One simple definition of philanthropyis that ‘corporations perform charitable actions’. This is very different from CSR, with philanthropy being a charitable act not neces- sarily linked to the expectations of society. Philanthropy did occur in large industrial firms in the UK during the nineteenth century (such as Joseph Rowntree, Titus Salt) through the donation of money and amenities such as schools, hospitals or housing for employees and their communities. Corporate philanthropycan be perceived as a short-term one-way relationship, which is unpredictable on behalf of the recipient and therefore more difficult to manage and strategically plan for. For example, during the dotcom boom (during the late 1990s when the financial performance and market impact of web-based businesses and technology companies in general were seriously ex- aggerated), technology company directors commonly gave large sums in charitable donations. The Slate 60 is an annual list of US charitable gifts and pledges that has reported since 1996: in 2008 the top pledge was for a single gift of $4bn. (See www.slate.com). Depending on the general and sector-specific economic performance, individuals go on or off the list, reinforcing the unpredictable nature of this type of activity. For example, Bill Gates (the world’s richest man and Microsoft’s founder) was on the list in 2001 with $2bn in gifts. In 2005 Gates made the largest ever private donation of £400m ($750m) to the child health charity he set up with his wife, Melinda, the Bill and Melinda Gates Foundation (www.gatesfoundation.org) (see also Chapter 26). In 2008 Bill Gates relinquished his man- agement of Microsoft to become non-executive chairman
Box 6.1
Peach model in action
Some clear examples at the basiclevel might be a company in the supermarket retail sector that is profitable, pays its taxes and maintains minimum terms and conditions for its employees. At the high- est, societal, level you could describe a supermarket retailer that conforms to society’s rules and laws but also contributes to its society by funding com- munity initiatives (e.g. holidays for disadvantaged children, investments in school facilities, transport for elderly people, lobbying for improved treatment of waste by local companies in line with its initiat- ives, contributing to positive legislation change in support of society, surpassing national and inter- national employment rights and conditions, innova- tion in childcare or part-time mothers’ conditions of work, etc.).
taking positive action to make improvements that would take it to level three. (See also Box 6.1.)
Companies operating at the highest level, societal, do exist: companies are increasingly obtaining public recogni- tion and visibility for their positive corporate actions. For example, in the UK, Business in the Community (BITC) has a PerCent Standard (formerly the Per Cent Club, started in 1986), which is awarded as a voluntary benchmark to companies donating at least 1% of pre-tax profits to com- munity/social benefits. In 2002, 122 companies reporting to the standard invested a total of £854.7m. This demon- strated a significant increase from £303.37m in 1999.
Box 6.2 gives the full details from the BITC survey for 2004. From 2007 the PerCent Standard, which has run for over 20 years, was replaced with a new measure by BITC: the CommunityMark. The CommunityMark was launched with an initial 21 member companies which met the 5 principles (see www.bitc.org.uk/communitymark/
five_communitymark.html). See also Box 6.2. It is import- ant to note that in the UK there is a legal requirement that any donation over £200 has to be recorded in a company’s end of year annual report and accounts (the financial statement to shareholders).
When considering CSR it is important to make a dis- tinction between corporate activities that are intended to contribute to the society and charitable acts or philanthropy (see Activity 6.1).
Activity 6.1
Business impact on society
Identify, name and describe a company or organisa- tion that fits into each of the levels in the ‘stone in the pond’ analogy.
What would those organisations in levels one and two need to do to move towards the third, societal level?
Feedback
You need to consider what changes in ethical busi- ness policy or practice would make a difference to society. It is not enough just to make statements of intent.
to concentrate on working with his foundation, which to date has given grants and donations totalling $16.4 bn (audited financial accounts for 2008).
Although gifts can be turned on and off by the donor, like a tap, there are some benefactors who donate through trusts, which enable the act to be sustained over longer periods of time (e.g. the Rowntree Foundation or the Wellcome Trust in the UK, the John D. Rockefeller Foundation or the Bill and Melinda Gates Foundation).
(See Activity 6.2.)
In recognition of the interest shown by various stake- holder groups – employees, customers and particularly the financial community and investors – it is now common business practice for large and small to medium-sized enterprises (SMEs) to publish corporate literature and brochures giving details of their community activities and CSR. Non-financial reporting on corporate responsibility in annual reports became prevalent in the mid-1990s.
In the UK, for example, BT’s annual review and summary financial statement (1996/7), included a section called
Box 6.2
PerCent Standard results for 2004
In 2004, 152 companies reported their community in- vestment through to the PerCent Standard. Submissions were received from companies in the FTSE 250 and Busi- ness in the Community’s membership. The results found that:
116 companies achieved the 1% Standard
109 companies are members of Business in the Community
56 companies are members of the FTSE100 58 are members of the London Benchmarking Group
6 companies still contributed to their community but made pre-tax losses
35 companies reported for the first time.
2004 total reported community investment was
£934,327,608. This is broken down between:
Cash £604,509,460 (2003 – £496,623,319;
contribution: 2001/02 – £381,280,998; 2000 –
£244,126,127; 1999 – £200,755,733) Employee £60,618,041 (2003 – £44,819,158;
time: 2001/02 – £38,641,240; 2000 –
£28,754,690; 1999 – £25,500,729) Gifts in kind: £195,848,025 (2003 – £263,204,495;
2001/02 – £101,625,924; 2000 –
£41,798,114; 1999 – £35,032,923) Management £73,351,282 (2003 – £50,086,509;
costs: 2001/02 – £42,020,316; 2000 –
£28,777,488; 1999 – £22,332,603).
The 2004 top 10 UK givers were:
Allen & Overy – £12,600,000 Vodafone in the UK – £10,514,160 Co-operative Group – £8,124,661 Procter & Gamble – £6,628,933 Sainsbury’s – £6,069,143 Allied Domecq – £5,761,900 BSkyB – £5,054,631 GWR Group – £5,033,145 KPMG – £4,270,234
John Lewis Partnership – £4,166,803 The top 10 in absolute terms were:
GlaxoSmithKline – £144,290,400 Altria – £128,150,272
BP – £50,123,223 Unilever – £45,780,905
Royal Bank of Scotland – £40,100,000 Lloyds TSB – £36,680,000
Barclays – £32,821,803 HBOS – £29,392,310 BHP Billiton – £25,941,192 Anglo-American – £24,158,000
The 21 initial businesses to achieve the Commun- ityMark at the launch in September 2008 were:
Axis, Barclays, Blackburn Rovers Football & Athletic Club, BT, Contract Scotland, Deloitte, Design Links, Elementus, Ernst & Young, GlaxoSmithKline, HBOS, Heart of Midlothian Football, KPMG, Marks and Spencer, PricewaterhouseCoopers, Rangers Football Club, RWE npower, Sainsbury’s, Tesco, The Town House Collec- tion, Zurich Financial Services (UK).
Source: Business in the Community (www.bitc.org.uk)
Chapter 6 Community and society: corporate social responsibility (CSR) 103
‘Why we are helping the community: we’re all part of the same team’. Within the report BT stated that:
It is increasingly clear that businesses cannot regard them- selves as in some way separate from the communities in which they operate. Besides, research has shown that the decision to purchase from one company rather than another is not a decision about price alone.
The practice has evolved to such a degree that com- panies now produce specific corporate responsibility reports.
For example, O2 (formerly part of BT) is a Europe-wide mobile telephone company that launched its first corporate responsibility report in 2003.
Business case for corporate social responsibility: why be socially responsible?
Organisations in developed economies are today influenced by public opinion, shareholders, stakeholders (who can be shareholders, consumers and members of campaign groups) and the political process. Consequently, organisa- tions that ignore their operational environment are susceptible to restrictive legislation and regulation. This is a particular issue in Europe with the increasing power and influence of the European Union, the single currency and the European parliamentary process. Representative bodies for business such as Business in the Community (BITC), CSR Europe, Institute of Business Ethics, Business for Social Responsibility, and the Prince of Wales Inter- national Business Leaders Forum (IBLF) have formed
to help senior managers deal with the demands of varied stakeholder groups. Outside the EU, influencers such as the United Nations (UN Global Compact) are making an impact on business and political decision making.
Is CSR good business practice? On the one hand, many companies profited from unethical practices in the early part of the twentieth century, as demonstrated by the suc- cess of textile and mining industries and more recently with companies manufacturing chemical-based products such as asbestos. Furthermore, Milton Friedman has been the consistent business voice stating that the business of business is simply to increase profits and enhance share- holder value. Friedman (1970) wrote key articles arguing these views in the 1960s and 1970s. Although there are few contemporary academic papers supporting his views, they are frequently cited as the opposing arguments to CSR.
On the other hand, in contrast to Friedman’s views, there are the examples of both old and new companies benefiting themselves, their stakeholders and employees through more ethically based practice. Worldwide ex- amples include Cadbury, Lever’s, IBM, Co-operative Bank and Coca-Cola. Even before corporate responsibility became a boardroom agenda item around the turn of the millennium, there is evidence of its commercial value.
For example, Johnson & Johnson’s chief executive officer, James Burke, demonstrates that companies with a reputa- tion for ethics and social responsibility grew at a rate of 11.3% annually from 1959 to 1990 while the growth rate for similar companies without the same ethical approach was 6.2% (Labich 1992). Furthermore, arguments and evidence are emerging to support CSR’s contribution to the financial performance of organisations (Little and Little 2000; Moore 2003).
CSR can contribute to corporate image and reputation (Lewis 2003; Sagar and Singla 2004). The importance of a good reputation can include the following:
■ Others are more willing to consider the organisation’s point of view.
■ It helps to strengthen the organisation’s information structure with society and therefore improve resources in all areas.
■ It makes it easier for the organisation to motivate and recruit employees – and to promote increased em- ployee morale (Lines 2004).
■ It will enhance and add value to the organisation’s products and services.
A socially responsible reputation is also a way of differentiating organisations and providing competitive advantage. This is supported by announcements from com- panies such as McDonald’s and BT in the UK that they
Activity 6.2
Identifying CSR and philanthropic actions
List examples of what you might consider to be CSR or philanthropic actions by an organisation/company.
Feedback
Can you make distinctions between the two? Think about each organisation’s objectives for the action.
What was the intended outcome? What did it hope to achieve? Was it long term? Was it pre-planned or in response to an individual(s) request?
would be investing more time and resources into soci- ally responsible activities. BT was influenced by a MORI report, which stated that 80% of respondents believed it was important to know about an organisation’s socially responsible activities in order to form a positive opinion about them. CEOs worldwide are starting to recognise that CSR is an important agenda item. Research by the India Partnership Forum (2003) shows that nearly 70% of CEOs say that CSR is ‘vital’ to profitability and that, irrespective of economic climate, it will remain a high priority for 60%
of CEOs across the globe.
A company with an acknowledged strategy change on corporate responsibility and environmental engagement is oil firm Royal Dutch/Shell. During 1998, Shell had its first meeting with institutional shareholders (major com- pany investors, e.g. on behalf of pension funds) to explain the company’s new policies on environmental and social responsibilities. This initiative came following criticism of the company’s action in high-profile environmental issues (e.g. when Shell was challenged by campaign groups over its decision to dismantle the Brent Spar oil platform at sea rather than on land owing to the supposed environmental impact) and human rights cases (execution of human rights activist Ken Sara Wiwo, in Ogoniland, where Shell had a dominant interest).
At the meeting with shareholders, Mark Moody Stuart of Shell Transport and Trading (the company’s UK arm) stated that he did not agree with arguments that institu- tional shareholders were not interested in issues such as social responsibility: ‘I don’t think there is a fundamental conflict between financial performance and “soft” issues.
Many shareholders want outstanding financial returns in a way they can feel proud of or comfortable with.’ (See Think abouts 6.1 and 6.2.)
Picture 6.2 Ken Saro-Wiwa was a human rights activist from the Ogoniland where Shell had a dominant interest (source: AFP/Getty Images)