Thursday, 18 April 2013

CSR and new corporate social realities

Volunteerism and philanthropy are just the 'icing' on the corporate social responsibility (CSR) cake. More firms are getting infected with CSR's real aim - doing good for a just and sustainable world while doing well.
By William Cheng, Published The Straits Times, 17 Apr 2013

THE meaning and practice of corporate social responsibility (CSR), first coined in 1953, has evolved in the corporate world.

CSR is fundamentally about being good corporate citizens: enlightened human resource initiatives, ethical conduct and environmental responsibility.

Indeed, what are commonly touted as the key aspects of CSR - corporate volunteerism and corporate philanthropy - are really just icing on the CSR cake.

The United Nations Global Compact, the world's largest corporate citizen initiative, lists 10 core principles in the areas of human rights, labour standards, the environment and anti-corruption that companies are encouraged to embrace, support and enact within their sphere of influence.

There is also now a focus on ensuring that CSR efforts are sustainable - meeting the needs of the present without compromising future generations' ability to meet their needs. In practical terms, this requires companies to reconcile environmental, social and economic demands, often referred to as the "triple bottom line" of people, planet and profit.

The business of business

FOR a long time, CSR was driven by the conventional wisdom that the business of business has to be just that - business, typified by the late economist Milton Friedman's famous declaration that "the social responsibility of business is to increase its profits".

Thus CSR was only supported when there was a positive business impact on the enterprise.

Such a mindset made CSR hard to sell. For example, to date, only 8,000 or so businesses worldwide have signed the UN Global Compact pledge, which was launched in 2000. In Singapore, fewer than 100 companies have done so. Most companies probably feel that CSR's "cost-benefit" does not make business sense to them.

CSR analysts say the almost exclusive focus on shareholders and profits is explained by how corporations are legally constituted in the first place. Following this line of reasoning, there are generally two courses of action proposed to ensure that companies become more socially responsible.

The first is for governments to make CSR (or aspects of it) mandatory, which can lead to a plethora of fragmented rules and regulations covering environmental protection, codes of corporate governance, labour laws, and so on.

The second course of action is more ambitious: redefining the corporation so that social responsibility is hardwired into the entity's DNA. In other words, change the nature of the corporate beast.

Corporation 20/20 is such an example. An initiative by the US- based think-tank Tellus Institute and Business Ethics magazine, it identified six principles of corporate redesign. It hosts forums of leading thinkers and practitioners to construct alternate visions of the corporate structure which are disseminated into the wider corporate community.

While trying to change how corporations are constituted across the board is a daunting task, initiatives like Corporation 20/20 have become part of a global movement that is achieving results.

Balancing value and values

RECENT years have seen a greater regard for social values to balance the corporate drive for maximum economic value. In part, the broader community revulsion against the blatant excesses of brute capitalism uncovered by corporate scandals and the global financial crisis has helped. Albeit largely uncoordinated, such calls for a "more moral form of capitalism" have come from all quarters.

Many are now joining social activists and NGOs - once the lone voice - to push for a sustainable future and to curb capitalism's excesses. Social media too is a powerful voice.

An increasing number of consumers too are seeking to live sustainably. They buy organic and Fairtrade products, go green, live healthily. They believe in social justice.

Investors - the ones with most clout in influencing corporate behaviour - are making their voices heard in this evolving landscape. They include activist investors taking companies to task for specific corporate misdeeds to the many that seek to invest only in companies that hew to socially responsible investing.

Next, regulators are taking the cue from this trend and, in some cases, are mandating that companies report on their environmental, social and governance (ESG) policies and implementation.

The Singapore Exchange recently announced that it may set up a Singapore Sustainability Index to guide investors in their stock analysis based on ESG factors.

Meanwhile, many business leaders, in particular those from large transnationals, have come on board the "CSR world order" vision. The Caux Round Table and the World Business Council for Sustainable Development are examples of coalitions of international companies supporting CSR and the sustainability movement. Indeed, the latter's Vision 2050 report lays out pathways to a world in which nine billion people can live well and within the planet's resources by mid-century.

Last but not least, management gurus have come on board. Michael Porter has written on how companies need to move from present-day CSR to what he calls "Creating Shared Value", where companies create economic value by creating societal value.

Corporate social revolutionaries

A NUMBER of organisations are leading this shift away from a purely capitalist mindset. The first group comprises social enterprises seeking to deliver a blend of financial as well as social returns.

Most are small and medium-sized enterprises with focused social missions; profits are often ploughed back to grow the company or are redistributed to the community. A local example is Dignity Kitchen, a food management school that trains the disabled and disadvantaged to be food-stall operators. Larger local examples include those run by the labour movement such as Fairprice and NTUC Income.

The world's largest social enterprise goes by the initials Brac (formerly Bangladesh Rural Advancement Committee). It operates over 150 businesses largely targeted at poverty alleviation and empowering the poor in Bangladesh. Collectively, these businesses employ over 100,000 people and contribute more than 1 per cent to Bangladesh's gross domestic product.

Another (overlapping) group is inclusive businesses. Typically, these seek to benefit the low-income community by involving them in the business process. As part of the production process, these poor people receive sustainable livelihoods. In turn, these inclusive businesses create affordable goods and services for the bottom-of-the-pyramid market.

These companies are usually based in developing countries. Brac is a prime example of an inclusive business.

Then there are many commercial companies whose business model is inclusive but where profits go back to the shareholders rather than the community. For example, BagoSphere is a call-centre training company in the Philippines that specifically caters to rural youths living in poverty.

Mainstream businesses are beginning to take notice of this phenomenon and are thus seeking to create social impact, at least in parts of their businesses. For example, DBS Bank has a special banking package which includes "virtually free banking services" for social enterprises and it sets aside $1 million as outright grants to local social enterprises.

Creating social change

GLOBALLY, there are examples of transnationals collaborating with governments and NGOs to create social change in new and innovative ways.

In Uganda, the telecoms multinational Ericsson, together with a local mobile operator, teamed up with the UN Commission for Refugees and the Clinton Foundation in a joint venture called Refugee United to provide a service to reunite the diaspora of refugees using mobile phone technology.

In Afghanistan, Fullwell Mill, a British food producer together with Mercy Corps, a humanitarian NGO, worked with the Parwan Raisin Producers Cooperative, a network of local farmers, to grow and export Fairtrade raisins to Britain. The venture also received funding support from USAID, the US government funding agency.

In Mexico, Ashoka, an association of social entrepreneurs, brokered a partnership between Amanco, a multinational water system company, and two of its Ashoka Fellows who worked with small farmers. Amanco re-engineered its products and business model to produce affordable irrigation technology which it sold to the farmers through the Ashoka Fellows. The net result was that Amanco had a new and profitable market segment, the Ashoka Fellows earned a commission that covered their expenses of advancing social programmes, and the farmers, who were earning less than US$2 (S$2.50) per day, were able to double or triple their income with irrigation technology.

Entities like these create social impact while delivering reasonable, but not necessarily maximum, profits. They are the closest to the redesigned companies championed by the likes of Corporation 20/20.

However, in most cases, they are legally constituted as regular commercial companies. A major reason is that apart from pilot schemes in Britain and the US, there are few alternative legal constructs for companies to mandate balancing economic and social returns and redistribute profits back to the community.

But the fact that these socially impactful commercial companies exist reinforces the argument that cultural change in corporations can overcome the long-held conviction that businesses must seek maximum profits and value for shareholders. It affirms the notion that corporations can and should operate in a much broader context of multiple stakeholders.

Hopefully, more corporations will follow suit and recognise that it is in their collective enlightened self-interest to respond to these new corporate social realities.

The writer is a former managing partner at management and technology consulting firm Accenture. He currently sits on the boards of several commercial and non-profit organisations.

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