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What’s in It for the Socially Responsible Corporation?

What’s in It for the Socially Responsible Corporation? By BRAD SMITH Staff Reporter Whether it is known as sustainability or good corporate citizenship, for-profit companies have increasingly tried to meet consumer and investor expectations to be socially responsible, especially after the past decade’s raft of corporate scandal. And on a regular basis, an advocacy group, journalists, or academics will publish a list of the “leaders” in corporate social responsibility, or CSR. Many of the names that appear will be what almost any observer would expect: Green Mountain Coffee Roasters. Johnson & Johnson. Timberland. But Northrop Grumman, the Los Angeles-based aerospace and defense giant? “It depends on how one is defining this thing called CSR,” said Martin Brown, director of sustainable business solutions for New York-based PricewaterhouseCoopers. “If you look at those sorts of things in the broadest sense, say in how a company treats its employees, how the board functions, and how it treats the communities it is in, I’m not necessarily surprised.” Executives at Northrop Grumman, whose operations include the Navigation Systems division in Woodland Hills, were unaware of the company’s inclusion on a list of “The World’s Most Socially Responsible Companies” published this month by Global Finance magazine. But they see it as part of a commitment to employees going back to the company’s corporate ancestors during the WW II era. “We think it is important to land on these kinds of surveys because we need to be good neighbors to the communities where our employees live and where we have facilities,” said Sandra Evers-Manly, Northrop’s director of diversity, equal employment opportunity, and contributions. “Corporate citizenship plays a major role here.” What corporate social responsibility means exactly can be difficult to define, even for experts, but not unlike business ethics the public knows it when it sees it. “The classic example is Johnson & Johnson,” said Arthur Gross-Schaefer, a business law professor at Loyola Marymount University in Los Angeles, referring to the company’s 1986 national recall of the analgesic Tylenol after a product-tampering incident. “In spite of advice from their lawyers and the impact on their stock portfolio, they pulled the product from the entire country,” Gross-Schaefer said. “The result was that consumer confidence skyrocketed and they got back their market share.” Analysts say that although it may take a crisis to move a company toward CSR, some, large or small, simply make it a priority to be socially responsible, for all sorts of reasons. Investors notice “If (it) is purely just a management technique to get more customers, that will backfire because it will be seen as simply lip service and marketing,” Gross-Schaefer said. “But if it is sincere, and the public buys it as sincere, it becomes dynamite.” Developing that sort of culture can be good business, especially given the nature of investment being sought by a business. “The typical investor does not care, but long term investors are caring more and more,” Brown said. “They are not the majority, but there is clearly a trend where the long-term institutional investors care.” Nurturing CSR can be difficult, especially given the demands of business sectors that do not focus on much beyond the next quarterly earnings report. “The CEO sets the tone: that’s critical, that (these issues) are not just important at home or in church, but here at work,” said Gross-Schaefer. “But it is not easy, because we do not generally take the long term view.” The ideals of CSR and “sustainability” environmentally-friendly products, for example can be very attractive to long-term investors, especially those with an ideological bent. Public employee retirement and union pension funds, for example, are very interested in the issues, analysts said. “The attributes of CSR are actually important for the long term, because you are creating sustainable revenue streams not using materials that are not going to be available in ten years,” Brown said. But those types of investors only number about 20 percent of the market, and short-term short-term needs for capital can actually work against CSR initiatives. “The investors who actually drive day-to-day stock prices, who are gamblers basically that are making bets they certainly don’t care,” Brown said. “And if CEO’s or CFO’s actions are being driven by the short-term investors, they’re not going to care.” Employee loyalty A long-term commitment to CSR practices can contribute to employee loyalty and productivity, however. “It is identifiable, but not quantifiable,” Gross-Schaefer said. “What is becoming clearer and clearer is that employees are much more creative and efficient about what they doing when they feel good about what they are doing.” That may come down to a family-run business, like Van Nuys-based Maria’s Italian Kitchen, choosing to provide on-going support to charities fighting autism and child disabilities because of a personal connection. Or it may come down to a CEO and Board that sees matching employee donations to local public schools, like Northrop Grumman, a wise investment. “This is our future workforce, after all, and our people don’t stop being our employees at the end of the day,” said Evers-Manly, of Northrop. “So our employees are very proud of what we do (and) that’s our biggest pay-off.”

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