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The Value of Corporate Social Responsibility

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In response to a demand for sustainable and ethically produced goods, companies of all sizes around the world are integrating corporate social responsibility (CSR) into their business structure as a form of self-regulation. This is especially prevalent for Western companies working in third world countries where only following loose regulations may be perceived as not doing enough. While the debate on the value of CSR for a company rages on, Monika Hartman argues in Corporate Social Responsibility in the Food Sector, published in the March 2011 issue of the European Review of Agricultural Economics, the food sectors impact and dependence on the economy, the environment, and society will make CSR reporting especially relevant.

Hartman highlights that while the ethical argument for CSR is not contested, the economic argument is. The standard neoclassical view of the firm sees CSR as a moral hazard to shareholders, as the firm's only social responsibility is to maximize profits within the laws and regulations of the operation. Critics of this view have begun the search for the economic argument for firms to engage in CSR. Hartman summarizes the breadth of research on the impact of the CSR on financial performance, consumers, employees, and supply chain partners. The evidence is four mathematical meta-analyses that indicate a positive relationship of CSR and financial performance. She states that research has found "doing good does not have to be at the expense of doing well" and thus the question "has been moving from whether to when" firms benefit from CSR.

The impact CSR has on financial performance is generally reported through risk management, enhanced performance ,and brand differentiation. Food companies looking to reduce waste are not only decreasing the cost of operation, they are decreasing their environmental impact. Additionally, Hartman explains that CSR is gaining ground with employees. There is limited evidence that employees who value CSR will accept lower wages if they believe they are working in a socially responsible company. There is also support for the idea that employees stay longer and are more motivated, ultimately decreasing cost of production.

There is mixed evidence about CSRs when looking at how the consumer views the firm. On one hand, Hartman cites research that has found consumers weigh negative CSR information more heavily than they do positive, so only exceptional behavior is valued and rewarded. On the other hand, having a positive reputation helps mitigate negative press. Consumers who believe a company is socially responsible are less likely to abandon the company during a negative incidence. Additionally, Hartman states food companies are operating in highly competitive markets, and research has shown that CSR can provide a vehicle for differentiation.

Whether food companies choose to take a proactive approach to CSR or not, they may be finding pressure to engage in CSR from their supply chain. Nestle, PepsiCo, Coca-Cola, Walmart, and Unilever are all food companies who are supply chain members of the Carbon Disclosure Project. These are large food companies who have made commitments to sustainably sourcing of their products and who are encouraging supply chain partners to participate in the CDP.

Hartman closes by saying that while engaging in CSR can be valuable for a company, the larger the company the more resources there are to commit to it. Small food companies, however, receiving pressure and requests from different customers will incur a relatively high burden. Thus standards are needed in the industry to promote adoptive management, but not push out small-scale suppliers. As food is central to our lives, it is becoming more important for food companies of all sizes "to engage in a more proactive strategy with respect to CSR."



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This page contains a single entry by Sadie Dietrich published on December 6, 2012 12:08 PM.

Hurricane Sandy and the Food Supply Chain was the previous entry in this blog.

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