As the practice of corporate social responsibility (CSR) is being embraced by more companies, there is a great appreciation of its role in building corporate value.  While well-known management thinkers, such as Michael Porter, have written about CSR as part of a firm’s competitive advantage, it can also be a key mechanism for building corporate value.

A reflection of this understanding by some of Canada’s corporate leaders was evident in a a recent article in the Globe & Mail (October 12, 2009).  Gordon Pitts interviewed two corporate titans who commented on corporate social responsibility:  Paul Desmarais Jr, Chairman and co-CEO of Power Corp of Canada and Charles Sirois, Chairman, CIBC. 

Desmarais commented that CSR has captured a lot of attention over the past decade for two reasons.  First, “society’s eagerness to scrutinize and criticize behaviour is stronger than ever and is continuing to escalate.”  This trend has grown with the evolution of the stakeholder approach to corporate activities; companies have obligation to various groups that are impacted by their actions. 

Milton Friedman’s famous “custodian of wealth approach,” articulated in 1970, that corporations exist only to make a profit is long out of fashion.  In fact, many companies routinely integrate community commitments into the mission and vision statements.

Secondly, Desmarais noted that “reputation risk has become a much bigger factor in corporate valuations.  You’ve got to be a lot more attentive than ever before.”  Just ask Nike.  Not long ago Nike was being tarred with accusations of exploited sweat shop labourers producing high-priced shoes.  The company could not sit idly by.  Phil Knight needed to launch a serious and expensive counter-offensive to safeguard the value of his brand.

The second corporate leader interviewed was Charles Sirois.  He noted that while the main goal of a corporation is to be profitable, it has to be looked at on a longer-term basis.  He explained that a company should take the approach of an “owner” who is involved for the long term rather than that of an “investor” who is treating the shares of the company as a commodity.

Sirois explained that the “owner’s perspective is you need to maximized return over a longer-term basis and for this you need to be socially involved.”  Of course, the challenge in Sirois’ position is for management to maintain this long-term perspective despite the demands of shareholders and even other managers who seek shorter-term gain.

Sirois further explains that, “Creating value not just for yourself but for the society around you is a key element of building value for your corporation.”  Sirois’ approach reflects the importance of CSR as part of the value-building process for a corporation.

The comments of these two corporate leaders, Desmarais and Sirois, are reflective of a clearer understanding that CSR is vital to the value building process.  Not only are these companies doing good, but they are helping their own objectives.  As Michael Porter has written, CSR has great potential to be a competitive advantage; but it won’t be for companies that don’t embrace the opportunity.