BUSS4 CSR Research Bullet 1

Here are some outline notes for BUSS4 CSR research bullet 1 which may assist students completing their final revision for the Section A essays

The first research bullet asks students to consider the: Potential benefits of CSR relative to costs for businesses & stakeholders

Definitions
Stakeholder: any individual, business, group or organisation affected by the activities of a business
Benefits: gains arising from an activity or decision (e.g. higher sales, reduced costs)
Costs: amounts incurred or losses arising from business activities or decisions (e.g. costs from damage, lost sales)

Key Theory
Shareholder value theory (Friedman): CSR imposes net costs on a profit-maximising business (stifles innovation, growth & efficiency)
Stakeholder Theory: Business has a wider range of responsibilities it should meet, to include internal & stakeholder groups
Creating Shared Value (Porter)
Fortune at the Bottom of the Pyramid (Prahalad)

Potential Benefits of CSR
Meeting consumer preferences
Revenue & profit from selling CSR friendly products & services
Greater customer loyalty & brand recognition from supporting CSR (improved corporate image)
Way of differentiating a product (e.g. sustainably sourced)
Reduced operating costs (e.g. less waste, energy savings)
Greater employee motivation & retention (= lower recruitment costs + higher productivity?)
Better relationship with suppliers, investors (resulting in improved terms, access to finance?)
Reduced risks of business damage (e.g. reputation, accidents)

Potential Costs of CSR
Changes to product design, production, distribution
Higher input costs (e.g. higher price of sustainable supplies)
Monitoring and reporting costs (e.g. supply chain audits)
Lower productivity if CSR means lower economies of scale
Potential loss of focus from profit-maximising activities
Higher taxes and regulation compliance costs where governments seek to influence CSR
Potentially lower short-term profitability

Examples / Evidence
Marks & Spencer Plan A: Estimate of £50m extra profit (20% cut in packaging costs; 19% increase in energy efficiency)
GE (Ecomagination): $70bn of extra revenue in first five years (new products for the green economy)
Unilever (Project Shakti): $100m extra sales by selling to rural Indian communities
BITC: FTSE 350 firms which managed/measured CSR achieved between 3-7% higher shareholder returns
Unilever (global): 15 years of sustainability projects = CO2 from energy down 41%; water use down 65%; total waste down 73%
BT: BT’s commitment to its sustainability agenda has helped it win £2.2bn worth of business in the financial year 2007-2008, up from £1.8bn the year before.
Dow Jones: A.T. Kearney looked at 99 companies who have a strong commitment to sustainability (as defined by the Dow Jones Sustainability Index) and compared their performance with industry averages. They found that In 16 out of the 18 industries studied, companies committed to sustainability outperformed industry averages by 15%

“Depends on” Factors
Extent to which CSR results of CSR activities are effectively communicated (e.g. are potential customers aware)
CSR projects are often complex - result in unforeseen costs and benefits
There are often tensions between commercial opportunities (for profit) and the social impact - how significant are the trade-offs that have to be considered?
Benefits and costs are hard to estimate in advance & are often intangible (e.g. increased/damaged reputation)

Possible Evaluation Arguments
Difficult to research credible evidence on the costs of CSR - firms are reluctant to disclose it
Time-frame: are we measuring over short or long-term
Tangible (e.g. revenues) v intangible (e.g. reputation)
Opportunity cost - what are the implications of businesses NOT taking on their CSR responsibilities
Where CSR activities involves business partnering (e.g. with NGOs, suppliers) - then potential benefits & costs are shared)