Thursday, 2 September 2010

Corporate Social Responsibility (CSR) - A socially responsible investment?

Yesterday, the Net Impact Club of ISB hosted a Panel discussion on "Corporate Social Responsibility (CSR) - A socially responsible investment?" PS Narayan (Wipro), Janet Geddes (KPMG), Unmesh Brahme (formerly with HSBC), Mudit Kapoor (ISB) were my co-panelists.

I was the first speaker; this is what I said in my opening remarks. Highlights from what other panelists said in their remarks, as well as the questions & comments by the audience are mentioned in italics, integrated into the text of my remarks for the sake of seamless reading thematically...

Is CSR good, bad or ugly? Actually, it is not one CSR and therefore there can't be one view. I see four steps in the CSR ladder. Pick your step and stick your label :)

Step 1 in the CSR Ladder: Earn Profits. Pay Taxes. Leave the rest to Governments.

Traditionalists argue that the focus of business enterprises should be strictly on satisfying the shareholder desire for a return on their financial investment to the exclusion of other non-financial stakeholders.

Are Corporates economic citizens? Or socio-economic citizens?

Corporates as artificial entities should have no social responsibility, real individual people must have a social responsibility.

Generating profit by servicing consumers in a competitive environment is the most socially responsible act of a Corporate.

Is CSR a way circumvent the society's perception that profits are bad?

Step 2 in the CSR Ladder: Implementation of Core business activities with broader responsibility towards all the stakeholders.

Demonstrate positive economic, environmental and social performance over long term. Triple Bottom Line Reporting along these lines. Since these activities are cost / investment intensive in the short run, these are typically supported by the market mechanisms such as Green Taxes, Emission Trading etc. Many times there also conflicts in trading-off interests of one stakeholder vs another. At a threshold level, typically such responsibility is driven by statutes too. Many companies go beyond those threshold voluntarily and adopt higher standards.

Are the three bottom lines mutually exclusive or reinforcing?

Most ethical companies are also the most profitable, per a global survey...

Corporates must look at all their spheres of influence viz. workplace, local communities, environment and supply chain & marketplace

Step 3 in the CSR Ladder: Poverty and environment focused social investment and philanthropy programmes.

Approaches vary from a simple Write-a-Cheque, to Venture Philanthropy, to Strategic Philanthropy. While write-a-cheque simply brings financial resources from Corporates, Venture & Strategic Philanthropy approaches bring other corporate resources such as management & entrepreneurial skills multiplying the impact. Any which way, scale & sustainability of charity is limited. Most typically

How do you decide how much money you put into CSR programmes?

What are the metrics of success of a CSR programme?

CSR is a social license to operate in backward districts, especially if you are in industries that extract from community resources, such as mining.

Is CSR a license to kill? As in extractive industries harming the environment!

Corporates have an ability to do good. They should see this as a responsibility to do good, because society is in dire need of good deeds.

Trying to solve world's problems, just because we have capability is arrogance! Patronising!

Isn't the best way to deploy CSR funds through supporting Social Entrepreneurs?

How many CSR initiatives are really scaled? To make any meaningful impact?

Doesn't a lot of employee volunteer work end up as a picnic, without any real work on the ground?

Even a picnic is good; better than not doing any good at all...

CSR funds are no more than a "tax" by Corporates on the market - by raising consumer price, paying lower salaries to employees, lower dividends to the shareholders or lower prices to vendors. This is more true in non-competitive markets, where corporate have such pricing freedom.

Focus of my talk today is to share ITC's experiences in adding the Fourth Step to this CSR Ladder: I refer to ITC's innovative business models, wherein our need for creating shareholder value is enmeshed with that of local communities in a mutually supportive, interlocking and interdependent partnership… ITC's eChoupal, Farm Forestry are in this league. Agarbattis is another business on similar lines!

Emerging economies, in particular, offer a low hanging opportunities to create such enmeshed models. Typically small producers have constrained access to markets, whether for information or knowledge, for inputs or output. As a result issues like low productivity, low share of consumer price, high transaction costs limit the incomes of these producers. Demand signals also aren't transmitted to these producers effectively, for them to be able to respond to changing consumer needs. On the other hand, corporates who source from these small producers suffer too, from high transaction costs, poor quality and delivery schedules, lack of traceability to product source point and so on... Corporates can invest in R&D, appropriate infrastructure and integrate these producers into their value chains to improve coordination, cut transaction costs, enhance quality, increase productivity to create win more - win more relationships. Higher the Corporate efforts to increase incomes of the poor, more the profits for Corporates themselves from such relationships. As a result scalability ans sustainability of such models is never a strategic challenge. Value chain integration can effectively deal with several environmental aspects too.

In ITC's eChoupal and farm forestry examples, the social impact is through better livelihoods to small farmers and poor tribals. Conservation Agriculture and Carbon Sequestration deliver environmental benefits, while competitive sourcing of high quality farm / forest produce bring the economic benefits to ITC.

While executing such initiatives, it is very important that the communities themselves are fully co-opted into the design and execution of the business models. This ensures relevance of the solutions as well as lower costs. On the other hand, one has to work closely with Governments to ensure that subsidies do not unduly distort the markets.

Typical drivers of CSR: Enhanced Reputation, Employee Motivation, Economic Advantage, Risk Management, Innovation & Learning, Statutory Compliance

Consultants help in CSR strategy formulation, due diligence, monitoring & evaluation, organisational development

If companies are indeed genuine about CSR, they shouldn't be part of Corporate Communications or Corporate HR...

CSR strategy gets formulated by corporates based on their perspective of themselves; whether they are Pure Capitalists (markets will deal with all issues), Social Contractors (explicit & implicit expectations from society) or Ecologists (we are but one of the species on this planet living at a point of time)

Mobius strip can be seen as a metaphor for the complex global challenges

Push factors for CSR: Environmental Conflict & Climate Change; Pull factors for CSR: Opportunity for inclusive business growth

Is regulation the path go down in India? Or leave to the discretion of Corporates?

How do we rope SMEs in to CSR mindset? Even workplace fairness, to start with...

Is India ready to buy green products at higher prices?

How to bring CSR & sustainability thinking into B-schools?

Is bringing affordable consumer goods to BoP CSR?

Isn't dealing with Naxalism a business agenda? How many CEOs want to have a serious action plan for this?

General bias of the hall, as sensed by me, at the end of the panel discussion was " Corporate Philanthropy is bad CSR. Making profits is good CSR. Models that enmesh business & community interests is the best CSR! "

8 comments:

  1. How many CEOs rue about the fact that we have insufficient human resources particularly at the very top? How many of the Indian corporates sponsor technological research in public institutes in India? Though corporates perforce lobby the government but even those who are good at the game are sometimes at the receiving end. How many corporates fund public policy research studies? There are some Indian companies that spend shareholder funds in activities which can very well and should be funded by their promoters' personal wealth. Corporate philanthropy should only concern itself with what is in the real interest of the company.

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  2. Extremely insghtful article, given your extensive experience. I am sure you would have read the article published in Economist in May 2005 written by Ian Davis, the worldwide managing director of McKinsey which kind of speaks of similar ideas.

    I am sure views of some of the ISB students will change as they mature and gain more experience both in life and work.

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  3. Thanks Bagdu, for bringing out some vital areas that Corporate Philanthropy can focus on...

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  4. Thanks Anirban. Saw Ian's "The Biggest Contract" now; appreciate your suggestion. Yes, this debate about Business v CSR has been going on for a while... It's a good call by him to Corporate CEOs to capture the intellectual & moral high ground from the critics

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  5. Shiv: The Business of business will remain business! Practicing acts of responsibility is no longer a choice, but a necessity. Am not sure how they did it or how the larger civil society reacted when our Navratnas/ PSUs (also extraction businesses) were set up?

    Corporate Philanthropy, Private philanthropy and CSR cannot be enmeshed. Ref. Tata Trusts and TCCI; Wipro Cares and Azim Premji Foundation - are the best egs I can use to illustrate

    Philanthrocapitalism (Mathew Bishop & Michael Green), Creative Capitalism (Kinsley) throw some interesting ideas for discussion. Of course there is the old Eat the Rich (PJ Rourke) and Jeff Sachs - The End of Poverty from past years.

    Agree business schools need to teach them young but may want a more balanced exposure.

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  6. Thanks Priya, for referring several cases and writings that will broaden the discussion. Yes, "balanced exposure" is the key phrase; after that, it"s for the individual to form a bias...

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  7. According to a recent McKinsey global survey, many executives doubt that their corporate philanthropy programs fully meet their social goals or stakeholders’ expectations. But an effective philanthropy program can deliver far more than simply enhancing your company’s reputation.

    Top business leaders share their insights about proven, key strategies for ensuring an effective and sustainable corporate philanthropy program.

    Business leaders in this video include:-

    Pam Flaherty, President & CEO, Citi Foundation & Director of Corporate Citizenship, Citi Group

    Deidre Lind, Executive Director, Philanthropy, Mattel

    Adrian Lathja, CLO, Accenture

    Tim McClimon, President, AmEx Foundation

    Caroline Roan, VP of Corporate Responsibility, Pfizer & Executive Director of the Pfizer Foundation

    Watch this insightful video @ http://bit.ly/fBp2GZ

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  8. Many thanks for this link, Petrus :)

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