These days, the business of business is social responsibility

Jun 01, 2004 Management, The East African

This is the era of good corporate citizenship. As governments are rolled back all over the world, big corporations are rushing in to fill the void. Business is now the principal engine of growth and development the world over, and society demands that corporations contribute to the social, environmental and economic goals of the communities in which they operate. There is a widely accepted term for such activities: corporate social responsibility (CSR).

In East Africa, the CSR wave has hit the beach. Corporate dollars are funding everything from clean water to reforestation to university scholarships. Two regional giants, East African Breweries and British American Tobacco, have launched public corporate citizenship reports in recent weeks. Most large companies in the region have systematic CSR programmes and are falling over themselves to publicise them.

Why all the sudden largesse? Is this all a public relations game, or is there something more meaningful going on? Charles Handy, a widely respected management thinker, thinks that it is all a sign that “fundamentalist capitalism” has lost its sheen – that the supremacy of the shareholder and the dogma of the bottom line are in decline. The purpose of a business, he says, “is not just to make a profit, full stop. It is to make a profit so that the business can do something more or better.”

Sir John Browne, CEO of BP, articulated this further: he postulated that the business community is essential to delivering sustainable development, because only business can produce the technological innovations and the deliver the means for genuine progress. Businesses are long-term entities and need a sustainable planet for their own survival.

As corporations assume this new central role in society, their programmes aimed at community welfare and environmental protection can only be seen as a good thing. Or can they?

There are two objections to CSR: an old one and a new one. The old one dates back to 1970, when the right-wing economist Milton Friedman stated, famously, that “the business of business is business.” When directors, managers and employees give away the funds of the business, they are being charitable with money that does not belong to them. That money belongs to shareholders; let them play Santa Claus.

Forty years later a new objection is taking shape amongst NGOs and activist groups: That CSR is at best a sham, no more than window dressing. It is a branch of public relations, or a small part of the advertising budget. At worst it is a mask that hides the true face of corporations. By this reckoning, big businesses often have a devastating effect on the communities in which they operate, particularly in the developing world. They pollute water sources, exploit vulnerable labourers and corrupt governments. CSR, it is being claimed, is a wholly inadequate response to the harm done by large companies. Only legislation and binding regulations can shackle rampaging corporations.

How does a progressive firm respond to charges such as these? How does a CEO structure a CSR programme that goes beyond getting his picture in the papers?

Countering Mr. Friedman is not too difficult. The answer lies in the words “give away”. Today’s executives would argue that they are not giving away shareholders’ funds; they are in fact increasing their value. In today’s knowledge economy, a company’s value lies in its intangible assets: in its intellectual property and in the skills and experience of its workforce. And top of the intangible assets list is the company’s reputation. To build and maintain this reputation, a company has to actively manage the expectations of multiple stakeholders. Many studies show that companies that vigorously manage their stakeholders and nurture their reputations enjoy above-average returns.

Yet CSR must do more than pay lip service to a few pesky hecklers. To succeed, a CSR programme must become an integral and crucial part of the company’s activities. Like every major investment, it must be managed a strategic level – not by junior managers. And it must be driven by the values and principles that the company holds dear.

One such principle, advocated by Mr. Handy, concerns the taking of an ‘oath’. Companies, like doctors, should undertake to do no harm. They should voluntarily bind themselves to the equivalent of the ancient Hippocratic oath. Doing no harm means going beyond minimum legal requirements; it means taking the lead in environmental and social sustainability. It means pushing the curve out. It means becoming the agent of progress, not the despoiler who must be reined in.

Principle-driven CSR requires strategic energy. One of the major problems with the first wave of CSR initiatives was that they were whimsical – driven by the fancies (and egos) of CEOs and directors. This threatened their sustainability – new directors would often terminate their predecessors’ programmes as unnecessary. To avoid this problem, CSR must become embedded in the company’s strategy – and for all the right reasons.

Michael Porter, a Harvard University professor and renowned management guru, says that companies must focus their philanthropy to improve their own competitive context – the business environments in which they operate. CSR programmes can be used to sharpen a company’s own competitive edge – in addition to doing good to society at large.

How can this be done? Take American Express. It depends on travel-related spending for much of its credit-card revenues. So it has funded academies in 10 countries aimed at training students for careers in travel agencies, airlines and hotels. Local citizens gain jobs; AmEx makes visionary investments in its own industry.

Transparency International tackles corruption around the world. Corruption is a punitive cost of business for many global corporations; so 64 such companies sponsor TI’s activities worldwide. Again, the benefits are shared: local citizens are released from the withering grip of corruption; the corporations gain untroubled access to new markets.

East African corporations are learning to design these sorts of ‘win-win’ CSR initiatives locally. EABL, for example, works collaboratively with its suppliers to ensure sustained availability of inputs. It underwrites bank finance and provides training in good farming practice to barley farmers. It also recognises that clean water is not only essential for the well being of the communities in which it operates; it is also a key raw material for the brewing process. So it has invested in several ‘Water of Life’ programmes to ensure safe local water supply around its key operating locations.

To implant CSR in the work of the company, it has to become part of strategic management. DHL’s global head personally supervises its corporate citizenship policies, and leads a team that develops DHL ‘CSR champions’ throughout the organisation, at all levels. The aim? To implant social responsibility into the culture of the company, and to ensure that all staff participate in the development of sustainable programmes.

CSR programmes that meet business goals whilst simultaneously improving the lives of stakeholders are the way of the future. They will be sustained because they are not just acts of charity; they are core investments made by the company in its own future as a business. This is the challenge that modern CSR throws out to the forward-looking CEO: how to take good citizenship away from the flashing cameras and fleeting fame of public relations, and into the very heart of the company.

Let me end with the words of Mr Handy: “(Business) is, in itself, a noble cause. It helps make the good things of life available and affordable to ever more people. We should make more of it. We should…measure success in terms of outcomes for others as well as for ourselves.”