operational cost savings, rapid organizational growth, and – most important to the business – easier access to discounted capital that can be used for future growth).

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  • CSR philosophy pervades all types of businesses in all countries on the globe; there is even an Islamic version of CSR under Shariah law – Maslaha (The Theory of Public good).

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  • Prior to implementing CSR principles within a business through a comprehensive CSR plan, stakeholders (such as consumers, employees, management, residents of the community) should engage in a strategic planning exercise to determine how best to integrate the CSR principles into the culture of the business, through a series of activities such as: attempting to integrate CSR seamlessly into existing corporate policies of the business, rather than reinventing the wheel by creating completely new CSR-related corporate policies; be as transparent as possible, being specific about the proposed CSR goals when publishing any information on any media; including all stakeholders in the conversation about CSR implementation; create a CSR communications plan; once the CSR integration plan is implemented, be responsive to any constructive feedback, implementing any improvements expeditiously; seek support from external entities for the new CSR policies proposed by the business; studying successful prior CSR implementations in similarly-situated businesses, and building upon successful aspects of such successful prior CSR implementations; updating the business website to reflect that the business is considering the implementation of CSR, and seeking feedback by visitors to the website.

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  • Once the CSR plan has been implemented, a business may wish to publish a detailed CSR report containing transparent information and statistics touting all the benefits the business has gained from implementing the CSR plan, and which may include elements such as: all the new sustainability goals the CSR plan contains, and how they will be implemented by the business; an introductory letter from the CEO of the business; an overview of the business; audits by objective third-parties to verify the information provided in the report; target key performance indicators (KPIs) to determine the efficiency of the sustainability goals; the prioritization of the original issues that were the catalysts for the CSR plan; authenticity, as demonstrated by actual examples of improvements the business can document were the result of the new CSR plan; detailed information regarding all the sources used in the CSR report to support all the assumptions and conclusions in the CSR report.

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  • Assuming that a business wishes to adopt CSR wholeheartedly, the business would also have to consider adopting the supporting business philosophy of the “triple bottom line”, a cornerstone of CSR incorporating an application of principles borrowed from the International Standards Organization (ISO) 9000, 14000 and 26000 series guidelines, which promote the “3 Ps” philosophy – people, planet, profit.

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  • The 3 Ps philosophy slightly antithetical to standard business practice, in that it aims to reduce the ultimate focus of a business solely on bottom-line profitability, in favor of a blend of social responsibility programs that may reduce the profitability of a business somewhat, in exchange for reducing the impact of the business and its operations on people (meaning both physically and mentally on its employees and anyone globally who may in any way be at all affected by the impact of the business and its operations), the planet (meaning the physical impact of the business and its operations on the environment locally and globally), and the profitability of the business (which may be slightly reduced by the added costs of the programs to help the people and the planet, but hopefully not too much to make the business unprofitable).

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  • One important point to note about the “people” part of the 3 Ps philosophy is that although businesses have traditionally aimed to satisfy shareholders by focusing on the greatest possible rate of return, the 3 Ps philosophy the deference to only shareholders by adding an equal deference to many other third-parties (generally referenced generically as “stakeholders” – meaning employees, workers, consumers, local residents, residents of other countries) who may not necessarily have any direct monetary ownership of the business, but who may be somehow affected by the operations and products of the business, and it is that consideration for this other group of people that may result in some diminished bottom-line profitability for the business; the overall rationale of the 3 Ps is that we should all be willing to eschew some personal greed in favor of the greater good.

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  • Although CSR may be considered generally beneficial for business in the long run, CSR may have some short-term disadvantages, such as: stakeholders (and shareholders in particular) may object to decreased profitability resulting from the implementation of less-efficient (although more-sustainable) production methods; the cost of business operations may increase noticeably, due to the transition to sustainable materials; decreased worker productivity, due to the workers spending company time for socially-responsible activities; increased accountability of management to the general business community, to justify the transformation of the business, due to the integration of CSR into all aspects of the business; decrease of the public image of the business in the general business community due to decreased productivity and revenues.

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  • Compliance with: International Standards Organization (ISO) 9000/9001 – Quality Management Systems; ISO 1400 – Environmental Management; 26000 – Social Responsibility (which includes ISO 26000:2010 – Guidance on Social Responsibility, which in turn includes a “Social Responsibility Performance Assessment Checklist”, designed for use by internal auditors of the business to gage how closely the business voluntarily follows CSR principles), which provide guidelines specifically-designed as a recommended ethical framework to implement CSR, as follows: accountability; ethical behavior; respect for human rights; respect for international norms of behavior; respect for stakeholder interests; respect for the rule of law; transparency.

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  • In order to substantiate the transparency of any business which claims to have adopted CSR principles, all violations of the CSR principles published by a business that may have been discovered through any external or internal audit, or reported to the CSR hotline or email address by any whistleblower, should be reported immediately to the Chief Compliance Office (CCO), and that CCO should take immediate action.

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  • Any published statement of CSR principles – whether published on any public media, online or on the business intranet – should include a disclaimer that nothing in the published CSR principles is intended to confer any rights against the business on anyone to whom any applicable law did not expressly and specifically confer any such rights (including but not limited to, perhaps: competitors; shareholders; stakeholders; suppliers; unintended beneficiaries; unidentified third-parties; vendors; and the like).

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  • Compiling, drafting and negotiating all CSR-related documents, such as the: annual report; corporate policies; Global Reporting Initiative (GRI) Index; progress summary; statement of principles; Financial Stability Board Task Force on Climate-related Financial Disclosure (TCFD) Report.

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