Why Companies Can No Longer Afford to Ignore Their Social Responsibilities Ed Freeman / Getty Images In 1970, the economist and Nobel laureate Milton Friedman published an article in The New York Times Magazine titled, "The Social Responsibility of Business Is to Increase Its Profits." In the article, he referred to corporate social responsibility (CSR) programs as "hypocritical window-dressing," and said that businesspeople inclined toward such programs "reveal a suicidal impulse." Even four decades ago, at a time of growing public concern for the environment, his views represented the general skepticism and contempt with which many in Corporate America viewed CSR. Times have changed. There remain company chieftains who take a Friedman-esque view, of course, but many more have made CSR a priority. Ten years ago, for instance, only about a dozen Fortune 500 companies issued a CSR or sustainability report. Now the majority does. More than 8,000 businesses around the world have signed the UN Global Compact pledging to show good global citizenship in the areas of human rights, labor standards and environmental protection. The next generation of business leaders is even more likely to prioritize CSR. According to data released this month by Net Impact, the nonprofit that aims to help businesses promote sustainability, 65% of MBAs surveyed say they want to make a social or environmental difference through their jobs. Today, amid a lingering recession that has dented corporate profits and intensified pressure from shareholders, companies are devising new CSR models. Rather than staffing a modest CSR department - and slapping it on the org chart as a small offshoot of the public relations (PR) or philanthropy division - many companies are instead trying to embed CSR into their operations. Some blue-chip companies, such as Visa, are creating new markets in the developing world by closely aligning social causes with their overarching corporate strategies. Others, such as Walmart, have made ambitious commitments to sustainability as a way to save money and tighten their supply chain. (MORE: The Corporate Tax Rate Is Lowest in Decades; Is Business Paying Its Fair Share? "CSR is an old-fashioned idea that needs to be upgraded," says Eric Orts, professor of legal studies and business ethics at Wharton and director of the school's Initiative for Global Environmental Leadership. For companies to take CSR seriously, it has to be integrated into the DNA of the enterprise. Companies need to say: "We want to make money, sure, but we also care about our effect on society and the environment. And that comes through in the kinds of jobs we provide, the kinds of products we make and the ways in which we use resources."" Ignore CSR at Your Peril One of the biggest criticisms leveled against CSR is that companies only care about it for marketing purposes. CSR is merely a buzzword embraced by corporations because they "should." "For most companies, [CSR] is PR," according to Ian C. MacMillan, professor of innovation and entrepreneurship at Wharton. It looks good. It sounds good. It's the "right" thing to do - and it gets the media out of their face." These days, corporate motivation seems almost beside the point because of the significant business risks to ignoring CSR. Consumers and other companies are likely to shun firms that develop unethical reputations. And arguably, companies that don't pay attention to their ethical responsibilities are more likely to stumble into legal troubles, such as mass corruption or accounting fraud scandals. Quite simply, companies care about CSR because their customers do. Consumers, by and large, are a self-motivated and self-interested lot. But numerous studies indicate that a company's CSR policies increasingly factor into their decisions. For example, a survey by Landor Associates, the branding company, found that 77% of consumers say it is important for companies to be socially responsible. "There's a heightened awareness of the need to be, and to be seen as, a good corporate citizen," says Robert Grosshandler, CEO of iGive.com, which helps consumers direct a percentage of their online purchases to support charities. And in the Electronic Age, where information about a given company's environmental record and labor practices is readily available - and readily tweeted and retweeted - companies must pay careful attention to what their customers do and say. "In the Information Age, customers have more access to information," says Grosshandler. They're more educated. They're no longer hidden from how their food is produced or how their iPods are made. And, because of things like social media, like-minded people more easily find each other, have their say and effect change. There's a level of transparency that wasn't there before. CSR is also a way to attract and retain talent. In a global workforce study by Towers Perrin, the professional services firm, CSR is the third most important driver of employee engagement overall. For companies in the U.S., an organization's stature in the community is the second most important driver of employee engagement, and a company's reputation for social responsibility is also among the top 10. According to a Deloitte survey conducted last year, 70% of young Millennials, those ages 18 to 26, say a company's commitment to the community has an influence on their decision to work there. The Millennial generation has seen a lot of natural disasters, political disasters and corporate disasters. They think the world is screwed up," says Kellie McElhaney, who is the faculty director of Haas" Center for Responsible Business. They feel personally responsible, and they feel empowered to create change. Bottom of the Pyramid The global financial crisis has not been kind to CSR departments. While data on precise numbers of CSR positions is hard to come by, sustainability practitioners say that many companies have scaled back in recent years (although CSR has not been cut disproportionately to other cost centers). Partly as a result of the crisis, some companies have refined their approach to CSR by more closely relating social causes to their core businesses. This approach, according to Jerry (Yoram) Wind, a Wharton marketing professor, interprets CSR as "socially responsible capitalism.... At the company level, the business objectives need to be to both maximize shareholder value in the long term and to address society's biggest problems," says Wind, also the director of the school's SEI Center for Advanced Studies in Management. " This requires having any CSR initiative be an integral part of the business strategy and not a separate department.