28 May 2012  Research & Ideas

A Pragmatic Alternative for Creating a Corporate Social Responsibility Strategy

Many companies preach and practice corporate social responsibility, but their efforts often lack an overall strategy that dilutes their effectiveness. Professor "Kash" Rangan and colleagues offer a pragmatic solution. Key concepts include:

  • Many companies preach and practice corporate social responsibility, but their efforts are often disjointed and lack an overall strategy.
  • A CSR strategy should fulfill two goals: create a positive social impact, and enhance the company's brand, reputation, employee morale, and/or its bottom line.
  • Companies should not try to force their disparate CSR programs into their business strategies; sometimes there is a natural fit, other times not.
  • Every company should have a clear idea of why it is involved in CSR and the expected outcomes.

 

Thousands of large, profitable companies have all the right intentions of giving back to society—and yet a sizable number of them have corporate social responsibility (CSR) programs that provide little benefit to either the community or the company.

"Of all the companies involved in CSR, the majority of them are not doing it effectively," says V. Kasturi "Kash" Rangan, the Malcolm P. McNair Professor of Marketing at Harvard Business School. "If you look at the Fortune 100 companies, you'll find at least half of them could do a much better job than they're doing."

"The biggest problem is that companies do CSR in fits and starts"

The problem? They lack a cohesive CSR strategy, says Rangan, who recently cowrote the working paper Why Every Company Needs a CSR Strategy and How to Build It with HBS research associate Lisa A. Chase and Sohel Karim (HBS DBA '88), managing director of Socient Associates.

A social responsibility strategy should fulfill two goals: create a positive social impact, and enhance the company's brand, reputation, employee morale, and/or its bottom line, Rangan says. "But it does not have to be totally integrated into the core business strategy of the company as some people believe," he emphasizes.

The fact that such strategies often do not exist or are ineffective is frequently the result of how CSR efforts start. At many companies, these efforts may begin by executive mandate or somewhat organically, through the efforts of employees that then meander in various directions within different departments. For example, human resources might initiate a United Way gift program that involves a company match; operations might work on waste reduction; and marketing might collect an extra dime from employees' paychecks for breast cancer awareness.

"The biggest problem is that companies do CSR in fits and starts," Rangan says. "Programs are fragmented, and so they're not that effective in helping the community or the company."

And then the CEO wakes up one day and realizes that "we're doing $50 million worth of charity work, and we don't seem to be getting credit for any of it."

Starting the strategy

The authors argue that every company should have a CSR strategy that unifies the diverse range of its philanthropic giving, supply chain, "cause" marketing, and system-level initiatives all under one umbrella.

However, they advise that companies should not force the disparate CSR programs into their business strategies. Instead, the goal should be to "bring discipline and structure to the many fragmented components. [The] components will in some cases support the core strategy and in many others may appear adjacent," with a potential to influence core assets, such as brand reputation or employee morale.

In the paper CSR initiatives are explored in three "theatres." Theatre 1 includes activities primarily motivated by charitable instincts, even though they may have potential business benefits. Theatre 2 represents activities intended to benefit the company's bottom line, as well as the environmental or social impacts of one or more of its value chain partners. Theatre 3 encompasses programs targeted at fundamentally changing the business's ecosystem. This transformation is intended to enhance the company's long-term business position, but frequently entails short-terms risks in order to create societal value.

"Our analysis suggests that most companies rarely coordinate among the three theatres, let alone recognize the contributions of each to societal well-being," write Rangan, Chase, and Karim.

Every company, large or small, should have a clear idea of why it is involved in CSR and the expected outcomes. They should know whether CSR benefits the brand, boosts the reputation of the business, affects customer retention, reduces waste, or provides a boost to employee morale, retention, or even productivity.

"When companies try to find a profit linkage, that's a hard test on CSR. It might not lead to that"

"You have to have a rationale and logic for why you're doing a particular program. Somebody should be able to articulate what the benefits are because if you can't, it may not be worth doing," he says. "You don't have to flaunt what you're doing. Not all companies may want to make a visible statement of their involvement. But every company should know what kind of impact CSR is having."

Rangan adds that it helps if CSR activities are headed by a person who has senior management rank. While executive management may not need to be directly involved in all CSR initiatives, it's important that at least one C-level executive champions the efforts, particularly to make sure the programs receive budgetary approval and continue through other business transitions.

Executives of smaller companies that do not have CSR programs can get started by first talking to employees, customers, and board members to discover issues they may feel passionate about, whether it's the environment, hunger relief, or the arts.

Once the company has a short list of ideas, senior management can decide which ones best fit the current and future business of the company. "It is hard work, but you can usually find opportunities that provide a connection between what a company can do for society, and how it will affect its business," Rangan says.

Doing it right

Coca-Cola, for example, contributes $88 million annually to a variety of environmental, educational, and humanitarian organizations. Microsoft donates almost $300 million annually in software products to nongovernmental organizations around the world. There has to be an internal logic for how these efforts help the company, and it does not have to be always related to the bottom line.

Some companies have invested time and energy into their CSR programs only after getting burned by bad publicity. For example, Nike suffered from an onslaught of negative press and large-scale protests from those who claimed its contract employees were paid low wages and toiled away amid dangerous working conditions in overseas factories. So the company launched an initiative to reduce the negative environmental impact of its entire supply chain and established a code of conduct focused on compensating employees fairly and ensuring that they would not be exposed to a dangerous or unhealthy working environment.

Yet it shouldn't take a negative headline to move companies toward CSR. In fact, Rangan says, many owners and executives of large, successful corporations are driven by their conscience to give back.

"Successful entrepreneurs at some point in their life discover that they have made more money than they need, in the process of building their private enterprise," he says. "Maybe they didn't intend to make millions or even billions of dollars. So they start wondering what they can do to put it to good use. They want to be known for doing something for the community."

In fact, some executives have gone to great lengths to throw the company's entire business model behind CSR.

The late Ray Anderson, founder of the global carpet company Interface, said he had an "epiphany" about the environmental damage being done by Interface's material sourcing, production, and shipping systems, and felt driven by a moral obligation to remake every facet of the company's ecosystem. The initiative drastically changed how Interface manufactured, distributed, and sold its carpet--including the production of carpet not as entire floor units, but as modular tiles that could be replaced or repaired when worn. In addition to reducing greenhouse gas emissions by 92 percent and saving about $400 million per year through recycling, the company's sales increased by 65 percent and profits by 200 percent after the changes.

Companies such as Interface that promote the social or environmental value of their efforts can see a big payoff. Consumers have demonstrated willingness to reward such companies by paying 5 to 8 percent more for their products. "For the kind of CSR that Interface practices, it's important for the companies to connect with customers and let them know what they are doing for the environment," Rangan says.

Profit doesn't always follow

Yet some companies make the mistake of drawing an overzealous connection between social responsibility and business goals, believing that being a good corporate citizen should always lead to increased profits.

"When companies try to find a profit linkage, that's a hard test on CSR," Rangan says. "It might not lead to that."

Instead, executives and shareholders should consider other benefits CSR can provide. For example, Bimbo Bakery not only uses biodegradable packaging, but also focuses much of its CSR efforts on treating its employees well. The company provides staffers with free education services to complete high school and supplementary medical care to cover gaps in government health plans. These efforts have created a loyal and committed workforce: a clear plus for the company.

In an ideal world, Rangan says, executives whose companies extract resources will feel an obligation to return the favor, whether it's a furniture company that plants trees to offset its extraction of lumber or a bottling plant that initiates a water conservation program to make up for the water it takes from the ground.

"If companies only analyze the resources they take, they should try to give a big portion back," says Rangan, who notes that companies may not always operate at a "net positive" to society or the environment, but they should at least strive to offset their negative impact on the world. "It may be a while before companies learn to leave a net positive behind. When that happens, we'll all live in a much more positive world."

About the author

Dina Gerdeman is a writer based in Mansfield, Massachusetts.

Comments

    • Jenny Hansell
    • Executive Director, North East Community Center

    These are all important strategic considerations. At the implementation level, I would urge any company who is serious about making impactful donations to effective nonprofits to hire someone with significant nonprofit experience to be a part of the team.

    As someone with 30+ years of experience seeking funding for nonprofits, often from large companies, I can always tell when the company understands how nonprofits work. A simple example: many grantmaking companies restrict the percentage of the grant that can be spent on salary. The purpose of such a restriction is to make sure the money is spent on "program" or that it "gets to the people who need it." But for many nonprofits, the staff person IS the program - the human being working there is the one that works with the client, does the organizing, creates change. The result of this restriction is that the nonprofit is forced to find things to buy or spend money on that are non-essential, to make the percentage spent on staff seem lower.

    Similarly, many grantmakers don't like spending money on "overhead." But how are we to get the work done if we can't pay our electric bill, internet bill, accountant's bill (especially if you want us to be accountable?) If a grant is to pay for a new program, it has to understand ALL the costs associated with the program, and be realistic about what a nonprofit can raise to match the grant.

     
     
     
    • ajit jhangiani
    • NA, NA

    Fabulous article summarizing good work done by Kash and associates. They give a bit more breathing room to companies compared to a strict idea of only leveraging core strengths and ultimately benefiting (measurable) bottom lines. It does however entice them to get their arms around the (usually) disparate activities and at least start attempting to figure out what the benefits are and whether they match original intentions. Yes there are many forms of philanthropy, mostly all valid, but it is always good to try and figure out whether results are going in the right direction, and if not then that is OK also, after all it is good being done, just good to know direction.

     
     
     
    • natrajh Ramakrishna
    • Country Head, Audit, KPMG
    1. CSR activities are the result of a corporation's VISION about society and its needs and is not about "strategy". there has to be an emotional connect and understanding of the crying needs and demands of society as opposed to "fitting it into overall corporate strategy". This is central to the issue because corporates believe that CSR spends needs to "payback" like spends on advertising, research, etc and evaluate the "productivity" in terms of what it adds to a corporation's image, brand building etc.

    2. Several of the ET 500 companies in India seek to achieve their social responsibilities by focusing on activities that would directly or indirectly contribute to the company/industry's well being. For example, raising the level of education, skills and competencies in the field of engineering, contributing to educational institutions that teach these subjects, contribute to the building up of a huge pool of educated people in the rural areas and this can directly contribute to the needs of companies in the software and engineering sectors to recruit the right people at reasonable cost.

    3. To "sum up", putting the cart before the horse is the bane of most CSR programs. Companies should stop using this initiative for short term direct "payback".
     
     
     
    • LICIA KOKOCINSKI
    • semi-retired Executive Director

    A good article, and will look at the paper referred to above. I got the impression that what is being talked about is "internalised" CSR - that is, rethinking CSR to mean productive processes that are socially responsive and improve life status for those who are connected (both directly and indirectly) with the company, rather than externally-focussed CSR (which is more about staff or money going to charities or needy causes.

     
     
     
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited

    Mandating Corporate Social Responsibility (CSR) with which aim Govenment of India took the first step by issuing Voluntary CSR Guidelines a few years back is not, in my view, what we should truly be looking to. Once the Guidelines are mandatated, the corporates/organisations have to submit progress reports. In order not to be caught for inaction, a tick-marking exercise will commence. You want to show for the sake of showing whether or not something tangible has been done. Many organisations, public sector banks for example. christened the activity as ' innovative banking ' and showed through their annual and other reports that lot of money had been spent on the so-called socially relevant activities. Impact studies carried out subsequently revealed, however, that real benefits had not percolated to the needy. No doubt, there existed proper records to reflect that money was spent, the beneficiaries had painful tales to tell which even revealed misuse and diversion of the funds. In the above backdrop, it has to be carefully thought that in addition to the quntum of money spent, the quality of work done must be simultaneously assessed. All show-off must stop for it might provide publicity but would not sustain leading to loss of reputation. Let's understand that giving back to society a part of our earnings via CSR is an extremely noble task for which our heart and soul must be fully invlved - it should be a true call of the conscience without any hanky panky.

     
     
     
    • bipinkumar rathod
    • bmi

    CSR should be need based for community who actually working for company directly or indirectly, company's intention itself doesnt fulfil the responsibility but is ongoing process where they need feedback from its beeficaries

     
     
     
    • Anonymous

    I do believe that most companies or bussines organizations have good intentions in implementing Corporate Social Responsibility (CSR). I further, believe that an impact can also be attain by those efforts, and that some corparations have had success with CSR resulting in increased bottom line, branding and social good. In my opinion, it is important that organizations include all concerned stake holding when setting up CSR strategy, for example community members. Including community members in strategic planning of CSR allows the community to own the vision and when the CSR strategy is emblaced by these community members, it is easy for them to promote it.

     
     
     
    • Anonymous

    yea, However, they advise that companies should not force the disparate CSR programs into their business strategies. Instead, the goal should be to "bring discipline and structure to the many fragmented components. components will in some cases support the core strategy and in many others may appear adjacent," with a potential to influence core assets, such as brand reputation or employee morale.