Sampa Ltd is a large local fast moving consumer goods company with many well-known branded products. It imports raw materials for its products from several countries, and all its manufacturing operations are based in Ghana. The financial performance of the company has been declining due to an economic downturn.
The CEO thinks that the economic recession will make all companies focus on profitability and that concerns about corporate social responsibility (CSR) will lessen. He has always held the view that CSR provided some public relations benefits but that it has no effect on the financial performance of companies or their share price.
Required:
Discuss how CSR initiatives by a large public company could contribute to the long-term benefits of the company. (10 marks)
View Solution
- There is almost certainly some element of “public relations exercise‟ in the CSR pronouncements of companies. Given sufficient publicity, CSR can enhance the reputation of a company with its potential customers and its employees. In the long run, this can have a beneficial effect on sales which can, in turn, lead to competitive advantage
- Finding and keeping talented staff
Being a responsible, sustainable business may make it easier to recruit new employees or retain existing ones. Employees may be motivated to stay longer, thus reducing the costs and disruption of recruitment and retraining. - It may also be argued more generally that the CEO appears to hold the „shareholder view‟ of corporate governance – which the primary purpose of a company should be to maximise the profits of shareholders. This view may be challenged, for example, with the „enlightened stakeholder view‟ – that even if the main purpose of a company should be to increase the wealth of shareholders, concern should be shown for other stakeholder groups such as employees, customers, suppliers and society.
- Concerns for matters such as suppliers, communities and employees may help to attract investments from „ethical investors‟ – investment institutions that specialise in making investments in companies they regard as ethical in their behaviour and business activity. If so, this may have some effect in maintaining the share price.
- It keeps your company competitive. When you choose a unique position as a company, and do things differently from competitors it helps your business stand out. This applies to all facts of business, including to social responsibility. Your relationship with society is as important as your relationship with customers. Having a strong vision and connection to a cause that makes a positive impact gives you a competitive advantage.
- Reduce regulatory burden – good relationships with local authorities can often make doing business easier.
(Any 5 points)