The changing nature of corporate social responsibility
With record inflation, a lingering pandemic, supply chain concerns and sanctions on Russia, can business leaders still focus on corporate social responsibility when so much is threatening their bottom lines? Assistant Professor Justin Ames weighs in.
While working in the commercial space prior to teaching at UM-Dearborn, College of Business Assistant Professor Justin Ames served as an executive who managed companies with $100 million-plus in revenues and hundreds of employees. And the higher Ames climbed up the business ladder, the more he realized the importance of Corporate Social Responsibility (CSR).
“I recognized an extended scope of interests that modern organizations have from multiple stakeholder groups like extended families, community and environment,” said Ames, who teaches business policy and strategy. “I witnessed many executives and organizations struggle to balance the increasing scope of obligations, and it helped me realize that the leaders who figure out how to get this right are the organizations poised to do well in the future.”
Ames now focuses on these social responsibilities in his research — in particular, behavioral ethics within manager and executive populations involved in strategic CSR-related decision-making — and teaches CSR strategy and leadership in the classroom.
“In order to see the social improvements in the world that many of us hope for, businesses will have to evolve to recognize their power and responsibility as social change agents both on a micro level, like having a humanist approach towards individuals, and a macro level, like building organizations that have a positive net value to society.”
But with record inflation, a lingering pandemic, supply chain concerns and sanctions on Russia, can business leaders focus on social responsibility when so much is threatening their bottom lines?
Ames has some answers.
Let’s start with a big question: Have companies put a pause on socially focused initiatives with so much turbulence in the market, employment and possibly to their bottom lines?
Justin Ames: “No. On the whole, I believe these challenges have brought Corporate Social Responsibility initiatives into focus as absolutely critical to business success.
Key to this view is a reframing of what CSR is. CSR is much more than voluntary initiatives like improving community engagement, increasing philanthropy, reducing carbon emissions and adding employee benefits. Think of CSR as an organizational realization that they belong to a larger social system and that they are responsible for how their actions impact that system. From this perspective, CSR is intertwined with business strategy formulation and/or execution at the most fundamental levels, and how it’s managed directly impacts the viability and sustainability of a business.”
Can you give some examples?
JA: “Corporate Social Responsibility Management (CSRM) is realizing how organizational decisions can impact the larger social system and accounting for those implications in business decisions. Using this perspective, an organization trying to develop a response to a workforce demanding higher wage rates and flexible working conditions is engaged in managing CSR. An organization responding to military conflict through the boycott or divestiture of assets in those conflict countries is engaged in the management of CSR. The same with vaccine mandates and COVID procedures. How businesses respond has wide-ranging implications for our larger social system, so it’s important to weigh decisions wisely and fairly with salient stakeholders — that’s everyone from shareholders to customers to employees and beyond — in mind.
The rise of social unrest brings these issues front and center in the boardroom — the initiatives leadership takes to address them are now consuming more management time than ever before.”
So include a wider constituency when thinking about CSR — not just the legal owners and shareholders?
JA: “One notable step in the last few years was the announcement by the 2019 Business Roundtable, which is made up of nearly 200 CEOs from the largest organizations, to redefine the purpose of a corporation to promote ‘An Economy That Serves All Americans.’ That was the first time in history that they officially adjusted their definition on purpose away from a shareholder primacy perspective.
If even the titans of corporate America agree additional stakeholder perspectives are important, now we can progress to putting more energy into discussing how to best execute socially responsible plans, rather than debating whether or not the shareholder is the only concern.”
Why do you think social responsibility is becoming more widely accepted across industries?
JA: “For any business to survive, they need to be able to sustain a competitive advantage. A key dimension of long-term sustainability is gaining the trust of key stakeholders through wise, fair and honest treatment. That’s where CSR comes in.
A failure to honor the legitimate claims of any key stakeholder group introduces an element of risk to your business because it opens the door to sanctions that can negatively impact competitiveness like government intervention, employee turnover, customer dissatisfaction, negative publicity and more. While these risks might be mitigated in the short term, considering the ‘shadow of the future’ is the wiser course when looking to gain a sustainable competitive advantage.”
Educating business leaders, which you do in your classroom, is one way to enhance CSR. What else will it take?
JA: “It will also take a continued increase of collective action from society to mandate more responsible behavior from business. Sometimes this is achieved through formal governance, but another effective way is choice. Society chooses where to work, live, invest and spend. We, as a society, incentivize business — and politicians — through our behavior. That is power.”
Article by Sarah Tuxbury