What are the risks of a board that is not committed to CSR?

Henry Ford once said a business that makes nothing than profit is poor. Most successful organizations value triple bottom line , people profit and CSR. It shapes the image of the organization and consequently value creation in the community impacting positively on brand equity.

It is important not to forget that a board over-committed to CSR may also be liable to run afoul of regulations. For instance Disney's internal DEI directives recently (circa February 2024) sparked a federal civil rights lawsuit over alleged hiring quotas of candidates in protected classes. A Board that is well aligned with the values of conducting ethical business while maximizing long-term shareholder growth will be properly incentivized to ensure applicable regulations are observed with or without a particularized focus on CSR.

CSR initiatives have a bigger role in establishing a company's brand and fostering stakeholder trust. A board's lack of corporate social responsibility (CSR) can have detrimental effects on the company's brand, bad press, and public view of it as being socially irresponsible. Investor trust may decline as a result, and there may be legal and regulatory repercussions.

Key aspects in the committment to CSR is to ensure the respect for trade union rights which is a legal requirement in most countries, although alignment with ILO standards, implementation and enforcement of relevant laws varies by jurisdiction. Additional benefits would be possible for projects incorporating credible frameworks for alternative dispute resolution, such as labour-management grievance mechanisms and the National Contact Points for the OECD.

Um conselho que não está comprometido com a Responsabilidade Social Empresarial (RSE) enfrenta uma série de riscos, incluindo: Danos à reputação da empresa: A falta de compromisso com a RSE pode resultar em críticas da comunidade, consumidores e partes interessadas, o que pode prejudicar a reputação da empresa. Riscos legais e regulatórios: A não conformidade com padrões éticos e regulamentações pode resultar em ações legais, multas e sanções governamentais. Impacto ambiental e social negativo: A falta de consideração pelos impactos ambientais e sociais das operações da empresa pode levar a danos ao meio ambiente, comunidades locais e partes interessadas.

Leadership engagement in CSR and CSR built with board input and leads brings a huge amount of impact and value to a brand and its reputation. CSR is authentically and organically grown from top down and bottom up and when this happens the power and impact it has for your brand is immense! It can bring huge amounts of influence across all stakeholders and failing to pay attention in this space is detrimental to building long term and sustainable success in your business and for your brand!

Business is the engine of a society, and a society is made of vulnerable people/customers who depend on said businesses to do the right thing. Boards that do not adhere to CSR have lost their strategic direction and will suffer reputational damage and cascade downwards affecting their financial performance.

Un consejo de administración que no prioriza la RSE puede generar una percepción negativa entre los clientes, empleados, inversionistas y la comunidad en general, lo que resulta en un daño significativo a la reputación de la empresa. He observado cómo las empresas han sufrido una disminución en la confianza del consumidor y han enfrentado boicots y protestas públicas debido a la falta de compromiso con prácticas éticas y responsables.

When a board lacks commitment to Corporate Social Responsibility (CSR), the fallout can severely tarnish a company's reputation. Consider the backlash faced by companies caught disregarding environmental standards or those exposed for poor labor practices. Such negative publicity not only erodes public trust but can lead to a steep decline in customer loyalty and potentially impact sales. In today’s socially conscious market, a damaged reputation can be hard to repair, making a strong commitment to CSR not just ethical but essential for maintaining a positive corporate image.

In the construction sector project owners suffer heightened operational risks when trade union rights are not respected, including business continuity challenges resulting from labour unrest, work stoppages or preventable safety incidents. Project owners benefit from established trade union frameworks by being a workplace of choice, including having better worker retention and less turnover. Other positive effects of good industrial relations can be seen on overall project budgets and delivery, productivity, income, quality, efficiency and safety while reducing recruitment and training costs.

La empresa puede incurrir en un riesgo financiero importante, debido a la pérdida de clientes, la disminución de la lealtad de los empleados, el aumento de los costos de cumplimiento y los riesgos legales. Las empresas tambien pueden enfrentar una disminución en sus ingresos y ganancias debido a la mala gestión de los riesgos sociales y ambientales, lo que resulta en una caída en el valor de las acciones y una pérdida de inversionistas y en pagos de multas sin llegan a incumplir las normativas de la RSE.

Each eligible entity must directly carry out at least one such CSR project in a year which engages the company with the beneficiaries, the employees with the society, the management with the needy, and brings some meaningful impact for all contributors engaged in the process.

Particularly in the case where raising of right issues for the stakeholders buy in, such may be jettisoned and not receive the needed patronage thereby destroying loyalty and commitment

Believe it or not CSR is part of today's organizational strategy. As we move towards 4IR it is imperative that organizations incorporate CSR into ther strategies. Being active in CSR comes with lots of benefits than just profits, organizations build long lasting relationships with communities, sense of belonging and communities will equally protect any organization which they feel being part of. There are many lobie groups in communities which may sway certain legislations towards their needs in order to benefit. Looking after your external forces as an organization is critical in sustainability of any organization within communities hence it is imperative that such efforts need to come through CSR initiatives.

If your board does not commit then this will damage your stakeholder engagement. Leadership has huge influence internally and externally on stakeholder engagement - when engaged it is seen as a business priority and frequently when boards ignore then stakeholders will view it as a box ticking exercise - which to be fair it often is without the board commitment!

Trade union rights are the most effective way for a business to drive a number of related workplace rights, including those around wages, hours, health, and safety. There is also a recognised clear business case for respecting trade union rights, including those related to business risks and benefits.

1. Regulatory fines and legal action: Failing to comply with environmental and social regulations can lead to hefty fines, lawsuits, and reputational damage. 2. Investor backlash and decreased access to capital: Investors increasingly prioritize ESG factors, and neglecting CSR can deter responsible investors and raise the cost of capital. 3. Operational disruptions and increased costs: Ignoring environmental risks like climate change can lead to disruptions in supply chains, operations, and higher costs to adapt. 4. Negative brand image and customer loss. 5. Employees want to work for companies that align with their values, and neglecting CSR can demotivate and hinder talent acquisition and retention.

In country like India CSR compliances are getting stricter day by day and actions are taken against those who are not complying with the regulations. The role of board becomes very critical and if a board is not committed to Corporate Social Responsibility (CSR) and fail to meet regulatory compliance then it can result in legal and financial consequences, reputational damage, and loss of stakeholder trust. Therefore, it is essential for boards to understand and fulfill their regulatory obligations, irrespective of their stance on CSR. Embracing CSR can mitigate these risks while creating opportunities for sustainable growth, innovation, and stakeholder value creation.

One the cases often taught in management classes about lack of CSR commitment and oversight is the one of BP The British oil giant was responsible for the worst oil spill in US history, when its Deepwater Horizon rig exploded and leaked millions of barrels of oil into the Gulf of Mexico The spill caused massive environmental, economic, and social damage, and resulted in criminal charges, civil lawsuits, and hefty penalties for BP The company also faced public outrage and lost trust and loyalty among customers Hopefully this is a thing of the past for BP and an example of the numerous negative consequences of non committed boards to CSR

The responsibility of the board is just not about the finances on the profits of the organisation but it also talks about its engagement towards corporate social responsibility. A board which is not looking at its organisation’s planet profit and people is not actually doing its job. Moreover, there are reputational risks. In the country like India, there are compliances for the board also to ensure the CSR mandate.

In context of India, whether a company is doing CSR with commitment or not, a portion of benefit is gone. Government is not going to spare it. And, I am sure, no board will like to see unticked compliance checklist. Here is the question of missed opportunity. If board is not committed to CSR then it misses the opportunity to get soft advantage of CSR.

There may be traditional business reasons for companies doing this such as pleasing stakeholders and investors, or ticking boxes, but I see it as a moral issue. If you don’t care about your people, your planet or the customers who put their trust in you to do the right thing, you have no place in a future-fit world. Companies that continue to pay lip service to profit over everything will very soon come to realise that there is more to business than just lining their own pockets. The only sustainable future for the whole planet is a just and equitable one.