Making the most of corporate social responsibility
For
companies that see CSR as an opportunity to strengthen the business, the big
challenge is execution. Smart partnering can provide a practical way forward.
Too often, executives have
viewed corporate social
responsibility (CSR) as just another source of pressure or passing fad. But as
customers, employees, and suppliers—and, indeed, society more broadly—place
increasing importance on CSR, some leaders have started to look at it as a
creative opportunity to fundamentally strengthen their businesses while
contributing to society at the same time. They view CSR as central to their
overall strategies, helping them to creatively address key business issues.
The big challenge for
executives is how to develop an approach that can truly deliver on these lofty
ambitions—and, as of yet, few have found the way. However, some innovative
companies have managed to overcome this hurdle, with smart partnering emerging
as one way to create value for both the business and society simultaneously.
Smart partnering focuses on key areas of impact between business and society
and develops creative solutions that draw on the complementary capabilities of
both to address major challenges that affect each partner. In this article, we
build on lessons from smart partnering to provide a practical way forward for
leaders to assess the true opportunities of CSR.
Mapping the CSR space
There is no single
accepted definition of CSR, which leads to plenty of confusion about what
constitutes a CSR activity. We can begin to develop a working definition of CSR
by thinking about its dual objectives—benefiting business and society—and the
range of potential benefits in each case.
Many businesses pursue
CSR activities that can best be termed pet projects, as they reflect the
personal interests of individual senior executives. While these activities may
be presented with much noise and fanfare, they usually offer minimal benefits to
either business or society. In the middle are efforts that can make both sides
feel good but that generate limited and often one-sided benefits. With
philanthropy, for example, corporate donations confer the majority of benefits
on society (with potential but often questionable reputational benefits to the
business). Similarly, in what’s best referred to as propaganda, CSR activities
are focused primarily on building a company’s reputation with little real
benefit to society. Some cynics suggest that this form of CSR is at best a form
of advertising—and potentially dangerous if it exposes a gap between the
company’s words and actions.
None of these
approaches realize the opportunities for significant shared value creation that
have been achieved through smart partnering. In such ventures, the focus of the
business moves beyond avoiding risks or enhancing reputation and toward
improving its core value creation ability by addressing major strategic issues
or challenges. For society, the focus shifts from maintaining minimum standards
or seeking funding to improving employment, the overall quality of life, and
living standards. The key is for each party to tap into the resources and
expertise of the other, finding creative solutions to critical social and businesses
challenges.
So how does this work?
The examples in the two accompanying sidebars (see “Addressing rural
distribution challenges in India” and “Ensuring sustainable supplies of
critical raw materials”) illustrate smart partnering initiatives at Unilever.
Both address long-term strategic challenges facing the company and help to
build creative partnerships that accrue significant benefits to both sides.
Initial questions for
any leader should be, “Where have you focused CSR activities in the past?” and,
more important, “Where should you focus them for the future?” All organizations
have to balance limited resources and effort, so the challenge is how best to
deploy yours to maximize the benefits to your business (and your shareholders
and stakeholders), as well as to society. Start by mapping your current
portfolio of CSR initiatives on the framework shown in Exhibit 1 and ask: What
are the objectives of our current initiatives? What benefits are being created,
and who realizes these? Which of these initiatives helps us to address our key
strategic challenges and opportunities?
Focusing CSR choices: Guiding principles
Companies are likely to
have activities scattered across the map, but that’s not where they have to
stay—nor is it how the benefits of CSR are maximized. Many companies start with
pet projects, philanthropy, or propaganda because these activities are quick
and easy to decide on and implement. The question is how to move toward CSR
strategies that focus on truly cocreating value for the business and society.
The accompanying examples suggest three principles for moving toward this goal.
1.
Concentrate
your CSR efforts. Management time
and resources are limited, so the greatest opportunities will come from areas
where the business significantly interacts with—and thus can have the greatest
impact on—society. These are areas where the business not only can gain a
deeper understanding of the mutual dependencies but also in which the highest
potential for mutual benefit exists.
2.
Build
a deep understanding of the benefits. Even after selecting your chosen areas of
opportunity, finding the potential for mutual value creation is not always
straightforward. The key is finding symmetry between the two sides and being
open enough to understand issues both from a business and a societal
perspective.
3.
Find
the right partners. These will be
those that benefit from your core business activities and capabilities—and that
you can benefit from in turn. Partnering is difficult, but when both sides see
win–win potential there is greater motivation to realize the substantial
benefits. Relationships—particularly long-term ones that are built on a
realistic understanding of the true strengths on both sides—have a greater
opportunity of being successful and sustainable.
Applying these
principles to choosing the appropriate CSR opportunities prompts additional
questions—namely: What are the one or two critical areas in our business where
we interface with and have an impact on society and where significant
opportunities exist for both sides if we can creatively adjust the
relationship? What are the core long-term needs for us and for society that can
be addressed as a result? What resources or capabilities do we need, and what
do we have to offer in realizing the opportunities?
Building the business case
In smart partnering,
mutual benefit is not only a reasonable objective, it is also required to
ensure long-term success. But this commitment must be grounded in
value-creation potential, just like any other strategic initiative. Each is an
investment that should be evaluated with the same rigor in prioritization,
planning, resourcing, and monitoring.
Now you need to define
the array of potential benefits for both the business and for society. This
will not always be easy, but a clear business case and story is important if
you are to get the company, its shareholders, and its stakeholders on board.
You can assess the
benefits across the following three dimensions:
1.
Time
frame. Be clear on both
the short-term immediate objectives and the long-term benefits. In smart
partnering, the time frame is important, as initiatives can be complex and take
time to realize their full potential.
2.
Nature
of benefits. Some benefits
will be tangible, such as revenue from gaining access to a new market. Others
will be equally significant, but intangible, such as developing a new
capability or enhancing employee morale.
3.
Benefit
split. Be clear about
how benefits are to be shared between the business and society. If they are
one-sided, be careful you are not moving into the philanthropy or propaganda
arena. Remember that if the aim is to create more value from partnering than
you could do apart, then benefits must be shared appropriately.
As you develop a clear
array of benefits, a business case, and a story to communicate to all
stakeholders, ask: Do we have a clear understanding of the entire array of
benefits and the associated business case, on which we can focus, assess, and
manage the potential CSR activity? Does the activity focus on fundamental value
creation opportunities where we can really partner with society to realize
simultaneous benefits? Are the opportunities significant, scalable, and
supportive of our overall strategic priorities?
Implementing CSR with consistency and determination
Partnering, as we all
know, can be challenging. It requires planning and hard work to assess
potential mutual benefits, establish trust, and build and manage the
activities, internally as well as externally. But is it worth it? Companies at
the forefront of such partnering suggest the answer is a resounding yes, but an
additional two principles need to be followed to ensure success:
Go in with a long-term
commitment.
Having a positive
impact on societal issues such as living standards is not a “quick fix”
project. Leaders who want to partner therefore need to have a long-term
mind-set backed up by solid promises and measurable commitments and actions.
Your initiative must demonstrate added value to both shareholders and
stakeholders over time.
Engage the entire
workforce and lead by example.
Your workforce can be
one of your greatest assets and beneficiaries when it comes to CSR activities.
Increasingly, employees are choosing to work for organizations whose values
resonate with their own. Attracting and retaining talent will be a growing
challenge in the future, so activities that build on core values and inspire
employees are key. Unilever, along with other leaders in smart partnering,
actively engages its employees in such initiatives, seeing improved motivation,
loyalty, and ability to attract and retain talent as a result. Engaging the
workforce starts at the top. Leaders must be prepared to make a personal
commitment if the activities are to realize their full potential.
This is the tough bit
of the process: taking action, rather than speaking about it, and keeping up
the momentum even when targets are far in the future. As you plan the
implementation of your chosen initiatives and follow through, ask: Can we build
the commitment we need across the organization to make this happen—and are we
as leaders willing to lead by example? Have we planned effectively to ensure
that implementation is successful, with resources, milestones, measurement, and
accountability? How can we manage the initiative, focusing on the total array
of benefits sought, not just the short-term financials?
What’s a leader to do?
When it comes to CSR,
there are no easy answers on what to do or how to do it. A company’s
interactions and interdependencies with society are many and complex. However,
it is clear that approaching CSR as a feel-good or quick-fix exercise runs the
risk of missing huge opportunities for both the business and society. Taking a
step-by-step approach and following the principles outlined here offers leaders
a way to identify and drive mutual value creation. But it will demand a shift
in mind-set: the smart partnering view is that CSR is about doing good business
and creatively addressing significant issues that face business and society,
not simply feeling good. And smart partnering is not for the faint of heart. It
requires greater focus, work, and long-term commitment than do many standard
CSR pet projects, philanthropic activities, and propaganda campaigns, but the
rewards are potentially much greater for both sides.
Continuing the conversation—Authors’ response
to reader comments
In January 2010, the
authors reviewed our readers’ comments on their original article and weighed in
on the conversation with new insights and suggestions.
Many thanks to those who read and
considered the ideas in our article “Making the most of corporate social
responsibility”—and particularly to those who shared their thoughts and
experiences on smart partnering. As many rightly pointed out, there has been a
groundswell of interest in CSR, as well as a growing number of powerful
examples of smart partnering. This momentum reflects an improved understanding
of the potential benefits to companies and the increasing maturity of social
organizations. Both see the potential for mutually creating value.
Our aim was to advance
the debate on how to make CSR an integral part of core strategic thinking
rather than a feel-good add-on to it. Where should we take this conversation?
Many of the responses came from academics or from executives responsible for
CSR activities in their firms. While this is natural, it raises the question of
how best to engage (or help these executives to engage) senior business leaders
who make strategic choices and set the direction of companies—particularly the
next generation of leaders, who face more pressing global and societal issues
than ever before.
Three challenges
Our work, that of
others in this field, and the input of McKinsey Quarterlyreaders
suggest that there are three basic challenges to making smart partnering a
strategic imperative and opportunity for companies. They also suggest ways to
overcome those challenges.
1. Get CSR on the
strategy table
For CSR to achieve its
potential, it must focus on key areas of interaction between a firm and its
environment and address value creation activities at the center of the
strategic agenda. The challenge is to get innovative CSR thinking on the table
when business strategies are being explored and decided. How can we make CSR
approaches an integral part of the strategic toolbox for business unit leaders?
First, the potential
benefits of CSR, notably smart partnering, need to be demonstrated in practice
if mainstream senior business leaders are to recognize the significant
opportunities it offers. That is why sharing your and our examples is so
important. Next, key CSR executives must be part of core strategy processes.
Ultimately, CSR must cease to be a separate function and become part of the
skill set of all business leaders as an innovative way to solve critical
problems.
2. Stretch your
strategic ambition for CSR
Several readers spoke
of favorably received CSR activities within their organizations in the realms
of philanthropy and partnering. As we suggested, the starting point in any CSR
strategy should be to outline the CSR activities a company already undertakes
and to be clear on their intent and fit within the overall portfolio. Where CSR
activities are primarily philanthropic in nature, they can create a strong base
for building a company’s reputation and engaging employees. Philanthropy also
has other obvious advantages: it is relatively easy to undertake, can often be
set off against tax, and requires less effort and commitment across the organization.
The questions with this
approach are: What benefits are being left on the table, both for society and
the business? What opportunities are being missed? The challenge is to stretch
strategic ambitions for CSR and to move actively toward smart partnering, where
the biggest opportunities are to be found. Stretching means going beyond common
practice. While it is extremely encouraging to see a growing recognition of the
benefits of CSR for building employee engagement, this is only the tip of the iceberg.
In the examples we described, the benefits matrices set out much broader
ambitions and arrays of benefits (short and long term, tangible and intangible)
for both society and core business strategies. How can you stretch your
company’s ambitions in a similar way? Whom do you need to involve, particularly
among mainstream business leaders, to gain new perspectives and challenge
conventional wisdom?
3. Reinforce your core
values, internally and externally
When corporate visions
and strategies are described, there is often a reference to core values, which
shape individual behavior and expectations about how we work and interact
together. But we often limit discussions about values to internal behavior and
actions. As several readers noted, shouldn’t senior executives also be held
accountable for how companies live core values in their interactions with all
stakeholders?
Businesses have an
impact on societies, and vice versa, so there is a need to recognize the mutual
responsibilities that this entails. Within societies, trust in businesses is
low, public scrutiny of firms is constant, customer choice criteria include the
reputations and values of suppliers, and the next generation of leaders will
choose employers whose values match their own. For businesses, one potential
challenge is whether the way they operate externally—not just internally—will
ultimately have an impact on their “license to operate.” Many companies that
approach CSR strategically recognize this symbiosis and build on strong values,
living them internally and externally.
Clearly, we do not
advocate smart-partnering initiatives solely because they reinforce a company’s
core values; this is heading into the realm of propaganda. But as you consider
the benefits of a potential initiative, do explicitly consider its impact on
your corporate values. If you cannot see a direct link to them, think about how
you could create one—for example, reinforcing values through employee
involvement or building additional external relationships based on the initiative.
Moving forward
What’s your next step?
First, engage with key senior business leaders to identify two or three
critical interactions with society. Then for each, map out what you have to
offer in capabilities, knowledge, resources, relationships, and so on that
would make a difference in addressing the challenges you have identified, both
for your business and society. Consider what ideal partners could offer to
complement the things you bring to these challenges. For the Unilever–Kericho
example in our original article, a critical interaction with society involved
raw materials (in particular, tea). Mapping the possible complementary
strengths of a partnership could produce a kind of balance sheet.
Use the balance sheets
you have developed as a starting point in identifying issues and discussing
them with key internal stakeholders and potential external partners. In a world
of burgeoning technology, we may even one day see some type of CSR “dating
agency” where potential partners could share their balance sheets. As
discussions progress, a balance sheet can also help you and your partners
construct the benefits array and business case for your smart-partnering
initiative.
In this sort of
process, experienced CSR executives can really start to move CSR onto the
strategic agenda by engaging executives on real business challenges. That means
helping these executives to identify the opportunities, share concrete
examples, think more broadly about solutions, and move forward.
Smart partnering is
good business. Our readers’ experiences and ideas confirm that momentum is
building toward a time when CSR will be absorbed into core strategy and
business activities rather than treated as an orphan in need of a special
label. With your help, this momentum will build. Share your experiences, shape
your activity portfolios, develop your balance sheets and benefits matrices,
and challenge the business community to keep changing mind-sets for the better.
By Tracey Keys, Thomas W. Malnight, and Kees
van der Graaf
https://www.mckinsey.com/global-themes/leadership/making-the-most-of-corporate-social-responsibility?cid=other-eml-cls-mkq-mck-oth-1803&hlkid=328abc2ea51748e28360b6d4349af2cc&hctky=1627601&hdpid=deb02d51-67b0-40c3-9cf8-4678412cc4cb
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