CSR - cosmetic social responsibility?

When I was in high school, I had a friend whose father was an industrialist. This man had evidently crossed the line in his business practices in style, and was at the time behind bars. Even so, a servant would go around the house at regular intervals to all rooms with incense which exuded a fine fragrance. The idea I suppose was to eliminate the malodour of crime and sin, and convince both men and gods that the man was really and truly an upright and worthy soul.

This is a great metaphor for CSR (Corporate Social Responsibility) in India. Businesses cross the line in spectacular fashion, bribing to get business, avoiding excise duty, illicitly damaging the environment, skirting all kinds of laws with the connivance of corrupt politicians and officials, and then give money to a very visible cause like ‘Save the Tiger’ to spruce up their image. CEO’s sit smugly on podiums pontificating on the necessity of supporting social causes and swearing their firms’ commitment, the audience applauds, cameras flash, newspaper columns are filled. There are a lot of NGOs which feed off this kind of convenient conscience, some do good work, some not - not all NGOs are socially responsible either.

The truth is CSR is not really about how you spend your money but about how you make it. To be socially responsible a business has to earn its money in an ethical fashion well within the law. It has to behave responsibly and ethically with customers, suppliers, employees, the government and even competitors. No bribing, no cutting corners on laws and taxes. Products (including services) sold should be of good quality, and should be constantly upgraded in light of changing circumstances and knowledge. For example - processed food companies eliminating hardened fats and trans fatty acids once evidence has surfaced showing they are harmful, and being smart and using that move as a source of gaining customer franchise and loyalty, not losing it. Being within the law isn’t enough – tobacco companies seeking to get young people addicted to their deadly products cannot ethically use surrogate advertising, even though it may be legal.

Being truly socially responsible also means seeking opportunities in areas that are ethical and socially relevant, as part of your range of goods and services – and to find ways to do so profitably and sustainably, in the interest of shareholders, not as a social burden. The late CK Prahalad talked about the opportunities at the bottom of the pyramid (BOP – yet another acronym, and no, not balance of payment any longer). Smart and socially responsible firms will seek BOP opportunities. For example, banks can seek opportunities to lend to socially relevant sectors, like low cost housing or microfinance. Microfinance was once considered esoteric and ‘do gooding’, but has proven to be low risk and very profitable, and is now considered a great business opportunity. Water quality is a big issue in India, and now companies have discovered that low cost water purification systems for rural areas aren’t just a do-gooding effort but also a huge potential business. Yes, CSR is not about giving money away, it’s about earning money responsibly.

This all sounds very simple and common-sensical, but is a far cry from where lots of companies are in terms of their practices and their products. For companies seeking higher ground the migration is a process that will take time, and has to be done with shareholder interest front and centre, not as a hair-shirting, purely do-gooding effort. There has to be a will to change, and that has to do with the leadership of the company, who are a product of its culture - which incorporates errant ways. It’s like asking a person to improve, to be a better person. The surest way to make it happen is to identify a driving force for the change, a payoff. This migration can only be driven by the understanding that tomorrow’s world will require greater social responsibility for success in business. It is the evolution in the expectation of consumers, customers, markets and also in regulation which will make this a necessity, so getting in position early without sacrificing performance just makes business sense. Being in denial and staying with old ways of doing business while spending on causes cosmetically will extract a painful price later.

The next question relates to businesses spending money on ‘socially relevant causes’. That has been promoted as the sum and substance of CSR, as that view suits everybody - the fund hungry NGOs, honest citizens and media with a great desire to see ‘good’ being done (by someone else), and of course companies eager to get a nice clean image by spending some money cosmetically. The simple truth is that the only real purpose of a company is to create shareholder value, in a legal, ethical and sustainable basis. Business isn’t meant to ‘save’ the world, it just shouldn’t destroy it! It is the role of business to create wealth in society – in a socially responsible way. Every rupee/dollar/euro on this planet is generated by business. It is up to society then to use the wealth as it thinks fit. Much though many would like corporations to be the new cash rich philanthropists, that is just not their role. Their money belongs to the shareholders; it is not up to the management to give it away. Shareholders (us, really) invest in a company to get maximum return on our money, not so that the company do charity work. If we shareholders want to give to charity we are perfectly capable of doing so ourselves, and in fact would prefer to select our own causes to support.

Using shareholders’ funds for any philanthropic or ‘noble’ cause should only be done if it serves a business purpose. Some modest contributions to causes can be legitimate. Improving the company’s image is not a good enough reason in itself, unless it translates into a definite business advantage, like brand image and therefore sales (either an increase or eliminating the danger of a decrease), or helps raise capital in primary issues, or attracts better talent and better business partners. As a specific example of worthwhile spend on a cause, it makes sense for a company that uses up water, an increasingly scarce resource, to spend money to promote water harvesting. That will reduce its risk of attack from irate citizens with consequent damage to sales and to the image of its brands. Perhaps tobacco companies should give to cancer research….. Running medical camps and providing some school supplies in villages that provide workers for your factory can be helpful to create goodwill, to help create and hire the best talent, and also to ward off industrial relations problems.

Too often money is given to charities to feed the ego of senior managers, make them feel noble and give them standing in society. That is neither legitimate nor sustainable. The next guy will come along and ride a different hobby horse – a constant complaint of NGOs. Charity is something managers should dig into their own pockets for. A perfectly legitimate approach is for companies to create mechanisms for employees to collectively donate to urgent or important causes. True sustainability of NGOs will come from society at large wanting to do good, individuals wanting to spend their money to do good, whether at a modest level like you or me, or at a colossal level by the likes of the Ford family, Bill and Melinda Gates and Warren Buffet, and to that extent can feed indirectly off corporate profits through shareholders. Mind you, the American tradition of such philanthropy hasn’t yet shown signs of reaching our shores, where equally rich people prefer to build a modest $1 bn, 60 storied house for themselves. But I am sure their companies do the requisite amount of cosmetic ‘CSR’, possibly while throwing real social responsibility to the winds!