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Wednesday, April 9, 2008

Why Should Companies Be Socially Responsible?

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Corporatesocial responsibility has come a long way since 1970, when economist Milton Friedman called its advocates “unwitting puppets of the intellectual forces that have been undermining the basis of a free society for three decades.”

In fact, corporate social responsibility (CSR) has a completely different meaning in the 21st century, when more and more firms anticipate and take responsibility for the impact of their operations on communities and the natural environment.

Professor Gene Laczniak, who teaches business ethics at Marquette University, said Friedman’s verdict on CSR is hopelessly obsolete. “The purpose of business is not to make a profit; it’s to serve the economic needs of society while being rewarded with a profit,” he said.

Laczniak said the CSR movement is partly a response to a scandal-weary and economically stressed public. “Middleclass wages have remained stagnant for 25 years or more, and the baby-boomers who run these companies are more politically aware than the generation before them,” he said.

He added that globalization and environmental concerns have also boosted CSR among American corporations. “Globalization has brought an amalgamation of values to U.S. business. European, Asian and North American cultures are affecting each other. Even European socialism has filtered into our thinking,” Laczniak said.

Laczniak said CSR is good insurance against a PR nightmare or future regulations that adversely impact a company. “Doing well while doing good is possible, but if it didn’t cost companies to be ethical, then every company would be ethical,” he said. “It’s better to be ethical than not ethical, and perceived as such.”

Bob Karnauskas, president of BL3 Strategies, a Pewaukee-based consulting firm, said that socially responsible companies perform well because they can attract and retain quality workers and reduce risk from lawsuits and bad publicity.

What’s more, a socially responsible company’s products or services will be seen more positively, in what marketers call “the halo effect.” “Environmental and social performances are tangible business assets that complement conventional financial performance,” Karnauskas said. Karnauskas’ firm offers a “triple bottom line” model for corporate decisionmaking that takes into account new financial, social and environmental realities.

“Corporations can no longer operate as if they are insulated from environmental and social risks and maintain the confidence of their stakeholders,” he said. Karnauskas said that larger companies have embraced triple bottom line thinking for years, and the practice is spreading to smaller companies. “Target Corporation donates $3 million a week to corporate philanthropy,” he said.

“Subaru has a plant in Indiana that has zero landfill waste. It’s what customers and company stakeholders have come to expect.” Yet despite its growing acceptance among business people, CSR still has its critics. Writing in Forbes Magazine in November 2006, Betsy Atkins, CEO of Baja Ventures, said, “The notion that the corporation should apply its assets for social purposes, rather than for the profit of its owners, the shareholders, is irresponsible.

“There are practical reasons why corporations should cloak themselves in the politically correct rhetoric of social responsibility,” she added. “But marketing should not be confused with significant deployments of corporate assets.”

But Karnauskas sees CSR as yet another variation of business risk management. “No company wants to find itself in the same place as Enron, or Union Carbide,” he said. The public is tired of bailing out failed corporations, and cleaning up superfund sites that result from improperly disposed hazardous waste. A recent Harris Poll indicates that 70% of Americans don’t trust big companies.

“Companies pay dearly for those kinds of mistakes, and we have learned to manage these types of risks in a way that can be profitable, in the long run, to companies,” Karnauskas said.

This is the first publication of our New Economy column. The next column will appear in the April 24 issue.

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