Strategic & Transformative CSR

Strategic & Transformative CSR

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For empowering CSR movement

 

CSR is essentially a strategic response of business to the changing expectations of stakeholders as said by Prof Ranjan Mohapatra, Chairman Vision Foundation. Profile and expectation of stakeholders change over time. Thus in the Era of Responsibility and the presence of informed stakeholders, the business benefits are expected to come through social and environmental benefits. Therefore it is wise for businesses to look for their business benefits through social and environmental benefits with at the micro level and also at the macro level.While strategic CSR at the micro level will benefit business along with micro-level social and environmental benefits, the macro level CSR initiatives can promote transformative solutions to societal and environmental problems – benefitting the business in a big way. For example, a mining company providing free education and health facilities to win the trust leading to disruption free mining is an example of strategic micro level CSR.

Another company like GVK developed a technology based ambulance system to ensure emergency medical support to ensure emergency medical support to people in remotest part of the country in 15 minutes(urban areas) and 25 minutes (rural areas), serving 25000 emergencies per day which is an example of transformative CSR.

Today the country need corporate leaders to involve themselves in solving macro level problems that may include challenges in governance, corruption, and similar other challenges and to work with government an equal partners applying their professional competence and commitment for making a difference.

By Loni Bora

CSR (Corporate Social Responsibility) has been there in the world including India since ancient times, though in different forms matching with the needs of time. In India, we have reference of corporate giving in Vedanta in ancient times, in Artha Shashtra in medieval times, in the writings of Mahatma Gandhi (Theory of Trusteeship) in modern times.

CSR International Founder, Dr Wayne Visser, has presented the evolution of business responsibility in terms of five overlapping economic periods – the Ages of Greed, Philanthropy, Misrepresentation, Management and Responsibility – each of which typically manifests a different stage of CSR, namely: Defensive, Charitable, Promotional, Strategic and Transformative CSR (which can also be called CSR 2.0, Systemic CSR or Radical CSR).           

The companies tend to move through these ages and stages including the fact that companies may have activities in several ages and stages at a single point of time, though all companies should be induced to make the transition to Transformative CSR in the dawning Age of Responsibility. If companies remain stuck in any of the first four stages, the world will fail in effectively dealing with the environmental, social and ethical crises that it faces today including India.

The ages and stages of CSR as defined by Dr. Wayne are;

1. Defensive CSR in the Age of Greed is where all corporate sustainability and responsibility practices – which are typically limited – are undertaken only if and when it can be shown that shareholder value will be protected as a result. Hence, employee volunteer programmes (which show evidence of improved staff motivation, commitment and productivity) are not uncommon, nor are expenditures (for example in pollution controls) which are seen to fend off regulation or avoid fines and penalties.

2. Charitable CSR in the Age of Philanthropy is where a company supports various social and environmental causes through donations and sponsorships, typically administered through a Foundation, Trust or Chairman’s Fund and aimed at empowering community groups or civil society organisations.

3. Promotional CSR in the Age of Misdirection is what happens when corporate sustainability and responsibility is seen mainly as a public relations opportunity to enhance the brand, image and reputation of the company. Promotional CSR may draw on the practices of Charitable and Strategic CSR and turn them into PR spin, which is often characterised as’greenwash’.

4. Strategic CSR, emerging from the Age of Management, means relating CSR activities to the company’s core business (e.g. Coca-Cola and water management), often through adherence to CSR codes and implementation of social and environmental management systems, which typically involve cycles of CSR policy development, goal and target setting, programme implementation, auditing and reporting.

5. Transformative CSR in the Age of Responsibility focuses its activities on identifying and tackling the root causes of our present unsustainability and irresponsibility, typically through innovating business models, revolutionizing their processes, products and services and lobbying for progressive national and international policies.

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Hence, while Strategic CSR is focused at the micro level – supporting social or environmental issues that happen to align with its strategy (but without necessarily changing that strategy) – Transformative CSR focuses on understanding the interconnections of the macro level system – society and ecosystems – and changing its strategy to optimize the outcomes for this larger social and environmental systems.

Transformative CSR holds the key to making change happen, at a societal, national, organisational and individual level, and ensuring that we can all make a difference.

Dr Wayne also criticizes the Three Curses of CSR 1.0 (incremental, peripheral and uneconomic), before exploring what CSR might look like in an emerging Age of Responsibility. This new CSR called the Transformative CSR, may be called systemic or radical CSR, or CSR 2.0 – is based on five principles (creativity, scalability, responsiveness, glocality and circularity) and forms the basis for a new DNA model of responsible business, built around the four elements of value creation, good governance, societal contribution and environmental integrity.

The Age of Responsibility

As per Dr Wayne Visser, these three curses are why CSR has failed in the Ages of Greed, Philanthropy, Marketing and Management. What makes the Age of Responsibility – and showcase leaders like Ray Anderson and Interface – different from, say, BP (Age of Marketing) or Cadbury’s (Age of Management), is the depth of their admission and the scale of their ambition. Anderson’s latest book is called Confessions of a Radical Industrialist (2009), in which he concedes not only that today’s economic system is broken, but that he and his company are part of the problem. He is able to see himself as a plunderer – not through malicious intent, or even greed, but by failing to question the true impacts of business on society and the environment. As Alcoholics Anonymous will tell you, admission is the first step to recovery. 

Unfortunately, most companies stuck in the Ages of Greed, Philanthropy, Marketing and Management are all still in denial, thinking that either there is no problem, or it’s not their problem, or that it’s a problem to benefit from, or that it’s only a minor problem.

The Age of Responsibility is not just about admission though; it’s also about ambition. As far as I can tell, Interface was the first major company to set the BHAG (big hairy audacious goal) of zero negative impact, as well as going beyond’no harm’ to also become a restorative business – to genuinely make things better and leave this world with a net-positive balance. It is only such audacious goals that can lift the triple curses of incremental, peripheral and uneconomic CSR. As Robert Francis Kennedy reminds us:’There are those who look at things the way they are, and ask why. I dream of things that never were, and ask why not?’ We need more pragamatic dreamers, business leaders who practice what brain-mind researcher and author Marilyn Ferguson calls’pragmagic’. Ray Anderson was not the first radical business leader, nor perhaps even the most radical.

The late Anita Roddick, founder of the Body Shop International, had a missionary zeal that few will ever rival. Famous for her business-led activism, which began as an alliance with WWF in 1986 to save the whale, she went on to tackle issues as far ranging as animal rights, women’s self-esteem, human rights, fair trade and indigenous people’s rights. In her autobiography, Business As Unusual (2001), she distilled her philosophy as follows:

“Business is a renaissance concept, where the human spirit comes into play. It does not have to be drudgery; it does not have to be the science of making money. It can be something that people genuinely feel good about, but only if it remains a human enterprise.”

‘Ben Cohen and Jerry Greenfield who ‘hated running but loved food’ and therefore founded Ben & Jerry’s ice cream, became flag bearers for a more radical kind of responsibility as well. Their mission’ to make the best possible ice cream in the nicest possible way’ was not just sweet talk. They put it into action in various ways, from going free range and supporting fairtrade to setting up a Climate Change College and sponsoring research into eco-friendly refrigeration.

Their biography, The Inside Scoop: How Two Real Guys Built a Business with a Social Conscience and a Sense of Humor (1994), tells the story. ‘If you open up the mind,’ they concluded,’the opportunity to address both profits and social conditions are limitless. It’s a process of innovation ‘ Ricardo Semler (1989, 1993).

CEO of the Brazilian manufacturing company SEMCO, is another self-confessed maverick who turned many assumptions about ‘good management’ on their head. For example, at SEMCO he allowed workers to set their own salaries and working hours; he taught everyone in the company, including shop floor workers, how to read a balance sheet; and he made everyone’s salary public. ‘If you’re embarrassed about the size of your salary’, he said, ‘you’re probably not earning it’. His radical philosophy was this:’Most companies hire adults and then treat them like children. All that Semco does is give people the responsibility and trust that they deserve’.

In India, since 2007 VISION FOUNDATION for Development Management, led Prof. Ranjan Mohapatra, has been critical of ad-hoc charity approach and advocating Strategic CSR approach and transformative approach at micro and macro levels respectively through its draft CSR policy for the Central Public Sector Enterprises (CPSEs). This approach is being promoted through CSR VISION since its first publication in May 2012. Even, it carries an ad to brand itself, the tag line is “Empowering CSR & Sustainability by Promoting Responsibility”

If we reflect the CSR profile of Indian companies today, we may find them spread over stage 1 to stage 3. Strategic CSR level is yet to touched, while there is an urgent need for Transformative CSR in India today. 

CSR VISION is in search of Indian transformative corporate leaders who believe that the opportunity to address both profits and social conditions are limitless.

Grameen Bank Experiment

There is no doubt that the Nobel Award Winning Grameen Bank experiment can be anything but Transformative in nature. Grameen bank, founded in 1976, has both pioneered the development of micro-finance, and created nearly 30 businesses designed to alleviate poverty and thus a major business model innovation.

An article written by Muhammad Yunus, the founder and managing director of Grameen Bank, (Yunus and Grameen Bank were jointly awarded the Nobel Peace Prize in 2006) along with Bertrand Moingeon is Professor of Strategic Management and Laurence Lehmann-Ortega, an Affiliate Professor of Strategic Management, presents five lessons learned from this experience:

a) three are similar to those of conventional business model innovation – challenging conventional thinking, finding complementary partners and undertaking continuous experimentation;

b)     two are specific to social business models: recruiting social-profit-oriented shareholders, and specifying social profit objectives clearly and early.

The new business models – where stakeholders replace shareholders as the focus of value maximization – could empower capitalism to address overwhelming global concerns.

CSR : Doing well by doing good

Saving the rain forest from yet another palm oil plantation would certainly garner a company favorable attention from environmentalists, but how would its shareholders react? A company can’do well by doing good’; in other words, it can make a profit and make the world a better place at the same time. CSR is regarded as voluntary corporate commitment to exceed the explicit and implicit obligations imposed on a company by society's expectations of conventional corporate behavior. Hence, CSR is a way of promoting social trends in order to enhance society's basic order, which can be defined as consisting of obligations that cover both the legal framework and social conventions. Due to globalization, companies are now less constrained by society's basic order than they have been in the past. Because different countries have different laws and standards, there are more ways to get away with less than ideal behavior in the quest for greater and greater profits. Nearly everyone agrees that this is not a good thing, but what can be done? Now, it is possible that CSR could be the answer. This is especially true when CSR is conceived of as a long-range plan of action.

Strategic Corporate Social Responsibility:

Corporate Social Responsibility, or CSR, is defined by Stanford University’s Graduate School of business as an organization’s obligation to consider the interests of their customers, employees, shareholders, communities, and the ecology and to consider the social and environmental consequences of their business activities. By integrating CSR into core business processes and stakeholder management, organizations can achieve the ultimate goal of creating both social value and corporate value.

As of late, CSR has gained noteriety as businesses have responded to two major changes in the last 10-15 years: the increase of public concern over the environment and the free flow of information afforded by the internet. In the last several years, movies like” An Inconvenient Truth” and events such as Live Aid and Earth Day have brought climate change and protection of the Earth’s environment into the forefront of people’s minds. As stakeholders in any organization’s strategic plan, the public represents shareholders, customers, employees, suppliers- everyone. Whatever issues that the public sees as important, organizations should take notice of. An organizstion seen as harmful to the environment is very likely to be seen as socially irresponsible, and therefore risks the relationship with all of its stakeholders.

Another trend increasing the importance of CSR is the increased use of the internet to access and trade information. Whereas in the past, the details of a company’s actions may have been restricted to newspaper clippings from the business section or academic discussions in the classrooms of business schools, these days any company seen being socially irresponsible may show up in mass emailings, facebook postings or even myspace bullitens- seen by tens or even hundreds of thousands of people in a day. Today, more than ever, companies are under the watchful eye of their stakeholders.

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So what is Strategic CSR? By taking a strategic approach, companies can determine what activities they have the resources to devote to being socially responsible and can choose that which will strengthen their competitive advantage. By planning out CSR as part of a company’s over all plan, organizations can ensure that profits and increasing shareholder value don’t overshadow the need to behave ethically to their stakeholders. Strategic CSR provides companies with solutions for:

•Balancing the creating of economic value with that of societal value

•How to manage their stakeholder relationships (especially those with competing values)

•Identifying and responding to threats and opportunities facing their stakeholders

•Developing sustainable business practices

•Deciding the organization’s capacity for philanthropic activities

CSR STRATEGY AND STRATEGIC CSR COMPARISON

CSR STRATEGY:

A strategy, in the usual meaning of the term, implies something that is planned, preconceived and deliberate. So a CSR strategy, just like another other strategy (like a marketing strategy, perhaps) is a series of deliberate stages intended to achieve a particular outcome or strategic end. In contrast, a company that does not have a CSR strategy might appoint someone to achieve CSR outcomes as part of their job but then provide no overall framework or guidance for the CSR investment. CSR, in such a situation, would not be planned at all, but just’done’ by someone, perhaps on the basis of solicitations of the jobholder’s own views of which causes are the most deserving.

So to have a CSR strategy involves making choices. It might be decided, for example, to pursue some CSR activities but not others and to support some causes but not others. Once these decisions have been made, the person or people responsible for implementing CSR strategy will have a basis for CSR decisions. This is a CSR strategy.

One reason why companies might have a CSR strategy in place is to ensure that CSR is not undertaken based on the personal views of the CSR person or department, or on the basis of any persuasive causes who convince the company to support their particular viewpoint. Given that CSR usually costs the company money, many companies feel that they need to in some way reflect the values and beliefs of the company’s owners, the shareholders, in CSR matters. This brings us onto the subject of strategic CSR.

WHAT IS STRATEGIC CSR?

‘Strategic’ is a term used to signify a certain motive. For a business, something that is strategic is concerned with the long-term success of the business and its strategic positioning with regard to a range of environmental variables. So in strategy, people might talk about strategically important customers, suppliers, employees, networks, culture, etc. In each case, such things are referred to as’strategic’ because they can affect the long-term success of the business and the quality of the business’s strategic’fit’ into its environment.

When we refer to strategic CSR, we use the term’strategic’ in precisely the same way as those referred to above. CSR measures can be configured so as to produce benefits for the company as well as for those causes supported in the community. This means that the types of causes supported or community groups helped will be chosen carefully so that the CSR initiatives support the strategic objectives of the business. The belief underpinning strategic CSR is that all of the money in a business belongs to the shareholders and so any expenditure should serve their (the shareholders’) strategic interests. To spend any money carelessly (including CSR investment) would be affectively a type of theft from shareholders. So CSR that did not support the company’s strategy would be an irresponsible use of shareholders’ funds.

So what does strategic CSR look like? One well-known medical supplies company, for example, is known to use a lot of its CSR budget on supporting nurses and doctors in their training and research. Why might this be? Because it will be nurses and doctors who, once qualified and in senior positions, will be able to select suppliers for their hospitals and other health facilities they work in. If they have benefitted from the company’s funding as trainees, they may be well-disposed to the company for all of their working lives.

Another company, a bank, uses some of its CSR budget to help to educate young adults in’financial literacy’. Why might this be strategic? Because adults who are financially literate will usually go into unplanned debt less frequently and will realise their need for a range of financial products, many of which will be provided by the bank. So by supporting initiatives to increase financial literacy, the bank might be indirectly reducing bad debts and also increasing demand for its own products.

A very common way of using CSR strategically is to involve the employees in their choices of how to support charities and communities. The thinking behind this is to increase the support and loyalty of employees by asking them to suggest and support initiatives that the company might support. If the company supports causes that are important to employees, the effect may be to encourage the loyalty and participation of employees and this, in turn, can increase the productivity of the workforce.

Likewise, a local business might increase its reputation locally by taking part in community initiatives such as helping with a local school or college, providing flower beds in a local park, giving a set of shirts to a local sports team (perhaps with the company name on them), etc.

SHOULD CSR BE STRATEGIC?

The question about whether CSR should be strategic is an ethical question. Supporters of the pristine capitalist perspective are likely to believe that all of a company’s value should be used explicitly for the benefit of shareholders in which case any CSR should be strategic. At the other end of the continuum, it is likely that deep greens would believe that businesses benefit from society and communities and so should contribute back to them wherever possible.

The ethical argument against strategic CSR is that businesses rely upon the support of communities to work for them, buy from them and allow them to operate normally. Businesses also use resources supplied by the state and communities in the normal progress of their operations. Because of this support from society and communities, businesses should willingly and ungrudgingly pay some of that back through CSR initiatives. Companies that manufacture goods, for example, transport their goods to market on roads paid for by taxpayers whilst employees arrive at the workplace on railways subsidised by taxpayers. So no business is’an island’ that excuses it from the obligation to pay back to society.

For those who believe that CSR should be strategic, there are a number of arguments that may be deployed in favour. The first is that, according to the pristine capitalist end of the continuum, company directors, controlling resources, have a legal and ethical duty to take actions that reflect the strategic wishes on shareholders. Because most shareholders seek value maximisation over time, the directors must always seek to serve the shareholders’ interests. In this case, because the resources employed in CSR belong to shareholders (because all of a company’s value belongs to the shareholders), CSR must always be in the strategic interests of shareholder value. Second, it is likely that CSR used for strategic interests will be the most efficient way to use those resources. CSR, which is not strategic, can be wasted or misdirected, perhaps at the whim of the person disbursing the funds or planning the activities. When CSR is strategic, it is more likely to be better planned and more effectively configured and co-ordinated with other business operations. Better targeted, CSR is likely to be more effective and efficient than’ad hoc’ or unplanned CSR.

Third, strategic CSR is more likely to enjoy the’buy in’ and support of those involved in implementing it. Enjoying the support of employees, for example, is usually considered important in CSR and many employees will support CSR initiatives when they can see a business benefit to them. This is more likely when they can see CSR initiatives supporting their other activities such as sales, operations and marketing. CSR can be synergistic with other activities and the support of employees can be vital in this, so that CSR supports the core business and vice versa. Fourth, as alluded to earlier, when CSR involves giving or engaging with registered charities, the company can gain tax advantages from that giving. This advantage is not for the company itself but the charity can reclaim the tax already paid on the amount. So if the prevailing rate of tax is, say, 40% on company profits, then the value of the giving is worth 140% of what is actually given (or the company can pay before tax and treat is as a tax exempt expense). This means that if CSR is strategic, the company can gain more that the value of the giving and therefore gain tax benefits from what is essentially an initiative intended to support the company’s strategy.

In conclusion, then, businesses engaging in CSR may or may not have a CSR strategy. If there is no CSR strategy, there will be no policies or principles in place for CSR and the responsibilities may be allocated to an individual or team below board level. If a strategy is in place, policies will be in place to guide and more effectively direct CSR efforts. If CSR is strategic, however, it means that CSR will be used to support the long-term economic interests of the business.

CSR Communication for Maximizing Business Returns to CSR

In a book by Sankar Sen and BB. Bhattacharya, the authors argue that by engaging in corporate social responsibility (CSR) activities, companies can not only generate favorable stakeholder attitudes and better support behaviors (e.g. purchase, seeking employment, investing in the company), but also, over the long run, build corporate image, strengthen stakeholder–company relationships, and enhance stakeholders' advocacy behaviors. However, stakeholders' low awareness of and unfavorable attributions towards companies' CSR activities remain critical impediments in companies' attempts to maximize business benefits from their CSR activities, highlighting a need for companies to communicate CSR more effectively to stakeholders.

Though we agree that Transformative CSR is urgently needed, Strategic CSR is yet to gain ground in the world including India. CSR Communication is avoided. Even, leading Corporate Leaders like Mukesh Ambani says, he does not prefer to talk about his contributions to society, even referring to his legendary father, Dhiru Bhai Ambani, who had said” left hand should not know, what the right hand does in giving”.

Thus, the CSR environment in India has miles to go to catch up with the world.

To conclude, one can appreciate that the Transformative CSR has the potential to make change happen, at the national, organisational and individual level and it provides an opportunity to the business leaders to prove that they can all make a difference.

But in India, the Business Leaders shy away from getting involved in transformative CSR initiatives even when it is called for.

Today India faces many national challenges, which seem to be beyond control of the people in-charge of those responsibilities. The level of corruption is at the peak. May be the top end corruption may be under control due to the pressure from the Prime Minister Modi, but the corruption is too deep and integral to the systems all around. Malnutrition, Un-employment, Crime, Garbage, Open defecation, fake drugs killing lakhs of people, Standard of Education system going down, Justice is not available in time. 

Essentially, the delivery system, both governance and justice are not delivering and not willing to change and improve. They are not willing to improve as they are comfortable at present. The only sufferer is the common man. May be the people in – charge of the system are waiting for the common man to revolt !

This is primarily because, most of our democratic institutions are near collapse. There is serious conflict between Judiciary and the executive. The Executive under the pressure of vote bank politics, severely neglecting its executive responsibilities forcing the Judiciary take up executive actions, thus encroaching in to Executive territory. Such examples are many including Sealing of properties in Delhi during 2008-2009, Sharing of Cauvery Water between Karnataka and Tamil Nadu, Management and Control of BCCI etc, which are executive activities being performed by Judiciary. Judiciary is not shying away from these encroachments as it has tested success and received appreciation for its actions early days of PIL by controlling pollution in Delhi by bringing in CNG buses and controlling diesel based vehicles. Today, Judiciary has empowered itself for appointing Judges to High Courts and the Supreme Court through the controversial Collegiums System without accountability to anyone. In a collective order, on 2016 October 2015 the Supreme Court by a majority of 4:1 had struck down the NJAC Act, 2014 (National Judicial Appointments Commission) meant to replace the two-decade old collegiums system of judges appointing judges in the higher judiciary.

On the other hand, the Legislature is busy in doing everything except legislation. We see no debate in the Parliament, but only farce and boycotts for partisan and vote bank politics, opposition parties opposing for opposition.

Most unfortunate part is when, the opposition parties don’t support the Government, even during times of security threat to nation as is seen now during the URI attack and the subsequent surgical strike by the Indian Army.

This is a time, when the Executive, Judiciary and the Legislature are failing and weakening the nation, Corporate Leaders are the only hope.

Unfortunately, here again, our Corporate Leaders are shy of engaging with the government and consider it wise to stay away from the business of governance.

This may be due to an old relationship pattern between the government and the industry during the pre-liberalisation days of License Raj. The favour seeking relationship between Industry and Government, made politicians look at industry leaders, not as partners in growth, but a level below them. However, the time has changed, the industry leaders are active in the global market, not limited to India alone, solely dependent on government for their survival and growth. Many of Indian Industy leaders have established themselves as global business leaders and repeatedly figure in the top end of the global list of business leader. Even Indian professionals are heading large MNCs in different parts of the world with global clout Government of India is proud of.

In such a situation, it is natural to expect that Indian Industry Leaders to be a part of the transformational change of India. They have the capacity and concern for the nation, they need be more involved and not get limited to spending a percentage of profit and complying with the mandatory provisions of the CSR law.

CSR does not end there, in fact it starts from there. CSR is not 2 % of profit, it is 100 % of involvement in affairs of India.

About the author

CSR VISION
CSR VISION is India’s ( probably world’s ) first monthly magazine in print devoted to CSR and Sustainable Development for bringing together all stakeholders of SUSTAINABLE DEVELOPMENT at a global and local levels and act as a platform for promoting strategic CSR and sustainable development practices through dissemination of information and knowledge.