Legal Speak: What are the Risks when Executives Don't Understand CSR?

Published: Jan 21, 2011


Last week’s post, "Why Don’t Executives Understand CSR?" prompted me to reflect on the risks to companies where executives claim pride in corporate CSR programs, but don’t really see CSR as a core element of their business strategy.

As a lawyer, it’s hard for me not to talk about risk. I see CSR as critical to corporate risk management, and it worries me when I see companies that state a commitment to CSR, but, in reality, limit CSR to a section on the corporate website and a few standards that no management-level personnel are accountable for implementing.

There is a Business Case for Well-Managed CSR

Why the worry? Many people talk about the business case for CSR, but I qualify this slightly – there is a business case for well-managed CSR. A CSR approach that is not sufficiently integrated into the company’s operations and that very few people, especially at the executive level, actually understand, can present business risks.

What are those risks?

1. Disconnect With Stakeholders

A poorly managed CSR program can diminish corporate capacity to understand the concerns of its stakeholders about the social and environmental impacts of its operations. Companies may think that by stating a commitment to CSR they are somehow responsive to these concerns, and this may preclude the diligent effort required to evaluate legitimate and evolving stakeholder expectations. This lack of understanding is then revealed when corporate contributions to local charities fail to preclude a community from lobbying against company activity.

References to acts of corporate citizenship do not mitigate against the risks associated with a lack of internal commitment to CSR.

2. All Talk, No Action

If CSR is limited to high-level policies and glossy philanthropic reports, few people within the company are actually tasked with assessing and understanding the complex impacts of company operations. Even fewer are developing strategies to respond in both the short- and the long-term.

Many people talk about how to define CSR, but I think it is more interesting to ask "What does CSR do?" and "What is its function within the company?" At its core, I think CSR creates a culture of listening and provides the discipline to know when, and how, to respond to what is being said.

What can companies do?

1. Listen

Companies need to be skilled at listening to a range of stakeholders, including employees, investors, governments, and local communities. They need to develop a strong understanding of stakeholders’ expectations of the company and their concerns about the impacts of corporate activity. Listening is an active process: it requires proactive engagement and seeking out new perspectives, both internally and externally. Giving a voice to stakeholders provides companies with invaluable information and perspectives on how to run their operations, if they are willing to hear what is being said.

2. Respond

If CSR begins with listening, it ends with a management system that is responsive to the information that stakeholders provide. If stakeholder concerns and expectations are not understood--and the company seen as unresponsive--stakeholders begin to take action. Employees leave, consumers shop elsewhere, investors express concern, and communities protest. And perhaps, legislation is passed and lawsuits get filed.

In order to be responsive to stakeholder concerns, a company needs to develop the internal capacity to evaluate these concerns, assess potential responses, and make decisions about corporate strategy. A strong CSR approach requires both active stakeholder engagement and an internal management system that provides the oversight mechanisms and training resources necessary to develop the capacity of employees in many functional areas to engage effectively on these issues.

And this is why executive-level understanding is key.

I’m not saying that executives need to be CSR experts. But they need to understand that CSR, to be effective, is not something that is solely the responsibility of a few people within the company. Without high-level support and oversight, CSR policies are drafted but not implemented, and stakeholders are heard, but not understood.

Ultimately, executives need to understand the relevance of CSR programs to the company’s overall business strategy and to its engagements with internal and external stakeholders, who will always be sole arbiters of its future success.

--By Sarah Altschuller

Sarah Altschuller is an attorney in the Corporate Social Responsibility practice at Foley Hoag LLP. She blogs about CSR and the Law at www.csrandthelaw.com.

Related Reading:

Readers Respond: 5 Reasons Why Executives Don't Understand CSR

And the post that sparked this debate: Why Don't Executives "Get" CSR?