I remember, in 2018, Patagonia received a $10 million tax cut due to the corporate tax rate dropping from 35 to 21 percent. From a traditional business perspective, this tax cut was a huge advantage, however, Patagonia donated the entire $10 million, stating, “Instead of putting the money back into our business, we’re responding by putting $10 million back into the planet. Our home planet needs it more than we do.”
Patagonia’s decision was so shocking and is still engrained in my memory, such that when I’m preparing for my next backpacking trip, I will always go with Patagonia products because, in addition to the high quality, I know my money is going to a business that is going above and beyond to help the world.
Having a Corporate Social Responsibility (CSR) program, while not required by law, is essentially obligatory for businesses today. Businesses that fail to get onboard will likely experience blowback from consumers and will miss out on increased profitability.
What is Corporate Social Responsibility?
While there is no universally accepted definition, CSR generally refers to a business incorporating internal policies governing how the business impacts the world. CSR is more than just donating money, it “addresses how companies manage their economic, social, philanthropic and environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community and the public policy realm.”
Strong CSR programs typically incorporate three elements: (1) “strong sustained economic performance,” (2) “a meaningful commitment to legal and financial compliance that is supported by robust compliance programs,” and (3) “initiatives, beyond legal requirements, to address social, environmental and human rights concerns, promote candor and fair dealing, and to achieve a balance between private and public interest.”
Examples of CSR may include goals to reduce carbon footprint, improve labor standards, support the local community, and to make socially and environmentally conscious investments. In particular, the investment management industry has seen a huge change, with major firms like BlackRock, Vanguard, and State Street Investors motivating companies to focus on making a positive impact on society, in addition to financial performance.
Why is CSR so important?
Having a strong CSR program is hardly even an option for businesses today – society expects it. I’m not alone in my loyalty to Patagonia; 56% of consumers said they are more likely to buy from a business known for its social values.
Additionally, if you want to attract the best talent, having a strong CSR program is essential. Studies show that 50% of millennials would take a pay cut to work for a business that aligns with their values, and 64% of millennials consider CSR when deciding where to work. Moreover, enabling employees to make a positive impact on the world through their work will undoubtedly lead to greater employee engagement. And, “companies with highly engaged employees achieve 21% higher profitability.”
If the above statistics aren’t convincing enough, businesses with strong CSR programs will further benefit from positive word-of-mouth marketing. Just as I positively mentioned Patagonia, the same is true for businesses that have weak CSR programs or values that don’t align with the public. For example, Chick-fil-A, which has faced major controversy over its opposition to same-sex marriage. That last thing a business wants is controversy over supporting your business.
CSR is not required by law but…
As previously mentioned, CSR is a form of soft law (i.e., not required by law). However, there is a global trend towards requiring CSR, and other laws may be implicated. First, the United Nations adopted the UN Guiding Principles on Business and Human Rights (UNGP) in order to positively impact individuals and communities, while also “contributing to socially sustainable globalization.”
The UNGP defines rights, duties, and causation and applies to all businesses, no matter the size. With an international trend towards making CSR legally enforceable, business owners should not wait to incorporate CSR into their business plans.
Next, other laws may effectively require some form of CSR. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires publicly traded company to report the use of conflict minerals (natural resources extracted in a conflict zone and sold to finance the conflict) and to report statistics on workforce diversity.
Organizational Challenges
A major impediment to effective CSR is buy-in at the executive and board level. This is where a business’ legal advisor or general counsel can help in their role as counselor. Many CEOs or other high-level executives may be reluctant to involve a lawyer in matters that are not technical legal issues, but it is essential for businesses to recognize general counsel as a valued business partner.
With regard to CSR, a legal advisor or general counsel can advise on legal implications, applicable legislation and regulation, complying with voluntary reporting standards, and responding to shareholder positions. A general counsel or legal advisor can also be valuable “when dealing with collateral CSR concerns such as purchasing practices, threats of product boycott, social advocacy and pressure for CEO comments on leading issues.”
Initial Steps
For business owners looking incorporate CSR into their business plans, here are some first steps to consider. First, establish a definition of CSR for your business, looking at how CSR can benefit your business. Next, re-assess the business’ core values, considering how the public will accept (or not accept) your values (e.g., Chick-fil-A). Get input from your customers, CSR is important to consumers, so consider soliciting feedback through social media.
Businesses should also consult employees, starting with a company-wide survey and then meeting to discuss ideas and answer questions. Finally, begin to develop a reporting system to track the CSR program. You may not be able to quantify the impact on the environment/society, but you can establish how the CSR program impacts business performance. For example, if your goal is to reduce energy consumption, you can look at your decreased energy costs.
“If you have the opportunity to make a positive impact on the world while also benefiting your business, why not take it”?
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