Corporate social responsibility (CSR) challenges the purely capitalist based approach to business, which is to maximize profits while minimizing expenses. However, as the importance of CSR grows, an emerging definition of business challenges the purely profit-based model. CSR defines the role of business as one that creates value for its shareholders, but in such a way that it also creates value for society, manifesting itself as a win-win proposition.
One of the current issues facing many businesses with newer CSR strategies, however, is that all too often they are merely the sum of various ad-hoc practices, such as corporate funding of community activities, grants for nonprofits/NGOs, environmental sustainability programs to reduce energy and resource use, and comprehensive efforts to remake a business’s entire value chain. It’s a disparate mix of top-down and bottom-up approaches that have little or no connection to the corporation’s business strategy or core competencies.
Another obstacle to ad hoc CSR policies is that they tend to lack analytical rigor. Unfortunately, many CSR policies may not directly contribute to a company’s business goals in any obvious way. The imperative then is reconciling the various programs, quantifying their benefits, enumerating a logical connection to the business, and securing financial support.
In order to mold this disparate range of practices into effective CSR, chief executives need to be more concerned with how to bring coherence to their CSR programs. The first step to effectiveness is to understand the three different realms of CSR and focus on the realm(s) that are best aligned with your company. A corporation’s social or environmental impact depends on its industry and its geographic reach. Here is a brief breakdown of the three main areas of CSR.
This purview is dominated by charity, either in the form of direct funding to nonprofit and community service organizations, employee community service projects or in-kind donations of products and services to nonprofits and underserved populations. According to the white paper, “Why Every Company Needs a CSR Strategy and How to Build It,” published by the Harvard Business School, this kind of corporate philanthropy “may be characterized as the “soul” of a company, expressing the social and environmental priorities of its founders, executive management and employees, exclusive of any profit or direct benefit to the company.”
Although giving to various charities may not directly contribute to a company’s business strategy, these activities do enhance a firm’s reputation in the local community and can provide a buffer against criticism. The priority here is to generate social or environmental value, which eventually may translate to business profits, but this is not the goal. Philanthropic CSR ventures are considered a necessary cost of doing business to fulfill the corporation’s charitable giving priorities.
Reengineering the Business Value Chain
This CSR domain’s priority is to simultaneously increase business opportunities and social and environmental benefits. This is achieved by improving operational effectiveness throughout the value chain—including the upstream supply chain and the downstream distribution chain. In this realm, the most comprehensive CSR strategies overhaul a corporation’s entire value chain, including natural resource extraction and sourcing, manufacturing, shipping and product delivery.
For example, in 2009, Walmart was one of several companies that provided seed funding to start The Sustainability Consortium (TSC), jointly run by the University of Arkansas and Arizona State University and committed to enforcing environmental sustainability throughout all stages of a product’s life cycle. And just a few months ago, Walmart’s ecommerce site started labeling 3,000 products, made by more than 100 companies, with a label that reads “Made by a Sustainability Leader.”
Transforming the Ecosystem
Rather than a paradigm makeover, the third model indicates a significant paradigm shift. This is the big vision, long-haul approach, in which the attention goes to crafting a solution to a societal problem. Sometimes it can be a game changer, forcing a corporation to fundamentally change its business model and develop new skills and strategies. A good example of this third CSR category in action is GE’s solution to reliance on fossil fuels. It includes electric vehicle (EV) charging stations, electrical grid improvements, investments in component technologies and a robust EV production system. If GE’s epic endeavor pans out, “it has the potential to reduce CO2 emissions and petroleum-based fuel consumption by fundamentally changing the U.S. automobile transportation ecosystem. It will potentially also increase GE’s long-term profitability, given its engagement in many aspects of renewable energy production, energy delivery, EV production and EV charging supply chain.”
Ultimately and particularly in larger, global companies, an effective CSR strategy involves making connections between various initiatives in all three areas. If CSR is not coordinated under one cohesive strategy, a company will not have a unified direction. As the report says, “Companies need to plan for the eventual expansion of their CSR initiatives into the other theatres and establish an overarching CSR vision that can encompass programs in philanthropic, supply-chain and transformative ecosystem efforts.”
And to oversee this overarching vision? The report proposes the role of a Corporate Responsibility Officer (CRO). It’s described as an independent full-time position having access to the CEO and able to influence the development of the company’s business strategy. The CRO deserves a title that commands respect, because how a company implements its CSR reflects the value it accords both its own corporation and the society it serves.