Why Would a CEO Care About CSR?

By Bahar Gidwani

One of the smartest folks I know—one of my directors when I was at McKinsey—had time to have a cup of coffee with me, last week.  During a chat that covered topics ranging from board practices to roof leaks, I told him a bit about CSRHub and our efforts to encourage corporate social responsibility (CSR) and sustainability.

After a while, my friend sat back and said, “But why would a CEO care about CSR?”  He

continued by pointing out that CEOs have to worry about profits, strategy, personnel …so many things that could push CSR off of her or his agenda.

I could have tried to pull a “study says” answer, and quote him data from a great Gibbs & Soell report.  They estimated that more than 80% of Fortune 1000 CEOs wanted their companies to “go green.”  However, my friend has done lots of studies himself.  He knows they don’t always predict what will happen in real world situations.

I instead offered him my belief that three pressures will force CEOs to understand and evaluate how their businesses are performing, socially:

• License to operate.  If a business abuses the trust of the community it resides in, it can eventually lose the power to operate normally.  Communities can slow down and block company decisions to expand a facility or increase its use of power, water, and other resources.  They can make it hard for a company to hire or fire.  A CEO needs to be sure that her or his company’s behavior engenders support from its local communities.
• Supply chain pressure.  Major companies have put pressure on their supply chains for years to deliver products faster, more cheaply, or with better quality.  Now they are also asking their suppliers to deliver products that are made more responsibly.  Even if a CEO’s company does not have this type of program, his or her company most likely sells products or services to a company that has set out sustainability goals and guidelines.
• Hiring and retention.  In a recent MIT survey, 77% of graduating MBAs claim they would take a lower salary if necessary, in order to work for a company that had a clear sustainability strategy.  In most major companies, attracting, training, and retaining employees is a critically important function.  A CEO who does not encourage her or his corporation to be responsible, could lose key human resources.

My friend’s response was that these reasons are rational.  But, CEOs are often driven more by emotional needs than rational ones.  What could cause them to become passionate about sustainability issues?

At the time, I could only come up with one idea.  I’ve since thought of a second:

• Pride and jealousy.  CEOs track what other competing CEOs do.  They meet their competitors at conferences, envy them when they get awards, and parse their speeches and pronouncements for clues on their plans for the future.  When a competitor gets onto the Dow Jones Sustainability Index, Glassdoor’s Top 50 Places to Work or is near the top of the CR 100 Best Citizen’s list, a CEO may ask her or his staff, “Why didn’t we get that award?”  An answer of “we don’t know” or “who cares about awards” is not going to satisfy a CEO who is proud of her/his company and its performance.
• Children.  I’ve heard several CEOs say that they became interested in sustainability and CSR when their children raised these issues.  Like most parents, CEOs want to give their children a stable, comfortable life.  A CEO should want to leave behind a legacy that her or his children can be proud of.  And, if the CEO’s company is still around in twenty years, it could continue generating job opportunities (and stock market dividends?) that may directly benefit a CEO’s children.

I can’t say that I convinced my friend.  He has seen too many companies with short term orientations and knows too many CEOs whose egos provide plenty of passions stronger than the lure of sustainability.  However, I hope I at least showed him there are some long term trends that may continue pushing CEOs to care about CSR.  I think we could soon see a tipping point—in fact it may already be happening—where CSR awareness and interest becomes the norm and not the exception.

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Bahar Gidwani is a Cofounder and CEO of CSRHub. Formerly, he was the CEO of New York-based Index Stock Imagery, Inc, from 1991 through its sale in 2006. He has built and run large technology-based businesses and has experience building a multi-million visitor Web site. Bahar holds a CFA, was a partner at Kidder, Peabody & Co., and worked at McKinsey & Co. Bahar has consulted to both large companies such as Citibank, GE, and Acxiom and a number of smaller software and Web-based companies. He has an MBA (Baker Scholar) from Harvard Business School and a BS in Astronomy and Physics (magna cum laude) from Amherst College. Bahar races sailboats, plays competitive bridge, and is based in New York City.

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