Corporate social responsibility: burdens and benefits of ethical management

In recent years, we often hear about corporate social responsibility, and the debate around the concept of ethical business is as relevant today as ever. It is, however, a very broad topic and not always entirely clear, to consumers as well as to entrepreneurs.

The growing focus on the responsibilities that a company is believed to have to society and its surroundings calls for an in-depth reflection on the ethics-business pair. The questions are many, and prominent among them are: why and in what situations are companies required to carry out ethical conduct? How can such ethical behaviors coexist with the goal of maximizing profits? What are the benefits for those who lead an ethical enterprise?

Philosopher Fernando Savater has defined ethics as

“the practice of reflecting on what we decide to do and why we decide to do it”.

You are about to discover how this can and should be applied to a business and, specifically, to your startup.

What is meant by an Ethical or Socially Responsible Enterprise

The first thing you need to be clear about is what is meant by ethical or socially responsible business; to do this, however, you need to know what Corporate Social Responsibility, often abbreviated as CSR, is.

The European Union, in 2011, defined corporate social responsibility as the “responsibility of companies for their impact on society“.

ethical enterprise

According to what is also indicated by the European Union, an ethical or socially responsible business can be understood as a business that meets the needs of the customer while managing the expectations of other stakeholders (from staff to suppliers, through the local community of reference), creating values (both tangible and intangible) that are win-win for the business itself and the people involved in it, for the territory and the environment.

In practical terms, for the company, this translates into the application of several principles, such as the principle of sustainability (based on the conscious and efficient use of the environment’s resources, the enhancement of human resources and contribution to the development of the local community, as well as the ability to maintain the company’s own economic development over time) and the principle of transparency (which involves listening to and dialoguing with all of the company’s stakeholders).

To better understand what corporate social responsibility entails for your startup, it is useful to refer to the theoretical model called Carroll’s Pyramid, which explains the meaning of CSR by identifying four levels of responsibility.

Carroll’s pyramid

At the lowest level of Carroll’s pyramid is the economic responsibility of the company, i.e., the organization’s focus on the goal of producing profits: this is a fundamental responsibility, a necessary prerequisite for the other levels of CSR to prove possible, as they can ensure employment and, therefore, social welfare.

Moving up the pyramid, the second level one encounters is the legal responsibility of the enterprise to society, understood as its compliance with laws.

At the third level is ethical corporate responsibility, which focuses on corporate behavior in line with norms that, although not prescribed by law, are shared and considered desirable by society on a moral level.

Finally, the last level, which is at the top of the pyramid, is that of corporate philanthropic responsibility, an area in which those behaviors that are not expected, but appreciated by society, fall.

Define corporate values

Guiding a company’s decision-making processes and operations, as you already know, are its corporate values. Defining them in the right way, therefore, is vital.

Keep in mind that there are many options available to you: you could focus your attentions on supporting your local community of choice or you could act with the primary goal of safeguarding the environment or, again, aim to improve the well-being and health of your employees.

Find your core corporate values and ensure that all your employees are aligned-a valuable tool in this regard is your code of conduct.

Create a code of business conduct

You need to think of your startup’s code of conduct as a kind of written rulebook in which you set out guidelines on how to behave in the company, useful both to you and, as already pointed out, to your employees. Not only that: the business code of conduct should also be shared with customers and suppliers, so that they can know what your intentions are as an ethical business. Be careful not to overlook one very important aspect: only make promises that you know you can keep.

There is, of course, no standard code of conduct that applies to all businesses and in every case: there are many factors to consider and they also depend on your startup’s industry. It is possible, however, to identify some aspects that, in general, are relevant for different types of business.

The workplace

The welfare of your employees and their good health are very important: among the aspects you must take care of if you want to operate ethically, therefore, is the way you treat your employees, which must be fair and equitable.

The community

Taking care to avoid inconveniencing the local community by taking care to eliminate or minimize air and noise pollution is another great way to operate ethically. The contribution your startup can make to the community, however, can translate into many other actions. A few examples? Trivially you could decide, where possible, to source only locally the raw materials and supplies needed for the business and to hire only local staff. Another possible alternative is to consider sponsoring a local sports club.

The environment

Considering the impact a company has on the environment has now become a categorical imperative for anyone running a business. Indeed, attention to eco-sustainability is at an all-time high today, both among consumers and investors. To act in this direction you can, for example, reduce waste and waste or promote green mobility.

Suppliers and customers

In addition to taking care to purchase raw materials and resources locally to support the community, it is important to ensure that the suppliers you choose also meet ethical standards. The relationship with customers must also be handled properly: for an ethical business, this translates into a relationship that is as personal and transparent as possible.

Employees

We have mentioned it before: in order for a company to truly operate ethically, it is necessary for all employees to do their part by understanding and complying with the company’s social responsibility provisions.

Be prepared for (sometimes) difficult choices

Carrying on an ethical enterprise also means having to make difficult choices: remember that your business values and the code of conduct derived from them must guide your actions, and this may also mean having to forgo economically convenient choices in order not to fail in your social responsibilities. In order for this to be clearer, an example may be helpful: as mentioned above, you may find yourself having to give up buying from suppliers with low ethical standards, albeit more convenient for you and your business.

Ethical enterprise: the benefits for the company

So far we have talked about what you need to do to operate ethically; now it is time to understand why you need to do it, that is, to explore the benefits that an ethical business achieves through its way of operating.

The benefits, net of the difficulties in measuring and quantifying the impact on business of supporting ethical management practices, are several: first of all, aided by the growing attention on the issue, more and more customers are paying special attention to making their purchases from ethical companies. Moreover, a good reputation in this regard helps to create a pool of loyal customers and, through positive word of mouth, increase customer base.

Even those who have to invest in a startup, nowadays, pay special attention to the way various companies perform. You should know, in fact, that investors use so-called ESG (Environmental, Social, Governance) criteria to measure the sustainability performance of companies and assess whether, precisely on the basis of this, a particular startup or company is worthy of receiving financial support.

Running a socially responsible business also ensures benefits on the employee front: workers, when looking for employment, choose those companies that can assure them fair and equitable treatment. At a time when more and more business owners are complaining of a shortage of staff, this can make a big difference.

Some examples of ethical enterprise

Throughout this analysis it has been repeatedly stated: attention to corporate social responsibilities is at an all-time high today. It should come as no surprise, then, that there have been awards and recognitions for companies that stand out for their standards regarding ethical business practices for several years now. The most important in this regard is Etisphere’s World’s Most Ethical Companies, which has been compiling the list of the world’s most ethical companies each year since 2007.

The evaluation process behind this ethical certification includes more than 200 questions in several areas (culture, environmental and social practices, ethical activities, governance, diversity, and initiatives in support of a strong value chain).

This is, as mentioned, a worldwide recognition, with 135 organizations receiving awards in 2023: in Italy, the only company to receive the award was illycaffè (it received the recognition 11 times). The company has published its code of ethics online, which runs to 23 pages and opens with a quote from Ernesto Illy, dated 1976:

“The function of the industrial enterprise is fundamental and inalienable, but the economic perspective alone cannot suffice to legitimize the operation, as it must be integrated with respect for people, the community and the environment”.

Among other international companies honored by Etisphere in 2023 are Aflac Incorporated (U.S.), Ecolab (U.S.), International Paper (U.S.), Kao (Japan), Milliken & Company (U.S.) and PepsiCo, Inc. (U.S.).These companies are the only ones to have been awarded “World’s Most Ethical Company” every year for 17 years, which is since Etisphere introduced this award.

Final considerations

Before concluding our analysis on the concept of ethical business, it is necessary to make a further reflection: adopting ethical entrepreneurial conduct entails incurring costs that, in some cases, can even be significant, against an economic return that is difficult to quantify, especially in the short and medium term.

Today more than in the past, however, public attention and sensitivity to corporate social responsibility impose other assessments, not limited to the profits that can be achieved in the short term. The preceding analysis of the benefits (economic and otherwise) that an ethical enterprise can enjoy, therefore, must be framed within a broader perspective and based, inevitably, on the long term.