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  • July-11-2019

The Truth About CSR

The Truth About CSR

Most companies have long followed some form of corporate social and environmental responsibility with the comprehensive goal, simply, of adding to the well-being of the associations and society they influence and on which they depend. But there is increasing pressure to dress up CSR as a business method and demand that every action deliver business results. That is asking too much of CSR and rattles from what must be its main goal: to align a company’s social and environmental activities with its business purpose and values. If in doing so CSR activities lessen risks, enhance reputation, and contribute to business results, that is all to the good. But for many CSR programs, those issues should be a spillover, not their reason for being. This article explains why firms must focus their CSR activities on this fundamental goal and provides a methodical process for bringing clarity and discipline to CSR strategies.

But although many companies cover this broad vision of CSR, they are hampered by poor coordination and a lack of logic connecting their numerous programs. Although various surveys have touted the increased involvement of CEOs in CSR, we have found that CSR programs are usually initiated and run in an uncoordinated way by a variety of internal managers, frequently without the active commitment of the CEO.

To maximize their positive influence on the social and environmental systems in which they operate, companies must develop sound CSR strategies. This should be an indispensable part of the job of every CEO and board. Aligning CSR programs must begin with an inventory and inspection of existing initiatives. Our research and work with corporations beyond the geographic and business spectrum show that companies’ CSR activities are typically divided amongst three theatres of practice. Assigning CSR activities accordingly is a vital first step.

Theatre one: focusing on philanthropy.

Programs in this theatre are not devised to produce profits or directly improve business performance. Examples include donations of money or equipment to civic institutions, engagement with community initiatives, and support for employee volunteering.

Theatre two: enhancing operational effectiveness.

Programs in this theatre function within existing business models to achieve social or environmental benefits in ways that support a company’s operations over the value chain, often enhancing efficiency and effectiveness. Thus they may—but don’t always—raise revenue, decrease expenses or both. Examples include sustainability initiatives that decrease resource use, waste, or emissions, which may in turn decrease expenses; and investments in employee working conditions, health care, or education, which may improve productivity, retention, and company reliability

Theatre three: remodelling the business model.

Programs in this theatre create new kinds of business specifically to address social or environmental challenges. Enhanced business performance—a requirement of initiatives in this theatre—is predicated on producing social or environmental results. Hindustan Unilever’s Project Shakti (“empowerment”) in India presents a good example. Instead of using its customary wholesaler-to-retailer distribution model to enter remote villages, the company recruits village women, equips them with access to microfinance loans, and trains them in marketing soaps, detergents, and other products door-to-door. More than 65,000 women entrepreneurs now participate, nearly multiplying their household incomes, on average, while improving rural access to hygiene products and thus adding to public health. These social gains have been satisfied by business gains for the company: As of 2012, Project Shakti had achieved around more than $100 million in sales. Its success has led Unilever to roll out comparable programs in other parts of the world.

As Project Shakti illustrates, theatre three programs need not be comprehensive. Most are narrow initiatives begun with a focused market segment or product line in mind, but with significant potential to alter the company’s social or environmental impact and financial performance. Theatre three initiatives almost always request for a new business model rather than incremental extensions.

Although each CSR activity can be assigned particularly to a single theatre, the boundaries are porous: Programs in one theatre can change and complement those in another or even migrate. For example, a theater one initiative might improve the company’s reputation and consequently increase sales. Thus, while it was not designed to push business results, it may end up doing so and as a result migrate to theater two. The valuable brand reputations of Tata in India, Grupo Bimbo in Mexico, and Target in the United States, to name just a few, are built-in part on those companies’ philanthropic and community obligation.

Similarly, activities in theatre two may give rise to new business models and thereby transfer to theatre three. Consider IKEA: Its People & Planet initiative invites for its entire supply chain to be 100% sustainable by 2020, even as the company intends to double sales by the same year. This aggressive goal is spurring the development of new business models to close the post-consumer recycling circuit. IKEA will have to radically alter how it designs furniture and, even more significant, devise new models for assembling and recycling used furniture.

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