The changing face of corporate social responsibility

The issue of whether companies should indulge in philanthropy, or should this be left to individual shareholders outside the company, is an extensively debated subject. One perspective argues that since shareholders provide capital to managers for securing a return on their investment; as long as the managers operate the business within legal and ethical frame works, there is no need for philanthropy at the company level; shareholders can do personal philanthropy, if they so desire.

Alternative perspectives argue strongly for the company to give back to the society and to key stakeholders like staff, suppliers, customers, communities and the environment, at whose cost, profits are being made by the shareholders, if not the business will not be sustainable in the long run. Hence corporate social responsibility initiatives at the company level, is essential for the well being of all stakeholders and for the business to be sustainable.

But Corporate Social Responsibility and Philanthropy are different! Philanthropy is generally done without expectations of any returns; it is ad-hoc giveaways, which is less related to the core operations of the company. Contrarily, corporate social responsibility is more a ‘focused’ form of philanthropy directed towards specific stakeholders with clear expectations of a continued profitability in the long run.

As a part of corporate social responsibility, Indian companies’ contribution pattern mostly includes setting up schools, hospitals, community development, women empowerment, planting trees, nurturing art and culture. These are of course noble gestures, but more in the nature of philanthropy, remotely connected with their core business. Such initiatives are unsustainable, and can happen only till the point the company is profitable; more importantly, these ‘giveaways’ per say will not drive the company to remain profitable, as they are too small in scale to make any significant enhancement to the profit earning capability of companies.

Sustainability of sustainability initiatives

Integrating business strategies with sustainability initiatives, successful companies allocate resources to ensure well being of stakeholders which also enables the company to acquire a key differentiator vis-à-vis its competition, thereby making the business sustainable. Hindustan Unilever (HUL), for example, invests in research working with nutrition and health specialists in its ‘ready to eat’ food business striving to reduce salt to the recommended dietary levels, reduce trans fat from vegetable oil, sugar from ready to drink teas, and drastically cut calories in children’s ice creams. In its personal care business, it is moving towards ‘dry shampoo’ which refreshes hair between washes, reducing hot water consumption thereby reducing global warming. It is also systematically promoting ‘regular hand wash’ as a habit to reduce communicable diseases in adults and children. The packaging for Vaseline has been reengineered not only to cut plastics, reducing energy consumption but also made the product visually more appealing and functional. These initiatives not only position the products distinctively vis-à-vis the competitors and enhances brand equity, but also ensures well being of customers and the environment.

GE’s medical equipment division commits huge resources in ‘specific’ African countries donating equipment to enhance healthcare to low income groups. However, this also establishes the GE brand, and becomes a potential business for GE when such countries open up investments; to that extent it satisfies both the strategic and social sides of GE business.

Ford is a classic case of seamless integration of business strategy and sustainability initiatives; post 2008 crisis it committed resources to re-jig its product portfolio in favor of ‘small’ fuel efficient cars with least environmental impact and enhanced safety features thereby creating a unique brand positioning with minimal environmental impact.

With an objective to combat iodine deficiency, Tata Chemicals and HUL have pioneered iodization of salt. Their efforts in overcoming hurdles in getting iodine into salt, beating bureaucratic obstacles, investing billions of rupees in marketing and changing the mindset of the ‘below poverty line’ customers to pay that little extra for iodized salt, all of which are extremely challenging even for governments to accomplish. These efforts not only increased their market share and profitability but at the same time addressed one of the most important nutritional issues of national importance. Rather than paying donations, using core strengths to address social issues is the best form of sustainable corporate social responsibility!

Linking sustainability to business strategy can also improve access to supply chains. Given the global shortage of pulp-wood for paper board production, ITC and Ballarpur Industries are helping small farmers with degraded land pockets by providing them saplings, financial and technical support and an assured buy back of timber; this ensures sustainable raw material supply for the company, but also improves farmer’s livelihood. Such initiatives go well beyond monetary financial donations, and more importantly, is sustainable!

Social initiatives can also help enhance ethical values in society and at the same time can offer a distinctive edge to companies. Fluor Corporation, one of the largest construction companies in the world, worked for three decades with Transparency International to fight corruption; today its ‘anti-corruption’ movement has 150 large companies across industries having signed a ‘zero-tolerance’ policy on bribery. In industries marred by corruption, Flour is today perceived as an ethical player, thereby positioning itself with a significant competitive advantage.

Socially responsible initiatives has potential to improve employability in the society and at the same time provide companies access to skilled labor, a key driver of profitability across many industry sectors. Maruti has recently adopted forty Industrial Training Institutes (ITI) which not only enhances skill levels of youth making them employable, but in parallel, guarantees supply of skilled personnel to Maruti. Similar investments in skills training are done by companies like Microsoft, GE, Tata Steel and L&T.

Thinking socially and ensuring the well being of the stakeholders has the potential to become a basic necessity in business! Construction companies are polluting urban landscape today, but with more stringent environmental enforcements, successful companies would be those that leave minimal environmental footprint. In order to be sustainable, these companies need to seamlessly integrate construction management with environmental management using modern construction methods, better construction scheduling and usage of better building materials. All of these will not only position the company favorably with the customers, regulators and environmentalists, but also make it successful, providing better shareholder returns. The point is, companies cannot ignore key stakeholders, and expect to be profitable.

Integrating strategy and sustainability

Sustainability will eventually become strategic; competitiveness and profitability will be dependent on integrating sustainability into the operational framework, rather than leaving it out as an administrative or ‘corporate communication’ function! The future is expected to see the sustainability initiatives and core strategic initiatives closely intertwining such that it becomes extremely difficult to differentiate the two.

The new company’s bill stipulates a minimum spend towards corporate social responsibility, which is bound to be ineffective; companies realize the need to focus on social and environmental aspects which are important for its sustainability. They are also becoming highly vocal in publishing their achievements on these dimensions. Their sustainability reporting is bound to become more sophisticated to capture the changing face of corporate social responsibility. Irrespective of regulations, companies will have to tread this part, if they aspire to be successful!

(The Author is a management consultant)

COMMENT NOW