Benefits resulting from Due Diligence for Responsible Business Report
CSR generates benefits for a business internally as well as for the external stakeholders. However, it is challenging to monetize the benefits of the CSR since much of the benefits are only visible in long run. In addition, the challenge comes from the fact that they are indirectly led to by the positive changes of the CSR (Sino-German, 2012).
On the other hand, whether firms are likely and able to practice the CSR is highly dependent on their managers’ incentives as well as constraints that are in turn determined by their preferences, contracts, ethical beliefs and objectives. The major direct incentives that managers face include the employment contracts. For those whose compensation and pay is well designed aligning the incentives with that of shareholders, forgoing the profits means a reduction in their pay. In the US, CEOs are mainly paid through a blend of stock options, stocks and the salary and their compensation links to the explicit forms’ performance measures. However, the relationship that exists between the compensation and company’s performance could be zero some performance levels. That means the CEOs can trade compensation for CSR activities in line with the rate that they consider as acceptable. With that, cost benefit analysis is crucial in making decisions regarding the CSR practices (Reinhardt, Stavins &Vietor, 2008).
We currently live in business world where the concept of sustainability is already in the mainstream. That is evident in that more than 72% of the S&P500 companies reports on sustainability. That demonstrates the growing recognition by businesses of the key interests expressed by the investors. In a report based on over 200 studies, newspaper articles, books and industry reports, the findings showed the effect that CSR practices have on a brand’s equity as following
90% of studies on cost of business capital showed that embracing sustainability standards results in lower cost of business capital.
88% of those research show that sound sustainability practices lead to better performance in terms of companies’ operations.
80% studies showed that stocks’ price performance is positively related to sound sustainability practices (Clark, Feiner & Veihs, 2015).
Also, in the year 2013, a survey was done by Accenture studying 1,000 companies’ CEOs across 27 industries in over 100 countries. In the findings, it was indicated that 80% of the CEOs viewed sustainability as means of gaining a competitive edge against their competitors. Further, the study results indicated that about 81% of the CEOs believed that sustainability’s reputation of is important and key in consumers’ buying decisions.
On the other hand, an example of the effect that the failure in CSR has can be demonstrated by the BP’s case. The Deepwater Horizon case of 2010 spill in Mexico’s Gulf is one of the high-profile and recent demonstrations of how the environmental risks may have substantial financial consequences. However, the company did not only suffer financially but in reputation. Resulting from the incident, BP’s stock price fell by 50% in the period beginning April 20, 2010 to 29 June the same year. Also, the incident resulted in group of the major oil firms losing about 18.5% in stocks’ value. Further, the effect still lingers as BP’s stock price underperforms the industry peers by 37% since the disaster (Clark, Feiner & Veihs, 2015).
Better community relationships
Organizations may mainly engage in the CSR activities for window dressing; meaning that they seek to appease the different stakeholder groups like nongovernmental firms. Viewed in that light, the CSR could simply be a cost of conducting business as they are initiatives that companies feel that they should carry out to avoid possible negative publicity as well as other actions by the stakeholders such as the NGOs. For instance, Best Buy company’s recycling program for electronics that is free for its consumers was set up partly because of the pressures from As You Sow Foundation (Sprinkle & Maines, 2010).
BP’s case acts as a good example demonstrating how failure of CSR affects the relationship with communities., according to RepRisk, two years prior to the BP spill, there had been severe criticism on the firm’s performance regarding environmental pollution, safety issues, occupational health as well as the negative effects on the local communities in addition to labor issues (Clark, Feiner & Veihs, 2015). In that respect, the firm’s CSR failure left it in sour relationship with the surrounding communities before and after the oil spill
Some of the types of costs which may be incurred by extractive firms due to conflict with the local communities and which reflect the cost of CSR failure can be summarized as follows
Remediation costs: meetings, mediators, negotiations.
Hostage-taking: compensation, rescue operations, ransom payments.
Arrests of the staffs.
Injuries to fatalities and staff.
Low morale as well as stress-related side effects.
Retention: bonuses, compensation packages, higher salaries.
Recruitment: screening, advertising positions, induction training, interviewing, (Byiers & Bessem, 2015).
CSR activities also relate to core subjects such as labor practices improvement of companies’ governance and environment. That is according to CSR principles that include accountability, respect for the stakeholder interests and transparency can result in improvement of the current employees’ quality. In that respect, more participative trainings, volunteerism programs and organizational governance creates opportunities for the employees to learn and induce processes of developing their competencies, knowledge and skills. Thus, CSR results in greater organizational commitment by employees hence reducing problems such as strikes.
Along with organizational commitment employees’ motivation rises and they are highly likely to be responsible and demonstrate organizational citizenship as well as altruistically participate in the companies’ activities. With that, employers gain higher of trust for their employees that plays a great role in reducing conflicts such as strikes.
Further, the 2008 Ipsos MORI’s Loyalty Report indicated that about 75% of companies’ employees who view their organizations as paying adequate attention to the environmental protection as well as sustainable development exhibited substantially higher levels of organizational commitment. Lao, Global Workforce’s Study identified that organizations’ reputation regarding the CSR is third in rank among top employee engagement drivers. With that, employees` higher commitment as well as learning opportunities aids firms to retain employees for long and reduce conflicts such as strikes. That is also reflected in the reduced employees’ turnover mainly after implementation of sound labor practices as well as adhering to the human rights (Sino-German, 2012). Research indicates the significance of the organizational reputation as a key factor for value maximization.
The relationship that is between financial performance of a corporate and employee satisfaction, he argues by saying that satisfying workplace may foster work embeddedness and make sure that talented workers remains within the firm (Clark, Feiner & Veihs, 2015).
Firms believe CSR helps to recruit, motivate, as well as retain employees. Many sources list those reasons to be amongst the highest significant benefits for an active program of CSR. For instance, Deloitte ToucheTohmatsu offers its managers an opportunity to take part in programs that are year-long dedicated towards improving the abilities and skills of the young students; by this the firm believes it can help recruit the top candidates. . .as well as rise retention rates for the high-potential workers. For several years, Timberland have provided employees an opportunity of taking significant compensated time off so as to volunteer in the social causes within their choosing. The firm notes that the program helps to retain and attract valuable talent. The enhanced employee motivation is also a significant driver, just like observers have already noted that ‘‘persons are looking meaning at their work, hence has become comprehensible that motivation for staff is a great bottom-line and significant of CSR (Sprinkle & Maines, 2010).
Among the key areas that the CSR has an effect on a firm is the market share. That is because the image that the initiatives generate in the market determines the consumers buying decision and the firm’s acceptance in various markets. The CSR initiative also helps the business retain good relationship with communities and key stakeholders allowing continued and sustainable operations that aid serving the entire market segment more effectively. In that view, a key risk for firms could be the external cost; externalities. They can affect the firm’s production processes directly or indirectly through the disruptions of the business’ supply chain that would in-turn affect the ability to serve the market segment. With that, businesses that fail in CSR bear the cost of unsatisfied customers leading to lost market share. On the other hand, businesses effective in CSR have sustainable operations that avoid operational disruptions hence the ability to satisfy their customers growing the market share. That is supported by the evidence that some consumers are normally willing to buy and pay from the socially responsible firms. Such existence of ethical investors results in poor performance in terms of market share (Sino-German, 2012).
Although some of the recent research on CSR shows that Human Resource Management is not mainly accepted as true partner during determination of the sustainability strategy HR is not a main implementer of the sustainability initiatives, others still identify HR as a key to CSR. In a study on over 700 CSR as well as HR professionals across the US, only six percent of the respondents identified that the HR was substantially involved in development of the CSR strategy while 25% noted that it was involved in the implementation. However 89percent of those respondents noted that the CSR is important in attracting the top talent, and developing organizational leaders; 81% and in improving the employees’ retention; 85% (Strandberg, 2009).
In that respect, the main benefit of the CSR to the HR is the increased retention of employees as well as reduced training and recruitment costs. A 2000 survey on the Canadian Conference Board identified that 71percent of employees prefer working for companies which commit their resources to CSR. Further, a similar study by the Cone Inc. across the U.S had 77percent of the respondents indicate that firms’ commitment to the social issues was important in their decision on where to work. Also, a Scotiabank’s 2007 study on employed Canadians identified that about 70 percent would consider job change if the employers failed to be socially responsible. In that respect, and considering replacement costs of $50000 on average per worker including the lost output, the recruitment as well as training among other costs, it pays to manage a firm’s CSR effectively (Strandberg, 2009).
Organizations leverage sustainability for purpose of attracting, retaining and developing employees. Further, multinationals have also realized that attraction and retention of talent is mainly directly proportional to their sustainability initiatives’ portfolio (SHRM, 2016).
Further, the CSR and sustainability are crucial given the today’s changing employee’s contract. Most people today are more concerned about the corporate citizenship and the planet. Thus, they have the passion for their efforts to reflect meaning and purpose hence mainly chose to work for organizations purpose-driven by value sustainability. Also, sustainability has a huge effect on recruiting given that the younger employees have the knowledge and the passion about the sustainability hence are drawn to go and work for the companies that show high commitment to the sustainable practices (SHRM, 2016).
It is also notable that sustainability programs provide an avenue for enhancing job satisfaction as well as engaging new and current employees. Firms such as the Pfizer as well as Hitachi are good examples of the companies that are highly committed to alignment of their sustainability as well as CSR strategies in a manner that seeks to help deliver effective recruitment approaches as well as outcomes, improve employee’s morale and reduce the employee turnover while developing leadership’s pipeline. In the Survey, where companies were required to indicate importance of involvement in the sustainability initiatives regarding attraction, retention and development of employees, 49 percent of the companies identified that their participation in the sustainability initiatives was key in creating positive employer’s brand that could attract the top talent. On the other hand, 40 percent of the companies identified it important for improvement of employee retention. Finally, 33% noted that involvement in the sustainability was important in development of the companies’ leaders as shown below.
Source: (SHRM, 2016).
Cost of CSR
An example of the cost of CSR in the recent past years involves employees of KPMG who volunteered about 3200 hours to charity activities. Assuming an average rate of billing of 150 dollar per hour, the amount would translate to about 4.8 M dollar in revenues that would have been lost. The assumption by this calculation is that demand is there for the hours that have been volunteered and not labor excess capacity that is used in the volunteer work. Perhaps the employees of KPMG volunteer during their off season; during the time when the business is inadequate for all the employees to be kept fully utilized. In this case, the contributions that are labor based have an opportunity cost for almost zero.
In the above case, employees being allowed to volunteer would be cheaper than offering product and cash donations (Sprinkle & Maines, 2010).
Benefits of CSR
Beyond the deduction in tax that is garnered as a result of product and cash donations, federal, state, and local agencies often offer credit for sustainability efforts and CSR. For example, Bearings of RBC recently were 8.3 million dollar in form of tax credit by the federal which was associated with them providing turbines. In such like companies can be offered tax credits by them using materials that are green in practicing renovation as well as buildings’ constructions with an example of obtaining the leadership in Environmental and Energy Design certification.
It has also been suggested by the researches that the employee turnover and strikes’ cost can be very high, ranging from as 50% of the base salary of those at the position of entry level to as much as 400% base salary of the specialists who are highly-skilled. Therefore, if the CSR can help in retaining of one employee who is highly skilled and earning 100,000 dollar this would results in benefit of 400,000 dollar saving shown as follows.
That is an indication of some of the key HR benefits that the CSR has for businesses (Sprinkle & Maines, 2010).
In view of the analysis, it can be concluded that CSR initiatives have a positive effect on companies on various fronts and its benefits exceeds the costs. That has been demonstrated by the benefits in increasing brand equity, enhancing relationships with communities and reducing labor conflicts for the HR such as reduction of strikes. Numerically, it has been demonstrated that the cost of practices such as volunteering have close to zero opportunity cost while the same practices have substantial benefits in increasing brand equity through stock price appreciation as well as through savings with reduced employees turnover and strikes. Finally, the CSR has been identified to have several benefits in terms of market share and HR performance.
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