This is an extended recap (with links) of a presentation Dan Overall, MCC Director of Policy and Communications, made on the advantages businesses can gain from Corporate Social Responsibility (CSR). The presentation was made at the Manitoba Environmental Industries Association (MEIA) 2009 Emerging Issues Conference [Click here to find out more about MEIA and the Conference]:
“We have always known that heedless self-interest was bad morals. We know now that it is bad economics.”
Those aren’t my words, they belong to Franklin Delano Roosevelt (FDR), and he spoke them in 1937.
I start off with that quote because it is an example of one of three over-arching points I would like to make about my presentation in addition to my assigned topic of showing the business advantages of engaging in Corporate Social Responsibility (CSR).
Those three over-arching points are:
1) As the FDR quote suggests, CSR has been talked about in various forms for a long time. In fact, I could have gone even farther back to Henry Ford, to the founding of Hershey’s, and even Adam Smith.
The reason for this extended history is CSR is intimately connected to business in two ways. One, obviously, is the relationship between the vitality of a business and the community in which it resides. Two, I firmly believe that the seeds of CSR have always been embedded in the very idea of what it is to be a business.
In short, the growth of CSR is an evolution not a revolution for the business world.
This may sound like a philosophical point, but it is crucial because it is important to see CSR as a key element of your business’s DNA. To think of CSR as something that is simply added on after you have made your ‘real’ plans or as something that is imposed from the outside will get you in trouble.
2) CSR is coming at businesses from an amazing array of directions, many of which overlap and interconnect.
It is a huge mistake to compartmentalize CSR, to see it as a PR issue or a niche market issue or any other single issue.
3) Increasingly, authorities on business strategy are incorporating CSR into their thinking – i.e. CSR isn’t just being hyped by beatnik business owners and CEOs in sandals.
I can’t stress this enough – I am not talking about CSR advocates talking about business strategy, increasingly the elite of business strategy are talking in terms that echo CSR.
I think that speaks volumes about the power of CSR.
THE ADVANTAGES BUSINESSES CAN GAIN THROUGH CSR:
The Advantage of Survival – i.e. if the planet/our community goes under, so do our businesses:
This is another point that is arguably more philosophical. For those of you who feel that way don’t worry; I promise my points get more ‘directly linked’ to your bottom line as we drill down.
We have developed and expanded such incredible capacities to consume, create and destroy that increasingly we are seeing a planet if not in peril then at least challenged by a wide array of issues, from climate change to health/quality of life to scarcity regarding such things as water and energy.
Here is a sampling of some troubling numbers:
– Population growth:
1750: one billion people
1930: two billion people
1970: 3 billion people
1999: 6 billion people
– According to the World Health Organization suicide is now the 3rd highest cause of death among people aged 15 to 30
– In 2006 the State of California spent $3.5 billion on the state university system, while spending $9.9 billion on the state prison system
What does any of this have to do with business?
Think of the echo 6 billion people can make – for example, the impact on your fuel costs as China ramps up.
What happens to your skills needs, the safety of your business, and the impact of raging deficits on your finances if you live in a state that spends twice as much incarcerating people as it does nurturing post-secondary skills?
Each of these issues has an impact on business (and even presents opportunities) and they are becoming of such a scale and/or severity that they are hard to ignore.
Slowly but surely these issues are driving us from the old dominant western worldview of making distinctions and seeing differences to one that sees synergies and connections.
This ‘new’ worldview is driving a breed of business strategy that sees CSR as a basic survival skill.
The Advantage of Public Support:
The dynamic that is reshaping businesses’ attitudes towards society is also driving the public’s views of the role of business in society.
Interestingly, this isn’t just due to a planet in crisis; it is also the natural result of how business has sold its agenda:
- For example, suggesting that healthy businesses are good for the community – you know, the old “what’s good for G.M. is good for America.”
- In the rationale for tax relief (lower business taxes allow companies to create jobs and prosperity).
- And most recently in the bailouts in the U.S. and elsewhere which are sold to the public on the logic that these companies are too big to fail.
That steady diet is fostering an expectation that business is a key partner in the prosperity of society and, therefore, has some role to play when things go bad.
It is also emboldening the public in thinking that they have earned (through their tax dollars and in other ways) a right to have a say in what companies do.
Add to this public stew:
- a voracious media that loves or at the very least feeds off scandal and bad news,
- a government body that is under increasing pressure to cure society’s ills, and
- liability risks in the form of a) laws with wider nets and b) a growing sophistication in understanding (and therefore proving) the harms that certain companies/products do.
Businesses ignore these forces at their peril.
Collectively these matters are often referred to as the issue of ‘consent’ or ‘license to operate’ – i.e. a business needs to stay on society’s good side because it needs society’s permission to exist.
The Advantage of Customers:
Of course, that mentality affects how consumers, as part of the public, see and ultimately interact with (i.e. buy goods or services from) companies.
This trend is both spurring and spurred by the development of the ‘caring customer.’ The growth of the ‘caring customer’ has arisen from a wide array of trends: the hippie culture of the 60’s, the environmental movement, the civil rights movement, the ‘buy local’ movement and a rising level of health consciousness.
By the way, I do not mean to suggest each of those trends fits into distinct silos. As with so much of what I am talking about, there is considerable overlap and symbiosis.
And it isn’t just that these customers are more likely to have an opinion about CSR, trends are afoot that are making that opinion count as never before:
1) Those voices are growing louder. In fact, they are growing louder in two ways:
– First, their voices are being amplified by new distribution channels. Thanks to the viral nature of the internet/social networking the soap box has become the boom box. Compare the old days when an aggrieved customer would write a letter to the CEO (i.e. a target audience of one) to now where they can make a You Tube video that is viewed and shared by millions.
– Secondly, it isn’t just that customers have broader communication channels; their voices are becoming more important as businesses are increasingly relying on them to co-develop products. This is typically referred to as “crowdsourcing.”
Some of you may not be familiar with the growing trend of “crowdsourcing” so I will give you a quick example, Lego.
How Lego found its “crowdsourcing” groove:
In 1998 Lego released “Mindstorms”, a robot construction kit built around Lego bricks. Within weeks someone had reverse engineered the microchips in the bricks and posted the information online. Others downloaded that information and started designing their own Mindstorms tools (including a completely new operating system and a programming language to replace the one Lego had designed).
At first Lego worried about its loss of intellectual property, but as the online community grew it realized an intensely devoted following was developing for Mindstorm, that fan base was enhancing the creativity and range of the product’s applicability, and it was providing Lego with a free source of innovation.
By participating in online discussion forums Lego found the four most respected Mindstorms users and called them to help with the design of Mindstorms version two.
Here’s how one of the four responded (note the passion and power of these words): “They’re going to talk to us about Legos, and they’re going to pay us with Legos? It doesn’t get much better than that.”
Later the group grew from four to fourteen and then Lego invited another hundred devoted customers to test the prototype.
The result? Mindstorms Version 2.0 sold 40,000 kits in a year, making it Lego’s best-selling product ever. Oh, and that happened with no advertising.
The source for this story is “Group Genius: The Creative Power of Collaboration” by Keith Sawyer. It’s a fantastic book.
Now imagine how much more likely a customer is to speak up if they feel betrayed or annoyed by what you do if they helped develop your product? And imagine how much more likely you are to listen to your customers if they play a role in helping you be innovative and hip.
Jay Handelman has said that companies no longer have full control over their brand and I think that is exactly right.
Run afoul of a CSR issue and chances are your customers will have both the desire and power to rip your brand (and profitability) to shreds.
2) As never before customers are also empowered by their ability to spend elsewhere. In fact, they aren’t only empowered by choice, they are besieged by it; so much so that we are in the world of “purple cows.”
“Purple cows” comes from marketing guru Seth Godin and it is his metaphor for the challenge businesses face in oversaturated markets where customers have less and less time, are besieged by more and more ads, and are therefore increasingly tuning out our messages/advertising.
If you are driving along the country side and see some brown cows, chances are you will tune them out and keep going as brown cows are boring (you have seem them tons of times). But if you saw a purple cow you would likely stop and stare because a purple cow is noteworthy, it is remarkable.
Godin says in the oversaturated world being ‘remarkable’ is the name of the game – you need to be remarkable (worth remarking about) to get on the radar screen of customers.
What does this have to do with CSR? CSR is a way to be remarkable. CSR is a way to get noticed and talked about: in the way you do things, what you sell, and how you interact with the community.
One side note on the topic of customers and CSR, I am often asked what is the size of that market – how many CSR customers are there? I do not know for sure; I have seen so many different numbers I have given up trying to figure it out.
Although I do know this: yes, it may be a fraction of the total market but it is growing. I also know many companies are profiting from it. And I know the size isn’t that important, because if it is small you have a niche market that can be a powerful trend-setter and if it is large, then clearly there are large opportunities.
The Advantage of Employees:
Of course, employees are experiencing these trends as part of the general public and as consumers in their own right, so CSR is a great way to attract and engage employees.
It’s a point echoed in this quote:
“The number of people who are really motivated by money is very small. Most people need to feel that they are here for a purpose, and unless an organization can connect to this need to leave something behind that makes this a better world or at least a different one, it won’t be successful over time.”
Those are words of wisdom from Peter Drucker, one of the preeminent authorities on business management. Interestingly, other quotes from Drucker were cited in “The Corporation” as proof that there is an incompatibility between sound business management and CSR.
I am going off on a bit of a tangent here but Drucker is a perfect example of how there actually is a harmony between sound management and CSR if you are open to seeing it.
Here is one more quote from Drucker before I return to my discussion of employees and CSR:
“In the half century after the Second World War, the business corporation has brilliantly proved itself as an economic organization….In the Next Society, the biggest challenge…may be its social legitimacy: its values, its mission, its vision.”
Back to the CSR advantage of providing meaning and inspiration to your employees: here’s the kicker, as brains increasingly matter in the market (it’s called the ‘knowledge economy’ for a reason) the real worth of a company comes and goes through the door each day with its employees. That means companies will bust a gut to make sure their employees are happy and fully engaged.
In other words, CSR is becoming more important to your employees as your employees are becoming more important to you. Unless you are in a commodity business where low-skilled employees are cheap and plentiful you ignore this connection at your peril.
The Advantage of Profitability:
There are many ways that CSR can directly benefit your bottom line:
– New Products & Product Differentiation: I talked about this before regarding Seth Godin. Another example is poverty reduction and the fortune at the bottom of the pyramid discussed by C.K. Prahalad. It’s a strategy that is also being embraced by GE in conjunction with its eco-imagination efforts.
– Green = lean: There is a clear parallel between the ‘eliminate waste’ of the green movement and the ‘eliminate waste’ focus of lean manufacturing (and all the other branches of lean management).
– Green = making businesses sustainable: If you want your business to be sustainable it only makes sense to look at your impact on the environment. For example, fearing a shortage Mars and Cadbury are working with planters to help grow cocoa sustainably.
– Cultural Diversity and sensitivity = a valuable workforce: A business seeks to diversify its workforce and embrace all cultures so as to better reflect, and therefore appeal to and serve, its community. Is this CSR, sound management, or both?
Moving From ‘Why’ to ‘How’:
I understand the rest of the members of my panel will be discussing the ‘how’ of CSR but I wish to say just a few words on this topic. Again, I will expand on this concept with links on the posted version of this presentation.
Michael Porter has a great article on this issue.
Before I get to the article I want to talk about Porter’s background because it echoes one of my arching points about eminent business strategists talking about CSR.
Porter is a professor at the Harvard Business School and has a stellar résumé. He made his reputation analyzing how companies and jurisdictions compete. Again, I think it speaks volumes when one of the preeminent authorities on how businesses compete talks about CSR.
The article is called “The Link Between Competitive Advantage and Corporate Social Responsibility”. It is co-written with Mark Kramer and available in Porter’s wonderful book On Competition – Updated and Expanded Edition or (for a price) as an article at the Harvard Business Review site here.
They do offer a summary for free which is here, but I am going to take the liberty of recapping what I hear Porter and Kramer saying.
For starters, do not confuse the push of the ‘why’ with the execution of the ‘how’.
The danger of simply being driven by the ‘why’ is two-fold:
- Most of the ‘why’ is reactive, so that means you will always be in danger of playing catch-up. That’s no small risk as some of the hits a company can take in being slow on CSR can really set a company back.
- Being driven by the ‘why’ (or even simply doing CSR because you want to do good) does not provide the guidance you will need to make the hard trade-offs that businesses are often called to make.
For example, when Google had to decide between entering a market like China and respecting the Chinese government’s restrictions on user content on the one hand or rejecting that market in honour of its U.S. customers’ hatred for censorship on the other hand. Or when a pharmaceutical has to figure out how to allocate resources among subsidizing care for the poor, developing new cures, and providing dividends to investors.
Porter calls for a more strategic approach, one that moves past seeing the interrelationship between business and society as one of tension (akin to a reactive approach) to one of harmony/inter-dependence, where a business’ actions serve both itself and the community.
He says you need to understand that harmony while anchoring it in the strategies and activities of your company:
“…a company must integrate a social perspective into the core frameworks it already uses to understand competition and guide its business strategy.”
The next step is to recognize that any social issue affecting a company will fall into one of three basic categories:
Generic Social Issues:
Social issues that issues may be important to society but “… are not significantly affected by a company’s operations nor materially affect its long-term competitiveness.”
Value Chain Social Impacts:
“Social issues that are significantly affected by a company’s activities in the ordinary course of business.”
Social Dimensions of Competitive Context:
“Social issues in the external environment that significantly affect the underlying drivers of a company’s competitiveness in the locations where it operates.”
The same issues will impact different companies differently. For example, Porter notes that carbon emissions may be a generic issue for a bank, a negative value chain impact for a transportation company like UPS, and both a value chain impact and a competitive context issue for a car manufacturer like Toyota.
The last step is looking at these categories from your own context, moving from a responsive to a strategic focus:
- Acting as a good corporate citizen, attuned to evolving social concerns.
- Mitigating existing or anticipated adverse effects from business activities.
- Transform value-chain activities to benefit society while reinforcing strategy.
- Strategic philanthropy that leverages capabilities to improve salient areas of competitive context.
It is a wonderful article, certainly one of the best I have seen when it comes to providing a ‘nuts and bolts’ approach to the ‘how’ of CSR.
I will close by reading a publisher’s description of a book, “The Necessary Revolution: How Individuals And Organizations Are Working Together To Create A Sustainable World” by Peter M. Senge, Bryan Smith and Nina Kruschwitz:
Imagine a world in which the excess energy from one business would be used to heat another. Where buildings need less and less energy around the world, and where “regenerative” commercial buildings – ones that create more energy than they use – are being designed. A world in which environmentally sound products and processes would be more cost-effective than wasteful ones. A world in which corporations such as Costco, Nike, BP, and countless others are forming partnerships with environmental and social justice organizations to ensure better stewardship of the earth and better livelihoods in the developing world. Now, stop imagining – that world is already emerging.
A revolution is underway in today’s organizations. As Peter Senge and his co-authors reveal in The Necessary Revolution, companies around the world are boldly leading the change from dead-end “business as usual” tactics to transformative strategies that are essential for creating a flourishing, sustainable world. There is a long way to go, but the era of denial has ended. Today’s most innovative leaders are recognizing that for the sake of our companies and our world, we must implement revolutionary-not just incremental-changes in the way we live and work.
I quote these words for two reasons.
Firstly, those words convey what I have been trying to say, probably a lot more eloquently than I have.
Secondly, Peter Senge is another one of those iconic business strategists, having made his fame on studying and explaining “the learning organization.”
It is just one more example, and the list is growing, that shows CSR is the real deal; that we are at a point where we can, indeed must, consider CSR as a key component of our business strategies – for our own sake as well as our community’s.