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“Ethical firms have a better business case”

“Ethical firms have a better business case”
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First Published: Mon, May 21 2007. 04 42 AM IST
Updated: Mon, May 21 2007. 04 42 AM IST
Is corporate social responsibility (CSR) just a feel-good exercise or does it have a direct bearing on business? While research has yet to establish a direct co-relation between the two, CSR enthusiasts argue that companies with a distinct CSR positioning find more favour with consumers, employees and other stakeholders.
N. Craig Smith, senior associate dean, MBA programme and senior fellow in marketing and ethics at the London Business School, is a known CSR advocate. He has done extensive research on marketing ethics, ethical consumerism and social responsibility. According to him, consumers across the globe are becoming more conscious about these issues and their awareness is dictating their purchase decisions, too. Smith recently held a workshop in New Delhi on Marketing in a Strategic Perspective.
In an interview with Mint, Smith discusses the phenomenon. Excerpts:
Of late, there has been a lot of buzz around CSR globally. But have we been able to establish if there is a business case for it?
There may not be hard-core evidence in support of the fact that socially responsible companies are more profitable, still there is certainly a business case for CSR.
There is enough evidence to support the fact that the most important stakeholders in a business —the employees, consumers and investors—give preference to companies that are socially more responsible and respectable. In fact, a survey by KPMG (an audit firm) reveals that a majority of corporate responsibility reports filed by companies across the globe thought being socially responsible led to various economic advantages. Companies that release CSR reports have realized that it helps them create a positive buzz around themselves. It boosts their brand reputation among all stakeholders.
Do consumers really care about socially conscious companies? You have been a proponent of ethical consumerism. But does anything like that exist?
There are various reports and surveys to support the fact that a company’s reputation plays a significant role in consumers’ purchase decisions. Consumers, across the globe, are getting more conscious about issues such as social responsibility and ethics. There have been surveys in the US and Europe that reveal consumers are ready to switch brands in support of those that are associated with a good cause.
The turnover of coffee-beans company Fairtrade doubled between 2003 and 2005— from £92.3 million (around Rs747.63 crore) to £195 million—and analysts attribute this stupendous growth to the company’s commitment to its fair trade practice. A survey by GfK NOP in Europe found that a large number of consumers were ready to pay a 5-10% premium on products sold by ethical companies. The Body Shop is again a good example of a successful and profitable business model built around ethics and social responsibility.
There are consumers ready to switch brands and pay a premium for ethical products and servicesSuch strong examples would suggest companies could use CSR as a strategic marketing tool?
Absolutely. Ethical branding is being used by a lot of firms across the globe as a differentiator. And as I explained earlier, there are consumers who are ready to switch brands and pay a premium for ethical products and services. No wonder, companies such as Marks & Spencer and Tesco are announcing plans to go green and carbon neutral.
Yet, we have cases such as Wal-Mart, or closer home, Coca-Cola and Pepsi, who face allegations such as exploiting their employees or public assets like groundwater. These firms continue to do well.
They will have to change. Wal-Mart has already started making the right noises and so have Coca-Cola and Pepsi. I am told these companies are making efforts to fight the allegations regarding groundwater depletion against them.
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First Published: Mon, May 21 2007. 04 42 AM IST
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