“You jump, I jump!” Is the answer as simple as that?
Kim, Oi Mei Kuok
Member, Executive Council,
Macau Institute for Corporate Social Responsibility in Greater China (MICSRGC)
Companies do not operate in a vacuum. Each is itself a system and operates within a larger system. Companies acquire inputs from the larger system and engage in production and operations processes in their own system to produce goods or provide services.
As members of the larger system, companies are affected by the external environment. By the same token, companies also affect the environment of the larger system. One point of view of corporate social responsibility (CSR) argues that companies must take up the obligation to carry out CSR in a way to clean up or minimize the adverse impacts that may be brought to the system.
The external environment for a company refers to both the general environment (political, legal, demographic, economic, sociocultural, technological and global) and specific environments (governments, customers, suppliers, competitors and pressure groups). All these external environmental forces affect the operation, performance, competitiveness, profitability and even survival of companies. They (especially the specific environments) are also important drivers to force and/or influence a company to perform CSR activities.
Governments of different countries have started to establish more laws related to CSR practices. In other words, companies have no choice but comply with these laws if they want to continue their business operations legally. For example, the Americans with Disabilities Act of 1990 requires companies to provide jobs and allow all their public and private places that are open to the general public to be more accessible to people with disabilities. On the other hand, India was the first country that changed its company law in 2014 and required companies with annual revenues above 10 billion rupees to spend 2% of their net profit in the preceding year on CSR activities. These are examples of mandatory CSR practices if companies choose to do business in these countries. There are laws related to human and environmental issues in other countries too. In conjunction with rules and regulations, governments may also use some soft means to motivate CSR practices. For instance, besides working as a model in hiring employees with disabilities, every second year the government of the Macau SAR awards both outstanding employees with disabilities in different firms and their employers. All these moves are to motivate more employers to accept and hire people with disabilities.
Besides the government, customers are also an important force in terms of their purchasing decision and power. CSR activities undertaken by a company influence the buying decisions of customers. Clutch, a Washington D.C. based research and consulting firm conducted a survey on the impact of CSR on buying decisions and concluded that “People expect more responsibility, action, and accountability from businesses and tend to shop at companies that share their values…. It’s important for businesses to demonstrate social responsibility and take stances on current social movements.”
Nowadays, many customers are willing to pay a bit more to buy from brands that engage in CSR. For example, Danone Mexico was able to develop customer loyalty through donations to charitable organizations for needy children based on the volume of sales. With loyalty developed, customers would not easily shift to buy from Danone’s competitors even when they offered substantial discounts of up to 40%.
For customers deeply concerned about CSR, they do not simply care about a company or its brand name but its whole supply chain. When Apple’s partner Foxconn’s poor working environment and conditions led to cases of employee suicide, and when the outsourcing partners of Nike using child labor in sweatshops in Indonesia and Vietnam were exposed, all these behaviors touched the nerves of customers. When customers urge companies to exhibit proper CSR behavior, they as corporate customers in turn encourage or influence their suppliers to engage in CSR practices too. For example, Walmart influenced the CSR behavior of its suppliers by announcing a program to encourage its global suppliers to achieve a goal of reducing total packaging by 5% from 2008 to 2013. Subsequently, Walmart also announced new plastic packaging waste reduction commitments with its suppliers in 2019. Cosmetic and skin care giant L’Oreal considers its global suppliers as part of its social and environmental footprint so the company develops its own standards to select suppliers based on these CSR issues.
Pressure groups are another force in the broader environment that influence a firm’s CSR practices. Pressure groups, or interest groups, are groups of people who share a common interest, and they join together to take various action such as lobbying, boycotting or viral marketing, in order to influence the decisions made by companies or governments. Greenpeace is one well-known pressure group that aims to expose environmental problems, and developing a green and peaceful future for mankind and all creatures on this planet. Greenpeace confronts any system that threatens the environment, be it a government or a corporation. Its actions alert public awareness and together with the general public, they urge corporations to correct their behaviors. An eye-catching example was after Greenpeace released its Toxic Threads report in 2012, which disclosed that many retailers, including fast fashion brand Zara, were selling items contaminated by both nonylphenol ethoxylates and toxic amines. Inditex, the parent company of Zara responded quickly by pledging to remove the various kinds of hazardous chemicals from its products by 2020.
Regarding competitors, Professor Pistoni from University of Insubria, Italy, and her colleagues conducted research on the drivers of CSR and found many managers agreed that practices followed by competitors in the same industry is another external driver for their companies to engage in CSR practices. CSR becomes another battleground for competition in business. For example, both Danone and Nestle aim to reduce greenhouse gas emissions in the coming decades. Danone aims to cut carbon emissions in its supply chain by 50% between 2015 and 2030 while Nestle aims to achieve zero net greenhouse gas emissions by 2050. The “Let’s build their dreams” campaign of Danone in Mexico encouraged customer loyalty, and the Creating Shared Value program of Nestle in India, Brazil and Thailand assisted small local farmers technically and financially which led to improvement of both quality and quantity of their supplies to Nestle. CSR has emerged as a new battleground for companies to gain competitive advantage.
Suppliers are the external force that has the least power to influence companies to comply with CSR practices. However, without their cooperation, it is impossible for companies to be truly socially responsible because the majority of companies currently source their supplies and outsource their production processes all over the world. The case of Mattel recalling millions of its toys because its contracted manufacturers made the toys with lead paint demonstrates the importance of CSR awareness and the practices of suppliers.
The above-mentioned drivers in a specific environment do not merely force or influence a company to perform CSR activities, but they can motivate a company to carry out CSR activities which have complementary effects on each other. CSR engagement leads to win-win situations for those in the external environment and for those companies that have jumped onto the CSR bandwagon.