CSR as business strategy

CSR as business strategy

The pressure to be socially responsible has pushed Indian companies towards corporate philanthropy. But there are many companies that have married their social and business goals with amazing efficiency, says Rajrishi Singhal

EVERY time elections are held in India — whether to a state assembly or to Parliament — questions are raised about the source of funds used by parties for meeting campaign expenses. It is well known that a large chunk of campaign finance is sourced from the corporate sector, largely in the form of unaccounted cash. However, some companies do show such contributions on their books, but then they use this opportunity to also label it as their bit towards corporate social responsibility, or CSR.
Strange as it may sound, most corporates are today passing off peculiar items under CSR. Indeed, the word is probably the most misunderstood term in corporate argot (probably a good second would be corporate governance!). It has been misinterpreted as corporate philanthropy, corporate citizenry and an umbrella term for generally doing good — one company ostensibly insisted on including a workers canteen as its commitment to CSR, till good sense prevailed. Definitions abound, but in the minds of most senior corporate managers, CSR and philanthropy are actually inter-changeable or synonyms for each other. Nothing could be further from the truth and, as global experience shows, many leading companies across the globe have not only separated the two but even married CSR successfully with their overarching corporate/competitive strategy.
The pressure on large companies to implement CSR is mounting from both within and without. Vigilante NGOs keep an eagle eye —- largely since the government has failed to do its job — on the impact companies have on society and environment. Internally, pressure from board members and employees has also increased awareness within the corporate hierarchy. But this two-pronged pressure has typically pushed Indian companies towards corporate philanthropy, rather than CSR in a competitive context, which requires senior management time and talent.
The difference is simple. In corporate philanthropy — which, mind you, also has its place in society — corporates are usually dictated by an over-arching sense of moral responsibility and the choices are usually dictated by the chief executive’s social sensibilities or the priorities set out by a group of senior officers. Thus, donations to schools, temple trusts, charitable foundations (which in turn fund NGOs in a particular sector) and hospitals usually dominate the laundry list. Generally, a heavy moral overhang shrouds most CSR intentions. But, given its nature, there’s little management time for such an activity and even audits are rare too.
Management expert Michael Porter observed recently: “The fact is, the prevailing approaches to CSR are so fragmented and so disconnected from business and strategy as to obscure many of the greatest opportunities for companies to benefit society. If, instead, corporates were to analyse their prospects for social responsibility using the same frameworks that guide their core business choices, they would discover that CSR can be much more than a cost, a constraint, or a charitable deed — it can be a source of opportunity, innovation, and competitive advantage.” (Strategy & Society, with co-author Mark R Kramer, Harvard Business Review, December 2006). In the same article, he also says that the proponents of CSR typically, “…focus on the tension between business and society rather on their interdependence.”
GLOBALLYthere are many companies that have woken up to this potential and have married their social and business goals with amazing efficiency. Here are some examples:
Milk in Moga: This example is mentioned in the same HBR article quoted above. When Nestle got permission from the Indian government in 1962 to set up a dairy plant in Moga, Punjab, the company realised that the area was arid and poorly irrigated. Plus, milk output of the livestock with farmers was pathetically low, in addition to the high mortality rate of calves. And, because of poor infrastructure and lack of resources, milk could not be transported over even short distances. Nestle, used to sourcing its needs in native Switzerland from a large base of small farmers, realised that to replicate the same value chain in Moga it would need to marry its competitive context with social transformation. Consequently, the company built refrigerated lorries as collection points in each town; and along with the lorries it also sent all kinds of experts (such as vets and agronomists) to provide farmers with technical expertise. Nestle even provided farmers financial and technical assistance for constructing deep-bore wells, which apart from affording enhanced irrigation and access to surplus crops, also improved the quality of livestock’s feed crop, thereby not only improving milk yields but also increasing their lifespan. The project has resulted in higher living standards in Moga, with 90% of households today having access to electricity and telephones. Nestle got access to its raw material and its rural suppliers gained a higher standard of living. Today, this has become Nestle’s abiding template in some of its other sourcing markets, such as Brazil. Ethical Sourcing:This US-based clothing retailer was under tremendous pressure to open up its sweatshops across the world to scrutiny from a number of NGOs. They were all concerned about the working conditions in these outfits – spread over mostly developing countries such as Vietnam, Philippines — and whether GAP was adhering to minimum working condition norms laid down in the US. Surprisingly, the company did open up its shops for examination and overhauled its working conditions worldwide. Why? GAP realised come January 2005, quotas on textile exports to US were coming to an end. As a result, GAP’s low-cost competitors would now have access to the same cheap manufacturing bases in low-income countries. For instance, Wal-Mart could well now sell GAP-like clothing at much cheaper prices. This could severely undermine GAP’s positioning and margins. But, opening up to NGO inspection and improving the working standards immediately raised the benchmark for the other competitors. GAP got to protect its competitive advantage and workers in these geographies benefited from improved working conditions, as well as higher incomes and better training facilities.
However, since GAP refuses to explicitly admit that efforts were aimed at building competitive advantage, this example remains speculative at best. But, the significance of GAP’s efforts was not lost on the global corporate world.