Leading the way to corporate responsibility

By Prof Darren Hanson

Corporate Social Responsibility (CSR) is one of those buzz-phrases that most people have heard but few actually know the meaning of.

There are at least 37 definitions of CSR, most of which include to varying extents the managing the environmental, social and economic impact of business operations and the treatment of stakeholders, and doing so beyond legal requirements.

Perhaps due to the difficulty of defining CSR as an organisational goal, companies have not embraced it as much as they have the potential to do. Many see it as a euphemism for charity, at conflict with profit goals.

However, quite apart from moral and ethical considerations, CSR also makes legitimate business sense.

Why CSR is important for business

Like all other social institutions, businesses are contingent on the policies of governing bodies, which may in turn be influenced by other groups such as labour unions and activists. Working in tandem with rather against these social forces has been shown to be profitable for many businesses in the long term.

One type of CSR that has gained considerable publicity is environmental CSR. Measures that reduce the inevitably negative impact of corporations on the natural world or even try to reverse it promote the long-term sustainability of both the human race as a whole and of businesses as a subset of this whole. This is especially true for companies that draw on finite natural resources, such as forestry, oil or coal.

Less discussed but equally important is CSR that protects corporations’ relationships with stakeholders such as the community and employees. Benefits from having such policies include boosting reputations and helping corporations gain recognition, which could in turn be good for business and maximise shareholder value. Having harmonious social relations with key stakeholder groups smoothes possible frictions between business operations and these groups, reducing the odds of resistance – in the form of strikes or protests, for example – which could otherwise result in inefficiencies.

Despite the apparent interests of companies in integrating CSR with business strategy, however, this is rarely successfully carried out in practice.  The importance of corporate leadership in reversing this trend cannot be overstated.

Management style and CSR

Leaders are the driving force for change in any organization. A small but growing body of research is shedding light on how corporate leadership and corporate responsibility intersect, and the findings are intriguing.

Leadership theorists have attempted to categorise leaders’ management styles into broad categories, including for example transformational, charismatic, and transactional leadership.

Transformational leaders are able to create a collective vision and inspire positive changes in their followers, and can thus revolutionise an organisation’s culture. While transformational leaders are often charismatic, charismatic leaders may attract people to their visions with their personal magnetism and charm, but these visions do not necessarily involve employee-motivated change.

Both transformational and charismatic leadership styles stand in contrast to transactional leadership, which encourages compliance not through the leaders’ personal qualities, but rather through rewards and punishments dispensed according to followers’ performance. Hence, transactional leaders often prize compliance to policy above all.

Studies have drawn certain links between certain management styles and the effectiveness of CSR initiatives.

Both transformational and charismatic leadership are associated with more internalised, institutional CSR. As CSR often involves ethical issues that have no obvious link to short-term profit, leaders that are able to appeal to employees’ personal moral values understandably are more likely to be able to enact changes in behaviour across the company’s culture.

On the other hand, transactional leadership may result in closer alignment of CSR policies with the organisation’s goals. Hence, while employees in companies led by predominantly transformational or charismatic leaders may believe more passionately in CSR initiatives and hence carry them out more enthusiastically, transactional leadership can help ensure adherence of CSR policies and behaviour to the objectives set out by the company, which may be a more efficient, if rigid, way of achieving organisational goals.

Which leadership styles are most effective for a company’s CSR goals depends on many factors, such as the company’s size and resources, nature of the CSR goals, and company culture. Better knowledge about the relationship between leadership and CSR can help leaders to adopt and develop management styles and behaviours that are best suited to achieving their CSR goals, hence resulting in more effective CSR.

Conclusion

As decision-makers who have the power to direct a company’s policies, leaders undeniably have a pivotal role to play in laying down policy, as well as in ensuring the achievement of objectives by inspiring employees to work towards them.

While leadership theories are broad generalisations that may not encompass the unique circumstances of every organisation, increased knowledge and training on leadership for CSR would undoubtedly help corporations more effectively achieve CSR goals that are in line with company interests.

Darren Hanson is the leadership professor at the National University of Singapore and until recently the head of the Centre for Strategic Leadership at the university.  Darren can be reached on LinkedIn here.

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