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4 May 2005 @ 12:42, by swanny
Towards ‘Responsible Profit’: A New Market Model
Abstract
Few managers would appear to doubt that the role of business is to provide returns to shareholders and increase the value of their investment, drawing on the skills of the workforce. Corporate Social Responsibility (CSR) is emerging as a market factor with businesses beginning to engage in the debate regarding the extent to which CSR should be included in their strategic business decisions. Inevitably, those CEOs and boards of directors to whom CSR does not come as a given, take a pragmatically commercial view which can be encapsulated in the phrase ‘Tell me how big the bang is and I’ll tell you how many bucks I’m going to invest!’ And thereby lies the dilemma facing the CSR constituency, since currently there are no strong direct correlations between good CSR performance and bottom line benefits.
But what does this imply? In the first instance it is necessary to look at the current mode of business operation which has been largely unchanged for at least the last 100 years. It came into prominence around the time of the industrial revolution and follows a concept where companies can generate profits within a free competitive market, with scant regard for the impact of their operations on the environment, staff or communities. For this reason, the last century saw the setting up and expansion of the trade union movement to protect the rights of workers, and the growth of environmental legislation to restrict the damage which companies would otherwise cause. The simplified market model is therefore one of profit-seeking companies whose operations are constrained by legislation. Interestingly, whilst there is a considerable body of labour and environmental legislation to control the on-site operations of a company, there is far less related to the environmental impact of their sourcing of raw materials which can continue to diminish the supply of natural resources available on the planet. Perhaps this is because governments in effect operate their national finances on the basis of Profit and Loss or Cash Flow accounts, rather than a Balance Sheet which would ascribe asset values to the resources within their geographic boundaries. Such a change would at least provide an indication of the extent to which governments were allowing their resources to be consumed. However, this seems to be unlikely in the foreseeable future. If governments are reluctant to act is there any way for companies to begin behaving and assist in securing their future in a developing market?
The foregoing points argue for the development of a market model in which companies embrace the concept of ‘Responsible Profit’, rather than simple financial profit. Extending the concept in this way has the effect of internalising the responsibility aspect of business performance within the business community, rather than it being left to external legislation. With the increasing expectations of governments, investors and customers that large companies ‘should be doing something in the area of social responsibility’, this may be the only way of encouraging companies to make progress on CSR. But why should any company give time to considering such apparently esoteric matters?
Given that the art of strategy is to anticipate trends in the market and to be positioned ahead of them, there are increasingly pressing reasons for adoption of the responsible profit concept. CEOs should be assessing the impact and commercial possibilities of adopting this principle, even if it is considered inopportune to make any move in this direction currently. These questions are just being raised in the US market, urged by President Bush who has started the discussion of what the business principles a 21st century CEO should be adopting. In the USA this will stimulate the discussion, and will inevitably lead to an assessment of the potential commercial advantage for US companies. If the topic should happen to become popular it could be that UK and EU companies could be left behind, as they miss first mover advantage on the market.
Speaker Geoff Roberts
Director,
EcoPartners Ltd
site link = [link]
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Category: Articles
1 comment
4 May 2005 @ 16:20 by : Impact studies
I like the idea that these corporations would begin to examine the impact of their profits, products, decisions, policies and procedures. As we've seen from the pharmaceutical and energy companies, they could care less about gouging their consumers. They invest enormous funds in lobbying so that they have all of the politicians and oversight groups in their pocket. They now have greater freedom to do even more harm as Congress approves legislation to limit law suits against them for their violations. No doubt about it -- Buyers beware and be aware--corporations are out to get everything they can and more.
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