Nice Guys Don’t Finish Last

Business_week_jpegsA new survey reveals that international executives believe that there is a very real link between their corporate responsibility and financial success.  While it is still not clear whether or not corporate sustainability actually leads to any concrete benefit, the fact that the executives believe it is promising for continuing CSR initiatives.

It’s still unclear how much a company profits from doing good, but a
new study of international executives shows it certainly doesn’t hurt
business

Posted at Business Week, By
Pete Engardio

It is one of the biggest questions in corporate governance: Is there
really any financial payoff for promoting enlightened social,
environmental, and ethical practices? Or are companies that get the
most attention for doing good merely those that can afford to do so?

An extensive survey of 1,254 international executives (half from the
C-suite; 26% of them chief executive officers) by the Economist
Intelligence Unit on corporate responsibility doesn’t exactly answer
this chicken-or-egg riddle. But it does reveal at least one interesting
finding: The business community clearly believes that such a causal
relationship exists. And that means the interest in social and
environmental concerns is unlikely to abate soon.

Do-Gooders Stay Competitive

Companies that pay the most attention to so-called sustainability
issues, such as climate change or treatment of workers in developing
nations, far outperform those that do not, concluded the study, titled "Doing Good: Business and the Sustainability Challenge." The study was sponsored by several blue-chip companies, including Bank of America (BAC), Orange, A.T. Kearney, and SAP (SAP).

Do-gooder companies that were surveyed saw profits rise 16% last year
and enjoyed price growth of 45%. Companies that rated their own
sustainability practices poorly registered only 7% profit growth and
12% price growth. While not necessarily proving that it pays to be
good, says Gareth Lofthouse, the EIU director who supervised the
survey, "it scotches the idea of skeptics who say that if you adopt
corporate social responsibility practices you will become
uncompetitive."

The EIU did not collect historical data on corporate financial
performance and corporate responsibility practices, so it’s not clear
if last year’s performance was an aberration. But asked to cite the
biggest benefits to the company from sustainability practices, the ones
mentioned most—by around one-third of respondents—were drawing
customers, boosting shareholder value, and increasing profits. Only 6%
agreed with the statement: "No benefit expected beyond compliance with
regulation."

Executives Seek Uniform Regulations

Such belief in a financial-performance link partly explains the
remarkably strong support for a commitment to sustainability, a
buzzword that became common in Europe more than a decade ago but only
recently gained traction in the more bottom line-obsessed U.S. A full
53% of executives surveyed say their companies already have
sustainability strategies of some sort, and another quarter say they
plan to develop one. In other words, only one in five companies say
they have no plan and do not plan to have one. "It is overwhelmingly
clear from this response that senior executives cannot afford to ignore
this issue," says Lofthouse.

What’s more, there no longer seems to be much of a "continental
divide" on key sustainability issues. Roughly 40% of executives in both
Europe and the U.S. said that more regulation is required for key
social and environmental issues. Around half said they prefer voluntary
measures by companies, but agreed that some tougher regulation is
required. Fourteen percent of American execs said no more regulation
was needed, compared to only 10% globally.

Whether the corporate world is motivated more by genuine conviction
or by self-interest is another matter. The main reasons executives
would like to see stronger government regulation, Lofthouse figures, is
that they want greater policy consistency and a better understanding of
what will be expected of them in the future. Currently, environmental
rules in the U.S. can differ radically from state to state.

There also is some evidence that corporations are concerned mainly
about their images. Asked to name the highest priority of their
corporate responsibility programs over the next five years, 61% cited
communicating their practices to investors and stakeholders as either a
"leading" or "major" priority. "That means a lot of companies still
think of this in terms of public relations," Lofthouse says.
Nevertheless, clear majorities also cited reducing environmental damage
from their products and developing products that help reduce social
problems as top priorities.

Engardio is an international senior writer for BusinessWeek
.

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