Corporate social responsibility has been added to the growing list of demands that investors, customers and employees present to companies.
In 2015, 81 percent of Fortune 500 companies published sustainability reports, up from 20 percent in 2011, according to a report released by the Governance & Accountability Institute in June. Companies are publicizing their ethical standards and responsibility efforts, and consumers are punishing companies that appear to fall short. Even as headlines proclaim "greed is back," companies are investing time and resources into instituting more ethical practices.
Why is there such dissonance?
As is so often the case these days, businesses are taking cues from millennials. This generation (currently 18-35 years old) represents more than a quarter of the U.S. workforce — and this amount is expected to grow to over 50 percent by 2020. They will account for a third of retail sales in the same year. Businesses not thinking about how to interact with this generation are in serious trouble.
So how do millennials think about corporate social responsibility — or CSR?
A 2014 Nielsen survey showed that millennials are significantly more responsive to CSR in both consumption as well as employment decisions. Of those surveyed who would pay a premium for sustainable products, verify packaging and choose a company with a higher CSR reputation as employer, about half were millennials. These millennials are choosing to spend their resources — be it time or money — on organizations that appear to represent a set of values.
With their significant buying power, millennials are placing huge demands on companies to respond with genuine CSR strategies.
Where can companies start in building out this strategy?
As millennials look for companies that focus on a triple bottom line (people, planet, profit), companies are looking to millennials for guidance. CSR actions should align with a company's values, brand proposition and business model but, at the same time, the company must listen and respond to its constituents.
A key element for any successful CSR strategy is corporate communication. In the early days of CSR, corporations relied heavily on traditional media, delivering their message through advertising. Many did not institutionalize CSR as a separate business activity, relying on the marketing and public relations functions instead. Millennials, however, are far less responsive to press and TV ads and must be engaged differently. In scientific terms, their "BS meters" are very finely tuned. As so-called digital natives, this generation looks to social media to both consume and influence information and opinions. Peers are a trusted source; the official company flack is not.
What's more, as opposed to traditional advertising, which is unidirectional, social media is a more delicate instrument where companies receive real-time feedback from their audience. Millennials expect to have their opinions listened and responded to, meaning that companies need to engage in more two-way conversations with their constituents. Establishing a communication strategy that is both consistent and practically nuanced to respond to changes in the environment is a difficult but necessary process for companies to go through.
Overall, millennials are more demanding, more in touch and more skeptical. Brushing these off as cynicism is too simplistic. It puts the onus on organizations to show that they are not simply paying lip service to CSR, as consumers will sniff out and publicize anything that smells of hypocrisy. What's more, it has resulted in companies adapting to — or at least learning valuable lessons about — being more responsible entities.
A recent example is Perdue Farms, one of America's largest poultry companies. In response to the growing demand, particularly from millennials, for cruelty-free meat, Perdue is changing its chicken breeding operations. Working alongside the Humane Society, Perdue has made massive changes to its farming processes, including reducing the use of antibiotics, providing more natural light and changing the way animals are slaughtered. Jim Perdue, chairman of Perdue Farms, has said that increased sales should compensate for the increased costs. He is confident that by going along with what Perdue's customers want, the company will be successful. This way of conducting CSR is a direct response to what consumers saw as a problem.
A proactive approach involves building CSR into the culture of a company, something that many millennials look for as both employees and consumers. This approach can and should also add to the bottom line. Scott Moorehead, CEO of TCC, one of Verizon's largest retailers, said: "The commoditization of wireless retail stores meant we needed to do more to differentiate ourselves in order to grow a loyal customer and employee base." With millennials accounting for 85 percent of its workforce, TCC started the Culture of Good program to engage its employees. Among other things, employees are allowed 16 hours per year of paid time off to devote to volunteer efforts. In 2015, the company donated $1.2 million to employee-led charity efforts. Such a policy fits well with two of the major requests from millennials: empowerment and the ability to affect local communities. The company says the result has been higher employee retention and satisfaction, as well as an increase in customers.
TCC and Perdue were successful in different ways in responding to millennials' need for CSR efforts. Both as consumers and as employees, millennials want more from companies. On the company's side, CSR efforts should not be undertaken simply to be the good guys. In keeping faith with investors and creditors, these efforts should be genuinely beneficial to the organization. Not all efforts to implement CSR strategies have been successful in this. American Apparel learned that even the best of intentions in the realm of CSR could be derailed by simple economics.
CSR is arguably at the very core of American Apparel's business model. The company produces its products in the U.S. and offers competitive pay and benefits. Studies of millennials' preference for buying local indicate that such a "sweatshop-free" model should be attractive and successful in commanding a premium. Faced with the reality of the world after the Great Recession and stuck with its ethical sourcing strategy, though, American Apparel wasn't able to cut costs as aggressively as competitors did and has failed to make a profit since 2009. The company has also heavily relied on a "sex sells" approach to marketing, something that often overshadowed any ethical positioning the company tried to assume.
Other companies have stumbled into unfortunate CSR debacles. Starbucks began a well-intentioned but badly executed social media conversation about race, privilege and gentrification with its #RaceTogether campaign. Volkswagen is reeling from a 40 percent loss in share price and $15 billion in regulatory fines after its public commitment to sustainability was shown to be a cover for some truly bad behavior. The list of companies goes on. But we still argue that attempts at quality CSR are a vital component of a successful business strategy.
Organizations need to appreciate the degree to which the latest generation joining the workforce is making employment and consumption decisions based on CSR efforts. For a CSR strategy to be successful it needs to be authentic, in line with the brand image and attentive to what the public demands.
In the 1970s, Milton Friedman argued strongly — even convincingly — against CSR, considering it a form of taxation exercised on shareholders, consumers or employees by managers who had no legitimacy to do so. This argument relies on the premise that CSR initiatives imply negative net contributions to the bottom line. If we consider, instead, that well-executed CSR strategies lead to customer acquisition, increased sales, employee satisfaction, better teamwork, higher productivity, while lack of CSR can lead to disaster, Friedman's argument fails miserably today. The rise of the millennials as a powerful economic force increasingly exposes the fallacy of Friedman's argument.
The think pieces about the millennials have been written, dissected and rewritten. Although each generation bemoans the faults of the following ones, perhaps it's time we give millennials credit where credit is due: They are forcing business to do good while doing well. Companies need to rise to this challenge quickly or risk becoming an anachronism.
Paul A. Argenti