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Corporations need to be socially responsible to build their "reputational capital"
The burdens of responsibility
Jun 25th 2004
From The Economist Global Executive
A new book on corporate social responsibility fails to persuade
For all the burgeoning popularity of corporate social responsibility�the art of "doing well by doing good"�its benefits remain unproven. It is all well and good to say that a globalising company needs to take account of social problems in its new markets, or that social responsibility will be its own reward, in happier employees, lower legal costs and improved productivity. But at heart, for many companies, corporate social responsibility is still just a matter of branding, and a murky one at that. Look at McDonald's and the Body Shop, for example. The former is still a target of consumer derision and lawsuits despite its introduction of healthier food. The environmentally friendly reputation of the Body Shop, on the other hand, has long outpaced its actual investment in eco-friendly processes.
"Building Reputational Capital," by Kevin Jackson, a professor of legal and ethical studies at Fordham University in New York, argues that corporations need to be socially responsible to build their "reputational capital," which is similar to, but bigger than, any brands they might market. A company with lots of such capital will be able to attract better employees, charge higher prices, negotiate better deals, attract more investors and "get[s] cut more slack when a crisis hits".
But how much control does a firm actually exercise over its own reputation? The examples Mr Jackson gives are not entirely encouraging. Nike, a favourite target of activists for its treatment of sweatshop workers, appears several times; but Mr Jackson does not elaborate on whether a drop in its reputational capital cost Nike any sales. Later he spends several pages discussing how Royal Dutch/Shell was widely criticised in the early 1990s for supporting the Nigerian government against the Ogoni people, and how Shell later tried to turn its reputation around�without impressing its critics one whit. Mr Jackson does cite studies showing a positive correlation between a commitment to a ethical behaviour (which is more limited than "corporate social responsibility") and performance. But his examples do not make as powerful a case for the necessity of corporate social responsibility as he would like.
Indeed, a firm that embarks on a plan of corporate social responsibility may be setting itself up for a worse, not a better, reputation. Mr Jackson cites the example of H. B. Fuller Company, an American adhesives manufacturer that had built up reputational capital by declaring its intention to be a good corporate citizen and making philanthropic donations. But it was blamed when one of its products, Resistol, became the drug of choice for glue-sniffing children in Central America. Other competitors whose glues were sniffed, he notes, got little criticism: "acting good, and advertising it, made H. B. Fuller vulnerable to being made an example by child advocates, shareholders, plaintiffs, and the news media." One can see how a company with a strong commitment to corporate social responsibility might elicit the same charges of hypocrisy�and similar companies might then decide that corporate social responsibility might be more trouble than it's worth.
Anyone who has already embraced the idea of a socially responsible corporation might well find this book useful; it, alongside "Compassionate Capitalism," provides a decent framework for implementing and justifying a socially responsible strategy. But there are many who, like The Economist (see article), question whether corporations should be investing in social initiatives at the possible expense of profit. "Building Reputational Capital", while well-written and serious, will not convince them otherwise.
More on Corporate social responsibility from the Economist:
What does corporate social responsibility really mean?
Corporate social responsibility (CSR) blossoms as an idea
Corporations need to be socially responsible to build their "reputational capital"
Corporate social responsibility is all the rage - does it mean anything?
Anglo-Saxon corporation: case study for Corporate social responsibility
Reebok: case study for Corporate social responsibility
CORPORATE SOCIAL RESPONSIBILITY (CSR) Policies
The world according to CSR
Companies that merely compete and prosper make society better off
Good corporate citizens, and wise governments, should be wary of CORPORATE SOCIAL RESPONSIBILITY
Source: The Economist
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