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Making a case for a corporate conscience

By James R. Rubin,

The big idea: When does corporate social responsibility (CSR) become an integral way for companies to engage stakeholders and build or maintain trust in the company?

The scenario: To be sure, reporting compliance is not a bad thing. In Europe, where CSR reporting became widespread before it caught on in the United States, CSR reports included financial performance, a company’s policies toward its employees and the community as well as impact on the environment. Still, at a time of too much rather than too little information in reports and Web pages, advertising and multiple messages in multiple forms, how can we gain a sense of commitment to CSR?

Communication and CSR managers describe an arch over the past 15 years from corporate philanthropy to “issues management” to, ideally, when CSR becomes an expression of corporate culture and values. Business ethicists R. Edward Freeman, Jeffrey Harrison and Andrew Wicks have described how managing for stakeholders can create value. Michael Porter, the business strategist, has recently given currency in that discipline to the notion of “shared value.”

At Coca-Cola, for instance, the notion of shared value takes on a specific resonance. Coca-Cola is, of course, one of the most famous and iconic of global brands. At the same time, through local bottlers, Coca-Cola is involved in communities around the world. In the issue of future or current access to arable water, sustainability takes on a double meaning — environmental responsibility as well as a sustainable source for the main ingredient of the company’s product. Coca-Cola has taken its global involvement with water seriously for some time, working with NGOs to find solutions and making commitments to replenish water the company uses. It also protects sources of water, using treatment plants, to ensure the water the company uses is treated to a high standard before being returned to communities.

The resolution: Coca-Cola’s commitment goes beyond this. Peter S. Green on Bloomberg.com describes how Coca-Cola has gathered data to an extent that it can predict stress on water supplies up to 2095. An online instrument, Aqueduct, developed by Coca-Cola, the World Resource Institute and Bloomberg.com, allows other companies to share this data and test the water risk of a plant. In Institutional Investor magazine, Beatriz Perez (Coca-Cola’s chief sustainability officer) and Mindy S. Lubber point out that a majority of large global corporations report exposure to “water-related” risk. A third of these corporations say this comes with financial consequences. When CSR is taken seriously in terms of financial impact, we are far removed from old-fashioned corporate philanthropy.

Managers at Coca-Cola relate that CSR has become a substantive part of the company’s way of thinking about its business, not a separate activity. It is a way to engage consumers and other stakeholders, a way to build shared value and even for employees to act as advocates.

The lesson: CSR, itself, becomes sustainable when it is directly related to a company’s business. Yes, there is “a business case” for CSR. Yet, another lesson might be, through the lens of business strategy, that management practices such as communicating with stakeholders, ethical behavior and building brands standing for organizational values also be seen as central to business.

— James R. Rubin

Rubin is assistant professor of business administration at the University of Virginia Darden School of Business.

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