lu_inside12-full

Recommendations

Info

Inside magazine issue 12 | Part 03 - From a corporate perspective Money makes the world go around–or does it? Why CSR is no longer just an option and how to make the most of it Petra Hazenberg Partner Strategy, Regulatory & Corporate Finance Deloitte Esther Bauer Consultant Strategy, Regulatory & Corporate Finance Deloitte In 1970, renowned economist, Milton Friedman, wrote: “The social responsibility of business is to increase its profits,” suggesting that corporate directors are accountable only to their shareholders, and only on financial metrics. Since then, however, a fundamental paradigm shift has occurred, and Corporate Social Responsibility (CSR), which the European Commission defines as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis,” is moving to the top of board agendas. An advert by Colgate during this year’s Super Bowl powerfully emphasized how companies are becoming increasingly concerned about social impact. Colgate, rather than advertising its product, chose to spend 30 seconds of advertising time during the 2016 Super Bowl— estimated to cost around US$5 million— to tell viewers to save water, spreading a socially conscious message. Does this evolution mean that Milton Friedman was wrong with his statement? Well, yes and no. This article outlines why companies need to care about more than just financial impact, negating Friedman’s statement, but also that profit and CSR do not need to be mutually exclusive, nor competing concepts. Moreover, CSR strategy can directly contribute to profits by encouraging revenue growth through the Five P marketing mix (Product, Place, Promotion, Price, People) and driving efficiency gains such that we may rephrase Friedman’s statement to assert that the social responsibility of business can increase its profits. CSR is no longer just an option for companies The financial crisis and the stock market crash in 2008 sparked the view among many that stock prices are no longer sufficiently reliable indicators of sustainable business and management performance 1 , reflecting short-term results rather than long term viability of companies. Confidence in banks and the financial markets in particular, but also in other corporations, plummeted and ignited public pressure on companies to reconsider their management approach, and monitor and improve their social impact as a result of the financial crisis. 110
Inside magazine issue 12 | Part 03 - From a corporate perspective This phenomenon has been accelerated through digitalization and social media, which facilitate information exchange. Nowadays, even just a handful of customers are able to generate severe consequences for companies. A poor performance in terms of sustainability is quickly noted and can attract scorn in social media, creating significant negative impacts on the business, which can include loss of customers and difficulty to attract talent. Furthermore, certain companies are faced with legal obligations as the European Commission and national governments reinforce their efforts to encourage sustainable business behavior by increasing regulatory requirements; these include the EU directive on the disclosure of non-financial and diversity information by certain large undertakings and groups (Directive 2014/95/EU), which will require larger companies 2 to issue a non-financial statement disclosing information regarding their environmental, social and employeerelated impact from 2017 onwards at a European level, as well as the Grenelle II Act in France and the Sustainable Economy Law in Spain. But companies are still confusing CSR with philanthropy, missing out on strategic opportunities for value creation So companies no longer have a choice, they need to engage in CSR; however, CSR can take a variety of shapes and forms. For example, a recent study carried out by the Boston Consulting Group shows that a large number of companies engage in some sort of CSR activity—mainly philanthropy. While these companies do give back to society, they are unable to realize a number of opportunities to create true added value for society and the company. At the same time, others engage in “propaganda”: communicating on social impact and sustainability without creating any real value. This approach needs to change, as best practice examples show. Philanthropy and communication can constitute a part of a CSR program, but trailblazing companies are actually capitalizing on their existing resources and core capabilities to create an environmental or social impact. Through these CSR strategies, they can actually create financial value in a way that is already traditionally taken into account by the market—through growth and return on capital. 1. Why Companies Can No Longer Afford to Ignore Their Social Responsibilities, Knowledge at Wharton 2012. 2. Defined as public-interest entities exceeding on their balance sheet dates the criterion of the average number of 500 employees during the financial year. 111
Page 1:
Inside Triannually insights from De
Page 4 and 5:
Inside magazine issue 12 | Contents
Page 6 and 7:
Inside magazine issue 12 | Foreword
Page 8 and 9:
Inside magazine issue 12 | Part 01
Page 10 and 11:
Page 12 and 13:
Page 14 and 15:
Page 16 and 17:
Page 18 and 19:
Page 20 and 21:
Page 22 and 23:
Page 24 and 25:
Page 26 and 27:
Page 28 and 29:
Page 30 and 31:
Page 32 and 33:
Page 34 and 35:
Page 36 and 37:
Page 38 and 39:
Page 40 and 41:
Page 42 and 43:
Page 44 and 45:
Page 46 and 47:
Page 48 and 49:
Page 50 and 51:
Page 52 and 53:
Page 54 and 55:
Page 56 and 57:
Page 58 and 59:
Page 60 and 61: Inside magazine issue 12 | Part 02
Page 144 and 145: Inside magazine issue 12 | Contacts
Page 146: Our expert authors, who are brimmin
show all

lu_inside12-full

Create successful ePaper yourself

Delete template?

Save as template?