The Fundamentals of Socially Responsible Business

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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Sustainability is a hot button topic today. Even venture capital firms are betting on corporate social responsibility (CSR), as the broader topic is called. People are building on, and buying into, the premise that businesses are part of society and have a responsibility to create a better future.

If you’re starting a new business and intend to base it on a socially responsible model, it will pay you (literally) to fully understand the concept. You should also know, though, that some people don’t like the idea. Keep reading, and we’ll help you understand both sides of the story and offer five tips for starting a socially responsible business.

What Is Corporate Social Responsibility and Sustainability?

In Corporate Social Responsibility: Making Good Business Sense, the World Business Council for Sustainable Development defines the strategy as, “…the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large.”

One of the key themes of social responsibility is support for practices that meet the needs of the present without jeopardizing the future—sustainability. A business strategy based on sustainability is designed to balance profit, people, and planet (economic, social, and environmental) demands to create a desirable “triple bottom line.”

But general agreement on what sustainability really means doesn’t exist yet. Indeed, some environmentalists consider sustainability an oxymoron because, to them, sustainability and development are contradictory.

The Argument in Favor of CSRs

“Doing good” seems desirable, in principal, but is it a worthwhile business model? Although linking profits to abstract variables is tough, a meta-analysis of 52 studies concluded, “...corporate virtue in the form of social responsibility and, to a lesser extent, environmental responsibility is rewarding in more ways than one.”

Market forces, researchers found, don’t penalize companies that are high in corporate social performance, and the strategy can have a distinct positive impact on market analysts, public interest groups, or the media. In other words, CSR does find its way to both the triple bottom line and the traditional bottom line.

The Argument Against

Using corporate resources for social purposes is a irresponsible waste of shareholder profits, some experts claim. Indeed, at least one critic thinks CSR is nothing more than socialism with a modern name.

Nobel Prize winning economist Milton Friedman was a vocal opponent of CSR. In a New York Times article he wrote:

“...businessmen believe that they are defending free enterprise when they declaim that business is not concerned "merely" with profit but also with promoting desirable "social" ends; that business has a "social conscience" and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of re­formers. In fact they are—or would be if they or anyone else took them seriously—preaching pure and unadulterated socialism.”

Other critics suggest that even when companies make donations to charity, they’re really just giving away shareholders’ money. Still others claim that CSR helps companies avoid regulations, inappropriately gain legitimacy, and wheedle their way into markets and the minds of decision makers. Some cynics even suggest that CSR lets businesses create bad solutions to social and environmental problems and then shift the blame to consumers—it’s easier to spin than to change.

How Do You Start CSR Business?

If you’ve found the argument in favor convincing, you don’t have to have a business idea based on green energy or saving an endangered species to start a CSR. Do what you do best and keep the environment, work-life fit, poverty, healthcare, equality and other issues in the forefront. Be honest and transparent.

1. Decide on what you’re going to do. Take a hint from 3M. They started making “cool roofing granules” which are four times more reflective than conventional roofing material so their product reduces heat absorption and, as a result, cooling costs.
2. Educate yourself. You don't have to have a college degree, but you do need to understand who your customers, competitors, and suppliers are. Talk to people who do what you want to do. Even consider working for them to learn the ropes. Join industry associations, and learn everything you can from them.
3. Create a business and marketing plan. Most entrepreneurs can describe their product in great detail, but don’t have a clue who they’re going to sell to, or how. Think through a marketing strategy that defines your target consumer and how you’re going to reach them. The important part of your plan is the thinking, not the document.
4. Find money. Your best bet is savings, friends and family, bank loans, “angel investors,” and formal venture capital sources—in that order. You might even find a grant. Finding Money Advice, a website I helped create, has the essentials.
5. Execute. Businesses usually fold because owners and managers fail to execute. Great ideas are a dime a dozen, but success is the result of making them happen.

CSR Business Plan Considerations

It’s difficult to differentiate yourself merely with CSR. The barrier to entry is low; anyone can claim social responsibility.

• Your CSR efforts have to be aligned with your business or you will be seen as insincere.
• Consistency is crucial. Don’t send mixed messages. Most of all, practice what you preach. You can’t claim environmental friendliness, for example, and pollute at the same time.
• Make sure your CSR strategy is feasible. Walmart, with low prices and narrow margins, didn’t lobby for higher minimum wages out of social responsibility; it was a competitive strategy to make it harder on the Mom & Pop stores they compete against. Instead, they promote their efforts to “go green” by cutting energy costs and pressuring suppliers to be more fuel efficient. Some would say both seem predatory. You don’t want to go there.

Finally, follow the William James Foundation socially responsible business plan competition. They work with entrepreneurs at the idea and early venture stage to build social and environmental goals into their business. As they put it, “there is no business to be done on a dead planet… By encouraging entrepreneurs who can both create their own success and show others financially viable paths to a more sustainable world, the William James Foundation is creating opportunities around the world for individuals to support for themselves, their loved ones, their community, and their planet at the same time.”