Thrivikraman Subramanian
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CORPORATE SOCIAL RESPONSIBILITY: EVOLVING A NEW BEGINNING Thrivikraman Subramanian ‘The social responsibility of business is to increase its profits’ argued Milton Friedman in 1970.1 Readers would perhaps find it amusing that the businessman Henry Ford observed otherwise - ‘A business that makes nothing but money is a poor kind of business.’ With both mindsets reflecting equally valid arguments, it is not straightforward to propose a solution. Solutions are after all framed for problems. And framing a solution to a problem requires an understanding of how the problem came into existence. The Birth of Corporate Conscience “Did you ever expect a corporation to have a conscience, when it has no soul to be damned and no body to be kicked? (And by God, it ought to have both!)”. First Baron Thurlow The former Lord Chancellor of England sums up society and governments’ early attitudes to the ‘Corporation’. It is no wonder then that corporations initiated large-scale welfare programs to demonstrate that wealth played an important role in social development. The prime purpose was to indicate the good virtues of the corporation, rather than as a duty or responsibility. Such an approach would typically be exemplified by a Detroit automobile manufacturer making millions in profits, yet suffering because of poor HR practices, yet getting praise for building libraries and schools in South America. Gradually, with the growth of stakeholder theory, corporations began to see themselves as part of a larger social system. Essentially, this recognized corporate performance in non-financial areas like business ethics, governance, workplace issues and reputation capital.2 With the above approaches still in widespread practice, the obvious question arises as to why McKinsey’s 2007 surveys prove that Corporate Social Responsibility is only a flashing fad. A Misunderstood Ideology “I think that today, more so than ever, corporate responsibility is the best strategic as well as financial path that most businesses can follow. Of course, how you define "responsible" is somewhat of a conundrum.” Jeffrey Hollender
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Thrivikraman Subramanian
And duly so. A lack of in-depth understanding of corporate social responsibility has meant that few corporations do it well. For some, it is a box-ticking exercise that interferes as little as possible with growth and profit. For others, it remains a public relations extravaganza with grandiose 3000-page reports and 5 star conferences. The common denominator between these approaches is that they re-write CSR in the manner that makes it easiest for them to dismiss. This fast-food approach has created a large gap between the discourse and practice of CSR, resulting in most corporations doing something, ‘anything’ to benefit society. Like the servant Papageno in Mozart’s ‘The Magic Flute’ who subjects himself to a bizarre series of rituals to gain admission to an elite brotherhood, corporate social responsibility today is a fashion parade to win applause for saying the right things in the right reports – almost as if winning the silence of the skeptics matters more than the affirmation of those who can weave it into every day practice. However, this superficial and reactionary approach has seen calls for change. According to a recent report by the International Institute for Sustainable Development, it is already common for Chilean industry leaders to talk of moving from the traditional philanthropy/stakeholder approach to an instrumental version that provides businesses the tools to capture and sustain competitive advantage.3 Further still, a Chatham House report criticizes corporate social investment in South Africa for its bolt-on nature with no relation to the core business.4 This slowly growing movement for a new CSR has occurred because of the corporation’s inability to delineate between social accountability and directing a for-profit business. The fiduciary duty to operate an organization and maintain corporate readiness seems to collide with the suggestion of a corporation’s role with social responsibility.5 Responsibility – A New Deal “These unhappy times call for the building of plans that rest upon the forgotten, the organized but the indispensable units of economic power…. that build from the bottom up and not from the top down, that puts their faith once more in the forgotten man at the bottom of the economic pyramid.” Franklin D. Roosevelt The Forgotten Man. April 7, 1932. Think poverty. A bright eyed child with out-stretched hands appears in the mind. The word “business” when placed next to the word “poverty” turns this mental image off, failing on oxymoronic grounds. Till a decade back, profit and poverty (in all its forms as stated in the Page 2 of 7
Global Initiatives Symposium in Taiwan 2009
Global Millennium Development Goals) were mutually exclusive, the stark misery of the latter incompatible with the affluence of the former. True corporate social responsibility born out of Prahalad seminal work on ‘Base of the Economic Pyramid’ changed that view by developing the idea that profitable business with low-income markets is a social good because it engages with poor consumers.6 From cost, constraint and charity; CSR now became a source of opportunity, innovation and competitive advantage. As 175 corporate members of the World Business Council for Sustainable Development put it, CSR essentially came down to ‘business for development and development for business.’7 Not surprisingly then, an ongoing United Nations Development Program project called ‘Global Sustainable Development Facility – 2B2M: 2 Billion to the Market by the Year 2020’ has several multinational companies as project team members.8 With more than 2.630 billion potential consumers in the BRIC countries alone and the popular 4 billion at the Base of the Pyramid; the opportunity for growth is huge, even in these trying times. Naturally, the question then arises as to the progress achieved by this mindset over the 7 years since inception and its ability to deliver in the future. And the answer remains – Questionable. Proponents of this ‘cool version of CSR’ might argue the previous statement quoting single serve sachets, Unilever’s low costs distribution model and Shell Livewire; but the basic truth remains that majority of the corporations still haven’t completed the transition from ‘thinking globally’ to ‘thinking/doing locally’(Remember Monsanto and the failure of its sterilized seeds?). A plausible explanation for this anomaly was given in a recent IBEC policy report which concluded that, despite Ireland being a nation with 98% SME’s (which typically find corporate social responsibility easier), CSR continues to be a challenge in terms of its language, its complexity, its interpretation and its cost.9 One can only imagine the scale of the problem with larger corporations then. The Heart of the Problem “The fundamental test for any company is performance. That is the imperative.” Lord Browne Constrained by the ramifications of the above statement, managers are not naturally excited by challenges with a human dimension, re-affirming Prahalad’s and Lieberthal’s view that there is great difficulty in finding talented managers with the skills necessary for work at the bottom of the pyramid10. Standard issues remain unfamiliar cultures, varied infrastructure, historically different outlooks to business and adjusting approaches to fit local circumstances. A typical example of such an issue is the fact that it takes 289 days and $1231 to register a business in Peru, while the same in the United States requires 10 days and filling an online application!11 Page 3 of 7
Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Thrivikraman Subramanian
Seeking a straight-forward solution for their BoP woes, corporations have tended to partner with participants in the formal economy, namely government entities or local corporations, evoking as Joseph Stiglitz suggests ‘……dangers of relying on traditional players and their limited views of what is appropriate and effective’.12 In such cases, corporations find themselves selling the right goods to the wrong people. On the other hand, NGO partnerships still have to overcome traditional corporate fears about the lack of transparency and quantifiable metrics. Pushback from NGO’s like demonstrations (Battle for Seattle anyone?) and claims of corporate imperialism haven’t exactly assuaged corporate anxieties about ROI in NGO partnerships. The bottom line is that corporations now face the problem of achieving profits through social good. The True Definition Dawns: Social Entrepreneurship as a Business Paradigm “What does an entrepreneur do? The first thing is they've given themselves is permission to see a problem. Most people don't want to see problems ... Once you see a problem and you keep looking at it you'll find an answer.” Bill Drayton Firstly, to operate in a low income environment, corporations must recognize that the traditional workforce is so rigidly socialized to run a high-cost operation, that without specific training and socialization, they are unlikely to recognize new opportunities. Unilever’s program that requires all executives to spend at least eight weeks living in the villages of India to get a ‘gut-level’ experience of the reality of Indian markets is an ad-hoc solution at best, failing on the grounds of redundancy and scalability. A better solution by Hart’s BoP protocol proposes the implementation of ‘R&D whitespaces’ that allow linkages to corporate resources and capabilities while at the same time maintaining independence from bureaucratic routines and structures.13 These R&D units will serve as early warning systems to detect both risks and opportunities in embryonic markets, thereby signaling emerging opportunity spaces. This means Entrepreneurial Thinking. Secondly, with Oliver Blanchard, Chief Economist of the IMF, expecting ‘….the global economy to come to a virtual halt’; it is essential that businesses access external competencies to create a competitive advantage in the local environment. This requires identifying local partners with context specific knowledge. Ideally, the focus should be on local entrepreneurs capable of providing an economic view of the social, rather than just cause-related marketing benefits. Their business models often mutated to suit local circumstances offer important clues as to how larger mainstream businesses will need to adapt successfully to enter those markets. And if the need is determined, suitable mergers/acquisitions can be arranged. An example of this is Kuwaiti Page 4 of 7
Global Initiatives Symposium in Taiwan 2009
telecom major MTC penetrating the African market through the acquisition of Celtel, a low cost pan-African network spread across Congo, Gabon, Niger, Chad and Burkina Faso. George Kell succinctly noted the purpose of such an endeavor at the 10th International Business Forum ‘…..where business interests increasingly overlap with development objectives’. This means Entrepreneurial Partnerships. Thirdly, with growing interest in the new consumers from BoP markets, there is a need to create products that meet the needs of a human being living on, for example, 59 sq. ft. of land, with a $2/day income and having to walk 3 kilometers to drink a glass of water. Primarily, this requires adding ‘international development’ to traditional product-design principles. This necessitates a whole new classification for products based on the degree of “social embeddedness” achieved during the conceptualization stage. This means Entrepreneurial Product Design. Fourthly, with people dying every second from malnutrition and species becoming extinct every hour, the focus of the new era will be on societal and environmental issues. Therefore, innovation needs to be viewed on a 4-dimensional basis: planet, people, processes and profits; not merely as a means to incorporate desired user functionality. An excellent example of this approach is Interface, the world’s largest commercial carpet manufacturer which uses systemsbased bio-mimicry principles to address environmental degradation and manufacturing costs. The Entropy carpet is now the company’s top-selling line of carpet in the United States.14 Intel has also recently taken a step in this direction, establishing Platform Definition Centers (PDC’s), explicitly directed at generating innovation to serve Base of Pyramid causes. This means Entrepreneurial Innovation Principles. With these principles showing the way, businesses now possess the ability to make a difference in society, effectively and pragmatically. Conclusion “There are common problems and there will either be common solutions or no solution.” Mahatma Gandhi Corporate Social Responsibility, as we know it, stands at the crossroads today. Already, the movement has begun towards a form that is practical, hands on and most importantly, robust in terms of its business case. With the beginnings of the entrepreneurial approach to solving societal issues, the concept of Corporate Social Responsibility itself may disappear, for it will become an integral part of business strategy in the 21st century; forging a partnership between the corporation, the people and the planet. It is then that corporations will complete the transition from institutions of profit to systems of meaning.
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Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Thrivikraman Subramanian
BIBLIOGRAPHY 1. Friedman, Milton. “The Social Responsibility of Business is to Increase its Profits.” The New York Times Magazine, 13 September 1970, p. 32. 2. White, Allen. “New Wine, New Bottles: The Rise of Non-Financial Reporting.” A Business Brief by Business for Social Responsibility, 2005, www.globalreporting.org/NR/rdonlyres/6E229648-DE3E-4043-8CCA451A81777CF5/0/WhiteNewBottlesRiseNonFinancialReporting.pdf (30 March, 2009). 3. International Institute for Sustainable Development, et al. Perceptions and Definitions of Social Responsibility. May 2004. 4. Fig, David. “Manufacturing amnesia: Corporate Social Responsibility.” Chatham House, May (2005). 5. Stoll, M. “Backlash Hits Business Ethics: Finding Effective Strategies for Communicating the Importance of Corporate Social Responsibility.” Journal of Business Ethics 78 (2008): 17-24. 6. Prahalad, C.K. The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits. Philadelphia: Wharton School Publishing, 2004. 7. World Business Council for Sustainable Development. Corporate social responsibility: making good business sense. January 2000. 8. Banerjee, S.B. “Who sustains whose development? Sustainable development and the reinvention of nature”. Organization Studies 24 (2003): 143-180. 9. McCoy, Danny. IBEC Policy on Corporate Social Responsibility (CSR). Letter to the Department of Enterprise, Trade & Employment, Dublin. August 2006. 10. Prahalad, C.K. and Stuart Hart. “The Fortune at the Bottom of the Pyramid”. Strategy and Business 26 (2001): 54-67. 11. World Bank and International Finance Corporation. Doing Business in 2005: Removing Obstacles to Growth. World Bank Publications, 2004. 12. Stiglitz, J.E. Globalization and its Discontents. New York: W.W Norton & Company, 2002. 13. Simanis, Eric and Stuart Hart. The Base of the Pyramid Protocol: Towards Next Generation BoP Strategy. Second Edition, 2008. Page 6 of 7
Global Initiatives Symposium in Taiwan 2009
14. InterfaceFLOR. “Interface celebrates Ten Years of Sustainability in Action.” 2004, https://www.interfaceflor.eu/internet/webau.nsf/webpages/541_AU.html (30 March, 2009)
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Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Thrivikraman Subramanian
Global Initiatives Symposium in Taiwan 2009