Our Partner, Co-Head of Corporate Advisory, Compliance & CSR Kari Lautjärvi, was interviewed in Tebatti column of Talouselämä, the Nordic region’s largest and Finland’s only weekly business magazine. Below is a translated excerpt of his article.
Corporate Social Responsibility is too often regarded as a mere constraint on the operation of a company, as charity or, at best, as reputation management. Corporate Social Responsibility should, however, be the core of business strategy for all companies, writes Kari Lautjärvi.
The nature and legitimate position of limited liability companies’ Corporate Social Responsibility is the subject of ongoing lively and value-based debate. Corporate Social Responsibility issues are sometimes seen as mere constraints on the operations of a company, as charity or at least as reputation and risk management.
Too seldom it is considered from the viewpoint of a company’s possibilities, its innovations and competitiveness. Corporate Social Responsibility is a part of the business strategy realized by the management. It is also linked to the Limited Liability Companies Act.
Added Value to the Surrounding Society
In economics, Corporate Social Responsibility has generally been regarded as a central part of the company’s business strategy.
University Professor at Harvard Business School, Michael E. Porter, and researcher Mark R. Kramer, has introduced the concept of Creating Shared Value.
This model suggests that companies could generate added value in a way that also produces value for the surrounding society. First, companies can reconceive their products, services and their markets by taking the true needs of the society into consideration. In which case, shared value is created by new innovations.
Productivity can also be redefined in the value chains of companies for, at least in the long run, social problems will create economic costs in the value chains. A third mechanism of creating shared value is enabling local cluster development. These clusters can comprise educational and research facilities as well as the development of infrastructure.
Is Complying with Norms Enough?
Does Corporate Social Responsibility legally require anything other than complying with norms? Does being more responsible help or hinder the achievement of the company’s objectives?
Complying with norms is usually seen as a pivotal part of Corporate Social Responsibility. However, it is generally not an adequate measurement of real responsibility.
National and international norms and regulations of Corporate Social Responsibility include issues of equality, work, the environment, competitiveness, consumers, crime and taxes as well as fundamental and human rights. International organizations have developed several guidelines and standards for the self-regulation of Corporate Social Responsibility.
The management of a company or, in practice, the CEO and the board of directors, is responsible for the implementation of Corporate Social Responsibility. Company’s economic, social and environmental responsibility is concretized when the management makes decisions concerning investments, contract agreements pertaining to production chains or tax planning, as well as issues regarding personnel, customers and consumers.
Part of the Limited Liability Companies Act
Corporate Social Responsibility is clearly linked to the general principles of the Limited Liability Companies Act. Particularly, the part which states that it is the job of the management to advance the company’s interests by operating carefully. This, in turn, is directly linked to the purpose of generating profit and the continuity of business.
The provision of the Limited Liability Companies Act stating that a company’s purpose is to generate profit does not indicate that the company should make as much shareable profits as possible in the shortest possible time. Instead, generating profits is examined in the longer term.
This, combined with increasing the value of shares, requires complying with socially-acceptable approaches, even in situations in which the law does not compel the company to do so. Moreover, the public image of the company can affect the value of the business and its shares.
Ethical Investing on the Rise
The ethical and moral acceptability of a company’s actions modify the definition of Corporate Social Responsibility.
Companies’ efforts to comply with the requirements of Corporate Social Responsibility are affected by the markets and stakeholders. Shareholders, investors, customers, partners, employees and media are paying ever more attention to the responsibility of companies as well as their reputations.
Investors often highlight Corporate Social Responsibility when choosing target companies. In particular, human rights issues and environmental risks have great influence over the willingness of investors to finance companies. Risks raise the price of investments. The significance of ethical and responsible investing is more and more important in the financing of companies.
In order to secure a company’s continued profitability, as required by the Limited Liability Companies Act, the management must also take sustainable development and the various aspects of Corporate Social Responsibility into consideration in the development of the business operations.