Corporate Social Responsibility Done RightThe Motley Fool
October 3, 2007
When he was the U.S. Secretary of Labor during the Clinton administration, Robert Reich garnered a reputation as a bulldog for employee rights. Among his many pro-worker initiatives were increasing the minimum wage and pushing for the Family and Medical Leave Act. So when his book Supercapitalism: The Transformation of Business, Democracy, and Everyday Life came out earlier this month, I'm sure many fans of corporate social responsibility (CSR) were eagerly waiting to read about their views on corporate good being affirmed.
How disappointed they all must have been.
Reich dashed the notion that corporations have a debt to society. His basic conclusion was that government should make the laws and corporations should work within those laws to make the most profit possible, without regard to whether the corporations' activities are "good" or not.
But in some ways, Reich's view discounts one simple fact: Consumers are increasingly aware that the impact of their product purchase goes far beyond the cash register. A major study published in The Stanford Social Innovation Review found that the socially concerned consumer segment reaches nearly 50% with regard to products such as tennis shoes. It's clear that this consumer segment is a force to be reckoned with, and several major corporations have yielded to that reality.
A sampling of CSR done right
If we approach CSR from an environmental standpoint, we can include Wal-Mart (NYSE: WMT) among the companies that are changing their ways. Yes, that's right, I said Wal-Mart. The megaretailer has made great strides in becoming a green giant on Wall Street.
But is the company's heart in the right place? Well, see what you think of CEO Lee Scott's comments in a USA Today article from around this time last year: "We asked ourselves: If we had known 10 years ago what challenges we would face today, what would we have done different ... [what] struck us was: This world is much more fragile than any of us would have thought years ago."
Whether or not you believe that Scott's sweeping moment of social awareness was genuine, it's irrefutable that some of Wal-Mart's CSR-friendly moves have paid off. By installing low-energy LED lighting in its stores, the company is not only eliminating 35 million pounds of carbon dioxide production annually, but it will also realize $2.6 million in yearly savings. In addition, the company recently began paying more attention to selling ecologically friendly products to its consumers.
Another company making headway in CSR is American Apparel. A unit of Endeavour International (AMEX: EDA), American Apparel is best known for its plain tees and dazed looking models. Despite paying factory workers more than $12 an hour at its downtown Los Angeles factory, the company has managed to rapidly expand. Maybe the maker of trendy garb doesn't turn as much profit as it could if its factory were in China, but it could be argued that the loss in margin is made up for in volume, as throngs of socially aware college kids flock to the store. Indeed, the downtown L.A. factory is more than a marketing ploy that takes the American in its name to the max. According to the company, the advantages of staying home include more cost-efficient market-test runs and quality controls, which help save costs elsewhere.
In crafting its Ecomagination unit, General Electric (NYSE: GE) has also done an amazing job in CSR -- so much so that Ecomagination has almost become a ubiquitous symbol for the entire company. Do a simple Internet search, and you'll clearly see that GE has reaped untold reputation and brand-enhancement rewards from launching the ecologically conscious entity.
And it's not only the image enhancement that has the company excited. After all, who do you think installed the LED lights in Wal-Mart's stores? It amazes me that competitors such as Honeywell (NYSE: HON) haven't started a more public and concentrated outreach of their eco-friendly offerings, given that GE recently reported that it expects $50 billion in future revenue based on present commitments.
Something for everyone
Many CSR proponents often take the view that being socially responsible is "just the right thing to do," regardless of the capital loss. Many opponents, meanwhile, say CSR is a wasteful use of shareholder capital. However, as the companies we've discussed here have shown, CSR initiatives don't have to negatively affect the bottom line or function as lame marketing initiatives aimed at appeasing dissidents or lawmakers. When done wisely, CSR can be a boon to profits.
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