One of the most important lessons to emerge from the recent failure of several prominent financial institutions is the realization that many business organizations have yet to understand the real nature and power of practicing corporate social responsibility, according to Sirota Survey Intelligence (www.sirota.com), specialists in stakeholder attitude research, consulting with organizations on leadership and management practices, including CSR programs.
“Corporate social responsibility, or CSR, is the idea that a company must broaden its perspective from one that is focused primarily on profitability to a more inclusive viewpoint that considers the social and environmental implications of its acts,” said Michael Meltzer, Chief Executive Officer of Sirota Survey Intelligence. “CSR is the realization that shareholder value may be diminished or even destroyed over time by a singular focus on short-term profitability and increasing the earnings of executives.
“Clearly, the leaders of these failed financial institutions lacked an understanding of the value – in fact, the power – of this broader perspective, despite their sterling records of charitable contributions and activities.”
One of the hallmarks of a strong CSR program is the recognition that acting responsibly is in an organization’s best self-interest, at least if the goal is long-term business sustainability, Meltzer said.
“A strong CSR program is based not on philanthropy, but rather on creating productive relationships with stakeholders who represent different social and environmental concerns, which, in turn, can and should be aligned with the mission of the business itself.”
Meltzer said that many companies believe they are engaging in corporate social responsibility, when, in fact, they are simply missing the point.
“Often, a so-called CSR program finds expression in acts of philanthropy and other ‘good deeds,’ rather than in a fundamental shift in the way a business looks at itself and how it interacts with key stakeholders around the world. But, this is a misstep, albeit often an innocent one. Responsibility is not simply about doing good deeds that may be quite unrelated to the business itself; it is mostly about the actual conduct of the business and the impact of this conduct on all stakeholders.”
In the current financial crisis, many financial institutions failed to consider the needs and interests of their key stakeholders, Meltzer noted. “Instead, they confused real responsibility with the performance of philanthropic acts.
“Building a truly responsible and sustainable company requires appreciating the needs and interests of all stakeholders, and aligning the organization – and its profit motive – with those needs and interests.”
“Real corporate responsibility stems from the realization that organizations and their stakeholders are dependent on each other. It’s in their mutual interest to build partnership relationships with each other. Implicit in such productive relationships is the consideration of the long term consequences and implications of an organization’s behaviors. Short-term thinking is destructive to a relationship that should be based on mutual trust and building joint value.”
Had the failed entities been truly responsible, they would have considered the interests of all those who had a stake in their business, Meltzer said, including for example:
- Investors, who expected to receive a profit from investing in the company
- Employees, who counted on the company for employment and career opportunities.
- The many communities around the globe in which the companies did business and which supplied companies with both talent and customers
- Customers, many of whom financed home purchases with mortgages and expected their lender to act prudently and with a long-term vision in mind
- Taxpayers around the world, who will now foot the enormous bill for the bailouts.
“A culture of responsible conduct is driven by leaders who recognize that in the 21st century, success will require them to speak to the needs of all stakeholders. This is not corporate altruism – it is the path to sustainable, value-creating business organizations.
“When CEOs worry only about the next quarterly report and their own compensation packages, they create a culture of irresponsibility that no code of conduct or amount of philanthropy can remedy,” Meltzer said.