WHY CSR? WHY NOW?
How wonderful it is that nobody need wait a single moment before starting to improve the world.
—Anne Frank
If you doubt the impact that corporate responsibility strategy—even if incremental—can have on a big business's bottom line, consider the example of vending machines at Wal-Mart. After receiving employer-provided training on sustainability, Darrell Meyers, an associate (employee) in a North Carolina Wal-Mart store submitted a suggestion to remove light bulbs from the company's vending machines. Removing the light bulbs—which stayed lit 24/7 and needed to be replaced from time to time by maintenance workers—would help prevent wasting energy while saving the company money. As it turned out, Darrell's thinking was right on target. When his idea percolated up to Wal-Mart's corporate headquarters in Bentonville, Arkansas, someone ran the numbers and estimated that Darrell's suggestion would save the company more than $1 million a year.
Guess what? You'll be hard pressed today to find a vending machine in any Wal-Mart store or office anywhere that has a functioning light bulb in it.
This book is about corporate strategy and corporate social responsibility (CSR) and how you can leverage the power of branding and communication to ensure that your company's CSR efforts are noticed by the public, including customers, sponsors, partners, suppliers, employees, and shareholders. Remember: a lot of CSR is out there in the business world, but not a lot of it is effective CSR. And even of the limited amount of effective CSR strategy that exists, no company has yet captured the market on effectively communicating it in such a way as to maximize business value. Most companies are scared to death to communicate their CSR.
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In fact, many companies have been and are doing more—not less— in the world today to improve education, health care, and environmental protection, to name but a few key areas of social focus. The problem, however, is that they are not talking about it, and they are not telling their stories when recruiting new employees, branding new and existing products, or entering new markets. The result is that the average consumer, employee, government regulator, or supplier has no idea what if anything the company is doing when it comes to corporate social responsibility. They therefore cannot factor the company's CSR efforts into their choices when deciding what product to buy, where to work, or how to invest.
If this book has power, it is in convincing you that you can and should brand and communicate your CSR. Corporate social responsibility can help firms—particularly those in highly commoditized industry segments such as consumer products or banking and financial services— to differentiate their brand and stand out above the noise when price, quality, and convenience are relatively equal. This positive impact creates a competitive advantage for these firms both when markets are up and when they're down.
However, you cannot move to branding your company's CSR until you first agree on a definition of CSR and name it and second—and perhaps more importantly—develop an integrated CSR strategy with substance and business impact.
Exactly What Is CSR and What Should You Call It?
Unsurprisingly for a field that was catapulted so quickly from irrelevance to center stage, there is scant understanding of and agreement on what CSR is—and what it is not. CSR might simply be defined as “using the power of business to create a better world” (the definition offered by the global leadership network Net Impact). In my own work, I think of CSR in terms of corporate strategy, and I advocate that firms use CSR as part of their portfolio of business strategies. To that end, since 1998—and for the purposes of this book—I have developed and use the following definition of strategic corporate social responsibility: a business strategy that is integrated with core business objectives and core competencies of the firm and from the outset is designed to create business value and positive social change, and is embedded in day-to-day business culture and operations.
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The lack of a be-all and end-all definition of corporate social responsibility is no excuse for a company not to engage in CSR. Companies must consider the definitions given here—and others—and then quickly start by defining the term for themselves. If CSR is to be treated as a part of an effective corporate strategy, then its definition would be, by definition, unique to each firm based on that company's objectives, risks, opportunities, and competencies. In my experience, this is most definitely the case.
One challenge to nailing down a definition of CSR within organizations is that the concept of corporate social responsibility itself goes by many different names. What is called corporate social responsibility in one organization might be given the label spiritual capitalism in another. Below is a list of the most common labels used by companies in referring to the things they do involving CSR:
corporate responsibility
sustainable development
sustainability
environment, social, and governance (ESG)
social enterprise
global citizenship
corporate citizenship
values-driven business
natural capitalism
spiritual capitalism
compassionate capitalism
people, planet, profits
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I personally try to dissuade leaders from wasting a lot of time deciding on a name for their own CSR efforts. I advocate only that they indeed call it something, give it a name and use it consistently; that they define it for themselves as a company; and that they develop and execute a business strategy around the name, communicate it, and brand it.
As you read through the chapters that follow, please keep the strategic aspect of corporate social responsibility in mind. To me, this is ultimately what gives CSR its power to not only change the world for the better but to improve the company's bottom line. An effective CSR strategy can do all that while enhancing employee loyalty, productivity, and retention; while granting a company license to operate in new countries and markets; while giving a product or service a competitive advantage; and while giving a company a sticky brand story to tell in the marketplace. If you don't demand that both your CSR goals and your financial goals be achieved in parallel and together, then your corporate social responsibility program will likely be unsustainable in the long run. As soon as you have a down quarter, your CSR resources will be the first to be cut.
Why CSR Now?
I used to stay awake at night wondering if CSR was really as mainstreamed in the wide world as it was in my professional life. As someone who specializes in the field, it's easy to mistakenly believe that the entire world revolves around the object of my professional affection. That feeling grew particularly nagging when I moved to Berkeley, as so many things that are top of mind in Berkeley (tree sitters trying to keep a football field from being expanded is just one recent example) rarely hit the rest of the world's screen of top priorities. I knew from my voracious bedtime reading (that is, nonacademic reading) that issues of corporate responsibility graced every major magazine cover in this country during the course of 2007, and have continued to do so in 2008.
But it wasn't until I accidentally picked up an issue of a particular magazine one day that I become 100 percent convinced that CSR's time had finally come and that it had hit the mainstream. Why was I so convinced? Because the magazine in question—Sports Illustrated—is a venerated mainstream magazine that featured CSR, more specifically global warming, on its cover in March 2007.
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If the sports fans of the world were now getting CSR—and getting it in a way that truly mattered to them—then CSR was finally entering the mainstream of American thought. The Sports Illustrated feature highlighted the most popular and spectacular baseball parks in the United States, predicting that if global warming continues at its current pace half of them would be underwater and rendered obsolete by 2050.1 The issue also discussed Babe Ruth's famous slugging and predicted that if he had been playing today at the same strength as he did when he was alive, Ruth would not have hit nearly as many home runs due to higher levels of particulates in the air resulting from the degradation of our environment. Sports Illustrated brilliantly stuck close to its core competency— sports—while making CSR and climate change relevant to its athletics-loving readers.
A number of key factors have come together in the past few years, causing the idea of corporate social responsibility to explode and finally make its way into mainstream business thinking:
The impact of technology that gives citizens immediate access to transparent information and news at the click of a computer key or press of a cell phone button
Nongovernmental organizations' (NGOs') increasing sophistication in targeting corporate malfeasance
The shifting of resources and power away from governments and the public sector and toward the private sector
Workers demanding that their employers contribute to bettering the world
Pockets of consumer pressure
Generation Y (aka Millennials) proving to be the most cause-focused generation in decades
But of all the reasons, perhaps the single most important driver of CSR today is the expectations-reality gap. As Figure 1 indicates, the public's current expectation that business will operate in society's best interests has rapidly increased to an all-time high, while the public's perception that business is operating in society's best interests has rapidly declined to an all-time low. This gap is leading to an increasingly perilous erosion of trust in business.
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Figure 1. CSR expectations versus perceived performance (Globescan, 2005)
Across various surveys that are conducted annually, business is typically last or second to last among most-trusted institutions to operate in society's best interests, depending on what is happening in government that day.
Part of the challenge in this expectations gap arises because of the difference between perception and reality. To bridge this image-identity gap, companies must constantly work to build their CSR results, substance, and initiatives into internal and external brand stories.
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Self-Assessing Your CSR
Most companies are already engaging in CSR at some level. To develop an effective CSR strategy, you need to know where your company stands in the process. This requires self-assessment. Simon Zadek of AccountAbility—an international nonprofit organization that promotes accountability for sustainable development—discusses five stages that companies generally pass through when engaging in CSR.2 (See Figure 2.)
Stage 1: Most companies enter the CSR space as a defensive move, because somebody (employees, media, NGOs, government) has exposed poor behavior or practices and has pushed the company to improve. Think Nike when the company was exposed in 1998 for various human rights abuses in its Asian factories.
Stage 2: With the pressure on, company leaders know they need to do something to comply—preferably in a way that requires the minimum investment of precious financial resources while demonstrating to critics that the company is taking action to address their concerns. An example of this step is when every apparel company, in an effort not to be the next Nike, developed a supplier code of conduct and sent placards spelling out the code (in English, mostly to non-English-speaking countries) to every factory from which they sourced,
Stage 3: Ultimately, the company develops some sort of management process or system (for example, the ISO 14000 environmental management standards) so that responsibilities can be assigned internally, the actions can be measured, and they get done. But as with most things that are risk mitigating, these activities tend to be viewed as a cost to the company, not a value or opportunity. And without looking at CSR as value creating, innovation or creativity are lacking in the CSR activities.
Stage 4: Companies view CSR as part of their value-and opportunity-creating strategies, on par with their business development, research and development, branding, and market-entry strategies. Indeed, the trend is finally changing with CSR. When General Electric launched its Ecomagination program in 2006, it did so unabashedly with the view that this was going to become a value-creating strategy for the firm:
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Figure 2. Stages of CSR (Adapted by permission from Simon Zadek, The Civil Corporation: The New Economy of Corporate Citizenship [Sterling, VA: Earthscan, 2001], chapter 6).
Ecomagination puts into practice GE's belief that financial and environmental performance can work together to drive company growth, while taking on some of the world's biggest challenges. [Ecomagination is] about the GE commitment to products and services that are as economically advantageous as they are ecologically sound.3
GE is a great example of a company that finally views CSR as part of its business strategy—to sell more goods and services and create value for the firm. The Ecomagination program meets my own definition of CSR, as it also exists to create positive environmental value by focusing on increasing energy efficiency. Ideally, as more and more companies begin to view CSR as a business strategy—and succeed in creating value, including increased sales, entry into new markets, and brand differentiation— their competitors will follow suit and even collaborate, raising the entire civil foundation.
I argue that some of the best, most strategic CSR has been executed by firms that entered the CSR spectrum from a point of significant public pain: consider Nike and sweatshop allegations or GE and effluent dumping in the Hudson River. As it is for humans, pain (and the compelling desire to avoid it) can be a particularly effective motivator for businesses. So I tend not to get caught up in why a company was originally motivated to engage in CSR. For me, the ends justify the means, and even coming at CSR from a defensive or self-serving motivation does not take away from the resulting positive environmental and/or social contributions.
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Stage 5: The final stage in the CSR maturity process is when the company changes the rules of the game, raises the civil foundation, and indelibly changes society.
A company at the highest stage of corporate social responsibility embeds CSR into its daily business operations, collaborates with other companies, and attempts to change the rules of the game or attack a problem or social issue at its cause. A good example of this is Product Red, styled as (PRODUCT)RED, a brand collaborative that is licensed to American Express (United Kingdom only), Converse, Gap, Emporio Armani, Motorola, Apple, Hallmark Cards, Dell, and Microsoft. The idea is for a percentage of the profits of Red products to be sent directly to the Global Fund to Fight AIDS, Tuberculosis, and Malaria.
In this case, Gap reaches Zadek's stage 5, or civil stage, most profoundly in that not only does a percentage of the sales of the company's Product Red products go to the Global Fund, but it also tries to source the materials for these Product Red products from AIDS-, malaria-, and tuberculosis-ridden countries such as Lesotho to create economic development. Along with its Lesotho sourcing program, Gap has committed to support women, children, education, and health care in Lesotho. This is an example of Gap going deeper than simply a cause-marketing program but further integrating Product Red into its supply chain and sourcing strategy.
Why Now?—the Value of CSR
There has been much debate, disagreement, and discussion about the value of corporate social responsibility to the bottom line, as well as the constant search for the holy grail—a study that will directly and causally link CSR to an exact increase in share price. Unfortunately, this study does not and likely never will exist. The linkage of corporate social responsibility practices to increases in earnings has thus far proved to be indirect and correlational at best.
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The best evidence for the financial benefits of effective strategic CSR can be found in the areas of human resources, reputation, branding, and operational cost savings. For example, employees are significantly interested in, more highly satisfied with, and more loyal to companies that have a proven commitment to corporate responsibility. Therefore, CSR can be used as an effective strategy to recruit and retain top talent, a fact that has obvious positive implications for the bottom line. This strategy will be especially important as baby boomers leave the workforce in increasing numbers and a smaller pool of Millennials rises to take their place.
CSR can help firms to differentiate their brand and stand out above the noise in industries such as consumer products or banking and financial services where price, quality, and convenience are relatively equal. Particular demographics of consumers have proved their willingness to spend more, remain loyal, and prefer brands that support a cause or an issue about which they care deeply. And replacing high-wattage incandescent light bulbs with low-wattage, more energy-efficient fluorescent light bulbs; changing water fixtures to slow flow; and changing photocopiers to double-sided will decrease operating costs.
Like Wal-Mart, plenty of companies are doing things that are good for both the environment and the bottom line. But in order to recognize many of the business benefits of CSR, they have to strategically communicate their CSR efforts to employees, consumers, governments, business partners, and suppliers. To date, few firms have been aggressive or successful in building CSR into their brand, or in treating it as a viable sub-brand. This, I believe, is a grave error. But it is an error that can be righted by making CSR a vital part of a company's strategy. The next chapter talks about how to do just that.
