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."