By Boyd Neil
National Practice Director, Corporate and Financial Communications
Hill & Knowlton Canada

It should be unnecessary after so many years of the corporate responsibility (CR) "movement" to have to jump to its defense and provide arguments for why CR makes a difference. But the harrumphing of the critics has started again, this time under the pretext of determining whether our wretched global economy will cause companies to re-think CR actions and investments.

In a rather dismissive piece, Stefan Stern of the Financial Times writes from Davos, "Thank goodness, now the recession’s here we can forget all that nonsense about corporate social responsibility (CSR) and get back to trying to make some money." In Canada, we have our own naysayers including journalist Terence Corcoran who took the opportunity at a recent panel on CR (reported in one of Canada's national newspapers) to affirm his belief that the only responsibility of business is to make money for its shareholders.

Detractors like Stefan Stern and David Henderson (author of Misguided Virtue: False Notions of Corporate Social Responsibility) also seem unwilling to recognize a connection between the lapses in ethical judgment of some senior executives and the idea that "profit" at any cost – without the filter of some moral or ethical framework (a basic tenet of corporate responsibility especially as it relates to governance) – can be a precursor to greed. Look at what unrestrained greed has wrought today.

More often than not, the critics of CR programs use ideology rather than evidence to back up their arguments. They ignore books like Lynn Sharp Paine's exhaustive study of the financial benefits of responsible conduct called Value Shift (Sharp Paine is the John G. McLean professor of business administration at Harvard Business School), or a study published in December in MIT's Sloan Management Review called “Does it Pay to be Good?“

In particular, the conclusion of the latter study about consumer behavior and sustainability, completed last fall by two professors at Canada's Ivey School of Business, is that "Yes, customers will pay a premium for ethically produced goods. Conversely, they will punish companies (by demanding a lower price) that are not seen as ethical. The punishment exacted is greater than the premium customers are willing to pay. Companies need to be 100% ethical to be rewarded."

In a comment on my blog post on which this piece was based, a Washington-based colleague, Chad Tragakis, also pointed out that “If you need more proof (that CR is here to stay), just look at A.T. Kearney’s new report that shows that throughout the recent turbulent economy, sustainable companies—those focusing on long-term strategy, those with strong governance, and those with sound risk-management practices—outperformed their peers.”

A.T. Kearney’s study of 99 companies called “Green Winners: The Performance of Sustainability-focused Companies in the Financial Crisis,” found that “(I)n 16 of the 18 industries studied, companies committed to sustainability outperformed industry averages by 15% over the six months from May through November 2008. From a market capitalization perspective, this superior performance averages out to $650 million in protected market capitalization per company.”

The existence of high profile critics and the state of the economy means the question has to be asked again: Will there be a step back from good governance, social engagement, committed citizenship, defense of human rights, product innovation driven by environmental concerns, willing social and environmental problem identification and resolution, and efforts by companies to control their GHG emissions.

Maybe we should expect some retrenchment longer-term on investments (i.e., in alternative energy given the lower costs of resource commodities), as well as some recalcitrance among consumers to pay more for higher priced but sustainable products. Perhaps we will even see an increase in corporate opacity as companies try to re-work short-term business strategy to meet current conditions.

But will there be a wholesale flight by companies from responsible conduct and sustainability initiatives? I would argue no. Why would companies set aside years of building reputation capital (an intangible with enormous financial value) for a short-term retreat from responsible conduct? Why would senior executives look on now as an appropriate time to set aside public concerns, when trust in many of them has eroded even further over the past six months and led to precipitous government and regulatory action? Why would companies want to ignore what has been learned over the past few years about how eco-efficiency can actually drive cost savings, while “doing good”?

On the contrary, there may be stiff challenges to reputation capital from those who don't take care to act responsibly given today’s watchful and annoyed publics, itchy regulators and increasingly activist shareholders. And there may be eco-efficiency savings missed and market opportunities for sustainable products neglected.

The implication is that now, more than ever, people who recognize the reputation and business benefits of corporate responsibility must challenge the regressive ideologues. To paraphrase Tragakis, as long as there are skeptics who dismiss the economic, social and performance benefits of corporate reputation, then those of us who are in a position to do so “must continue to prove them wrong.”