CSR, Corporate Social Responsibility or a "Corporate Sustainability Requirement" - Royal Dutch Shell - BTST 670 - Chapter 5

Corporate Social Responsibility or CSR, is a positive, meaningful but controversial topic that deserves much attention. Paul A. Argenti, author of “Corporate Communication” defines Corporate Responsibility (CR – another term for CSR) as “constituting an organization’s respect for society’s interests, demonstrated by taking ownership of the effect its activities have on key constituencies including customers, employees, shareholders, communities, and the environment, in all parts of their operations. In short, CR prompts corporation to look beyond its traditional bottom line at the social implications of its business.” I sometimes look at CSR as a “Corporate Sustainability Requirement.” In the past, when CSR was still gaining popularity (or becoming necessary), it was a way an organization could distinguish itself from the rest. Today, CSR is more of a norm; that if nonexistent in an organization, the potential for sustainable success is limited.

From my experiences working as a Credit Analyst for Strategic Energy (now Direct Energy), CSR is a facet of a company’s operations that isn’t always evident from the analysis of financial statements, credit ratings, or necessarily the financial savvy of company executives. An organization that practiced CSR, as defined by Argenti, was often viewed as a better client, per se, than a similar company with a similar financial and credit rating. The logic is simple: if the actions of a company are socially responsible in the viewpoint of customers, an end user may choose to purchase a product or service from that responsible company, thus increasing revenue, brand recognition, and reputation of that organization. If an individual feels as though CSR is important, decides to work for an employer that is a CSR enabler, this socially (or morally) responsible individual will fit into the culture, believe in what the company believes in, and work harder as an employee to accomplish company goals. For shareholders, it’s obvious that the primary motivation for an investment is; based on that investment, what the return will be given the level of associated risk. A corporately responsible company may be viewed as less risky, but with an expected return level that is comparable to a similar company financially that may not necessarily be very socially responsible – this gives an arbitrage opportunity for gains (for a given level of risk, a certain return is expected; anything beyond this return expectation at that particular risk level is an arbitrage opportunity). Communities and environment go hand-in-hand when it comes to CSR. If a Multinational Corporation (MNC) decides to add a branch in a community (that may not necessarily want them there) it is their duty and obligation to act in a corporate socially responsible manner in that community. For example, if the Corporation doesn’t care about the environment in that community, how would they expect that region to respect them enough to become customers, supporters or employees? They can’t. On a more positive side, that MNC could bring more job opportunities, community development and economic stability.

A real-world example of a corporate socially responsible company is Royal Dutch Shell (though it may seem like an oxymoron – “This oil company is corporate socially responsible”). Shell is actually ranked number three in Fortune’s “Global 500 Rank” (http://money.cnn.com/popups/2006/fortune/g500_accountability/3.html). This article highlights Shell’s level of CSR. “…its CSR process has led to a program to help relocate communities in China whose access to water have been cut off by a petrochemicals plant. Shell has also sunk significant investment into liquefied gas as an alternative fuel to gasoline and has been an active trader on Europe's carbon emissions markets. But as many may expect, Royal Dutch Shell wasn’t always considered and advocate of CSR. In 1995, an Ethical Consumer Magazine article shows this lack of CSR. It talks about how in 1995, “the anti-corporate backlash” reached its highest point. That year, Shell was accused of involvement in the execution of Ken Saro Wiwa and eight other activists in Nigeria. They were also being pursued by Greenpeace over their decision to sink the Brent Spar oil platform in the middle of the sea. That pursuit led to future decisions by Shell to undergo on-shore disposal options, as favored by Greepeace and its supporters.
(http://www.ethicalconsumer.org/CommentAnalysis/Features/CorporateSocialResponsibility.aspx). In that time period, Shell lost the confidence of the public and also investors; but only temporarily. This era opened the eyes of many in the business world, bringing the realization that public reputations are very important; and campaigners have the ability to damage them. The article emphasizes that strategically, it was essential that companies persuade the public that corporations played “an important and meaningful role in society.” Shell became the first major company to publish a Corporate Social Responsibility report in 1998 based on Shell ‘Profit and Principles – Does there have to be a choice? The Shell Report 1998’.