Executive Summary:
Concern with corporate social responsibility (CSR) is growing like a wildfire. In 2006, about 10 percent of assets under management in the United Stated - an estimated $2.3 trillion out of $24 trillion - were invested in companies measuring highly on some measure of CSR. In 2007, 64 percent of the Fortune Global 100 published a CSR report outlining their economic, environmental and social performance. In "Understanding and Developing Strategic Corporate Social Responsibility" (published in Organizational Dynamics, April 2008), SMU Cox's Assistant Professor Peter Heslin and Cox alumna Jenna Ochoa offer a fresh and practical way to grasp and strive for prosperity through prudently focused CSR opportunities.
Only for Greenies and "Do-gooders"?
Business leaders are increasingly more concerned with how their organization can prosper from addressing social and environmental challenges. But they tend to inadequately appreciate the subtle though critical differences in organizational competencies and contexts whereby a given practice enables one firm to fly, but others to flounder. In contrast to off-the-shelf or spontaneous "good deeds," strategic CSR initiatives are derived from careful analysis of each organization's unique culture, competencies, and strategic opportunities. Developing prudent CSR is thus much less a matter of organizational imitation than real-time customization.
With growing recognition of looming human and environmental crises, there is a groundswell of public and private sector organizations striving to address sustainability issues. Governments, organizations, and individuals can and often do "vote" their social preferences through what they purchase, where and how hard they choose to work, as well as where they invest. Almost 5000 organizations from 120 countries are now members of the United Nations Global Compact (UNCG), established in 1999. UNGC member organizations include Accenture, Cisco, Coca-Cola, eBay Inc., Hewlett-Packard, Levi Strauss, Microsoft, Pfizer, Sun Microsystems and the Dow Chemical Company. Each has formally pledged to abide by and integrate into their business practices the ten UNCG principles focusing on upholding human rights; abolishing child labor; promoting environmental stewardship; and reducing corruption (see www.unglobalcompact.org/).
Prospering Through CSR
Cutting edge CSR is more than corporate philanthropy. Organizational myopia regarding short-term profitability can be addressed by exploring how five key drivers of business prosperity can be positively affected by CSR initiatives.
1) Growth in market share. CSR initiatives have the ability to open up new markets, especially in developing economies. For example, in Great Britain, sales of Fair Trade products - including coffee, bananas, chocolate, and flowers - increased by 51% between 2003 and 2004. Companies who find a way to engage with the world's poorest citizens alleviate poverty and improve economies. Aravind Eye Hospitals in India perform 200,000 cataract surgeries per year for circa US $50 per patient. In 2001-2002, the hospitals posted a profit of US $46.5m.
2) Organizational learning. Strategic CSR programs provide opportunities for organizations to learn from the projects they invest in and use that knowledge to build core competencies, without the time pressure and other constraints of commercial contracts. When Bell Atlantic undertook Project Explore in Union City, New Jersey in the early 1990s, it strived to improve inner city children's learning with technology. These insights led to a patented and profitable technology that became Bell Atlantic Infospeed DSL.
3) Committed and engaged employees. A 2006 survey of 2,100 MBA students by Net Impact revealed that 59% of respondents planned to seek socially responsible work immediately upon graduation, with 79% intending to seek out socially responsible work at some point in their careers. A compelling example is Anne Mulcahy, chairman and CEO of Xerox. She chose a position with Xerox because of the reputation of the sales department as a meritocracy, rather than an old boy's club. And she has stayed over 30 years: because of its commitment to corporate citizenship, Xerox attracted and retained the future acclaimed CEO.
5) External stakeholders. Successful businesses contribute to robust economies and livable communities. External stakeholders often view CSR programs as a measure of the trustworthiness of an organization. In 2007 when two private equity firms sought advice for their bid on the large utility company TXU, Goldman Sachs advised that the buyout plan be modified to accommodate more environmentally sound practices. Specifically, Goldman Sachs urged their clients to insist that the number of new coal-powered energy plants that TXU planned to build be drastically reduced from eleven to three, and that the dollars saved be invested in an alternative energy source such as wind power.
6) Financing and investor relations. An organization's CSR performance attracts attention from financial analysts and investors. Ceres, a coalition of over 80 investor, environmental and public interest organizations, periodically ranks 100 global corporations on their strategies for curbing greenhouse gases. The amount invested in "green" mutual funds in the U.S. rose 695% in the last six years. During the last three years, the amount of money invested in clean energy has reached US$70.9b globally.
Firms such as Citibank and Goldman Sachs carefully assess the foreseeable environmental impact of their lending decisions in developing countries. Some banks offer discounted financing for projects that will be built using "green" construction standards. ShoreBank Corp of Chicago, for example, employs a triple bottom line manager who assesses implications for people, planet, and profits of loans for green building projects. In May 2006, the California Public Employees' Retirement System (CalPERS) - the largest public pension fund in the US - banned investments in nine companies that do business in Sudan until the genocide is halted. Talisman Energy of Canada withdrew from the Sudan after CSR-driven divestments by investors in the US and Canada led to a 35% decline in its share price.
Strategic CSR Principles and Practices
Heslin and Ochoa offer the following seven principles, not as a checklist of best practices, but as an illustrated conceptual springboard for creatively identifying and developing unique strategic CSR opportunities.
Table 2
Strategic CSR Principles and Exemplary Practices
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Strategic CSR Principles
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Corporation
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Exemplary Strategic CSR Practices
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Cultivate Needed Talent
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Marriott
Microsoft
GlaxoSmithKline
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Provide extraordinary career opportunities
Nurture required IT talent
Expand access to medications
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|
Develop New Markets
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Philips Electronics
Globe Telecom
Whole Foods
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Produce resource-efficient products
Create first-time consumers
Specialize in organic products
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Protect Labor Welfare
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Levi Strauss
Odegard & Rugmark
Starbucks
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Replace exploitation with education
Certify ethical production
Enhance farmers’ productivity & welfare
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|
Reduce Your Environmental Footprint
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DuPont
Ethel M
Norsk Hydro
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Create more value & less “stuff”
Produce abundant life from wastewater
Renew raw materials
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Profit From By-Products
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Fuji Xerox
Shaw Industries
Manildra
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Redesign products for learning & profits
Adopt cradle-to-cradle manufacturing
Convert grain & starch waste to fuels & food
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Involve Customers
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Target
Hewlett Packard
Patagonia
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Enable customers to improve education
Reduce the environmental cost of IT use
Educate & engage customers
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Green Your Supply Chain
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Nestle
Wal-Mart
S.C. Johnson
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Optimize transportation
Reduce packaging across the supply chain
Identify, publicize & reward greener alternatives
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Heslin commented that strategic CSR is a potentially powerful lever for attracting, motivating, and retaining the most committed and productive available employees: "Because an increasing number of people seem to appreciate that we live in an interdependent world on a fragile planet, providing people with work that makes a difference could give organizations an edge in the war for talent," he says. "At the same time, firms and the people who work at these organizations will be doing their bit to provide a decent future, on a habitable planet, for our children and their children."
Making It Happen
The benefits of strategic CSR can be substantial, but so too are the potential challenges encountered in making the organizational changes. Thus the following is recommended:
1) Focus Your CSR Initiatives. Based on careful analysis of your organization's strategic challenges and opportunities, initially focus on just a few CSR initiatives that promise to yield both business value and social/environmental contribution. Firms should prioritize rather than diluting organizational resources with an overly ambitious range of CSR initiatives.
2) Identify and Engage Relevant Stakeholders. Stakeholders encompass employees, managers, suppliers, subcontractors, customers, shareholders, local communities, government regulators, and interest groups. Heslin and Ochoa discuss how a Greenpeace campaign against Shell UK exemplifies the impact interest groups can have on organizational operations. Proactive engagement with environmental stakeholders early in the process - especially for potentially environmentally sensitive projects - could have saved Shell substantial distress.
3) Grapple with Inevitable Ethical Dilemmas. Reducing costs by moving production overseas can trigger thorny ethical dilemmas. These include decimating the viability of small hard-working communities that are highly dependent on a particular manufacturing facility, as well as the challenge of ensuring that cheap production costs are not the result of human exploitation. Organizational leaders need to carefully consider relevant ethical principles that pertain to their business operations, such as those outlined in the UNGC. A reasoned assessment of the short-, medium-, and long-term foreseeable positive and negative consequences for all stakeholders is necessary. Engaging with stakeholders to craft unique solutions - as illustrated in the paper regarding how Levi Strauss dealt with their child labor issue - can be challenging though prudent.
4) Develop Appropriate Metrics. What gets measured in organizations is what gets done! Organizations need to make a fundamental shift in measurement systems beyond traditional operational and financial metrics. The triple bottom line perspective of assessing the impact of organizational operations on people and planet, as well as profits, can be helpful in this regard. A good example, the Leadership in Energy and Environmental Design (LEED) Green Building Rating System™, provides building designers, developers, owners, and operators with performance measures in five key areas of human and environmental health: sustainable site development, water savings, energy efficiency, materials selection, and indoor environmental quality. The system was effectively deployed in constructing the acclaimed new Embrey Engineering Building at SMU.
5) Embed in Senior Leadership and with Rewards
Senior management needs to play a crucial role in championing, guiding, and nurturing potential CSR initiatives if they are to become a fundamental aspect of business operations - and more than an expression of "good will." It can take time and perseverance for all organizational members to appreciate the business imperative and benefits of truly strategic CSR initiatives.
Wall Street and investors world-wide are paying attention to CSR, though as the authors discuss, the immense profitability of Exxon illustrates that commitment to CSR is not absolutely required for business success. On the other hand, CSR initiatives have an overarching concern that resonates with something more fundamental. As Martin Luther King said, "Life … comes into being when individual rises above self to something greater … to the broader concerns of all humanity."
"Understanding and Developing Strategic Corporate Social Responsibility" by Dr. Peter Heslin of the SMU Cox School of Business and alumna Jenna Ochoa (PMBA) is published in Organizational Dynamics, April 2008, and is downloadable from http://www.cox.smu.edu/academic/professor.do/pheslin |
