Beyond Corporate Social Responsibility Doug Solomon

Moving a company from ‘bolt-on’ to ‘built-in’ social responsibility

Interest in Corporate Social Responsibility (CSR) has grown over the past 40 years. It involves companies regulating themselves and taking care of their impact on the world.

However, for many companies, CSR still means creating new themes for a public relations effort, rather than a serious change in their relationships with society. In other cases, companies may take more authentic approaches to CSR, with serious efforts that donate to meaningful causes. While respectful of these approaches, we still think of them as a “bolt-on” tactic, not one deeply integrated to CSR. But the tide is turning. Increasingly, businesses realize that they need to be in harmony with their customers, government, environment, and public. Consumers, investors, and employees are more loyal to good corporate citizens, and now they have the tools to track corporate behavior.

How can corporations more creatively and deeply build positive social and environmental impact into the DNA of their companies and still derive positive business results?

The Evidence — Stories from around the globe

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Align value with values

Walmart is the largest business in the world. As such, it is one of the heaviest users of packaging and other materials. In 2005, after much criticism, Walmart set goals to be supplied with 100% renewable energy, to create zero waste, and to sell products that sustain resources and the environment.

Paul Tepfenhart, senior director of private brands strategy at Walmart, talks about the benefits of the company’s zero packaging initiative. “Walmart is the place,” he says, “to save money, to live better…. By being smarter through the life cycle of a product, we save money in our cost structure and that’s reflected on the shelf. This builds the brand.”

The epiphany that came to Tepfenhart and others at Walmart is that sustainability saves customers money. “It is good business, wise business, and the way to build a lasting relationship with our customers,” he explains.

How can companies align assets and brand values with social benefits?

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Sustain big impact

Vikram Akula was born in Hyderabad, India, but raised in upstate New York. When Akula was about 12, he attended a wedding in India. After the meal, two boys dressed in rags scraped leftovers from the plates of half-eaten food. At that moment, Akula resolved to return to India and help the poor.

After graduating from Tufts University, Akula moved to Hyderabad to work at a nonprofit. He found that villagers most wanted loans to start small businesses, and in 1998, he formed SKS Microfinance, now one of the fastest-growing microfinancers.

Many people tackle poverty reduction through nonprofit ventures. These organizations, though, are often unable to touch large numbers of people. Akula established SKS as a for-profit organization, deciding that would be the best way to reach 15 million poor people in India by 2012. To scale and be a sustainable business, he says, SKS needs to be profitable.

SKS has microfinance branches in 19 states in India. It has made loans to nearly 5 million poor women. In the last year, SKS has achieved nearly 170% growth, with an 99% on-time repayment rate.

How can corporations integrate social impact with profitability at the core of their business model?

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Opt for transparency

Jay Coen Gilbert, founder of a successful sports-shoe company, and two of his friends from college became disgruntled with traditional corporate values. As a response, the group created B Lab to address how companies can keep their values.

B Lab advises and certifies businesses that choose to meet transparent social and environmental performance standards. “B Corporations have a commitment to create both shareholder and social value legally embedded in their DNA,” Jay says.

While B Corps represent a new and very small movement, they are creating early impact: The number of U.S. companies certified as B Corporations represents $1.1 billion in revenue and 54 industries. The largest office products company in the US is a B Corp, as are Seventh Generation and Method.

Half a dozen states are interested in developing legislation for a new corporate form with higher standards of purpose, accountability, and transparency. The first legislation is expected in 2010 in California and two to three other states.

How can corporations be more transparent and work to measure social impact?

Old-school CSR still counts

Paul Newman’s Own donates its net profits after taxes from sales of products to charities. The organization’s tongue-in-cheek slogan is “Shameless exploitation in pursuit of the common good,” and no doubt the approach enhances the brand by consumers knowing that part of their purchases goes to a good cause. It may even increase sales. According to Newman’s Own, the organization has given away $265 million since 1982, about $10 million per year. A case can be made, however, that companies taking this approach may make themselves less competitive with companies that bring all of their net profits to the bottom line.

A business of empowerment

Pierre Omidyar, founder of eBay, realized early on that eBay could be a “force for good” by leveling the playing field for buyers and sellers in a way that scales to millions of participants worldwide. An artisan in a remote area can sell her paintings on a global scale without investing in infrastructure. eBay takes its social mission seriously and has made an impact in how goods are traded. There
are about 1.3 million sellers on eBay, and thousands of people have changed their their lives and supplement their living entirely on eBay.

Shoes for all

While traveling in Argentina, Blake Mycoskie noticed two things: the alpargata, a native shoe style worn by farmers for generations, and poor children without shoes or flip-flips. In response, he created Tom’s Shoes, a company based on the belief that kids should have access to shoes. For every pair of shoes that a customer buys from Tom’s, a pair of alpargata is given to a needy child. More than 300,000 pairs of these comfortable and resource-light shoes have been donated.

Measure what you want

For two decades, Interface was a typical carpeting manufacturer, heavily using natural resources. But business changed when customers asked for Interface’s stance on environmental responsibility.  In 1994, Ray Anderson, FLOR’s founder, transformed the business into zero-environmental impact company by 2020. Now, Interface is known for its FLOR modular system, launched in 2003. Believing that what gets measured gets managed, FLOR set key “EcoMetrics” — measureable indicators — that include waste reduction, renewable energy, and carbon emissions.

Discussion

Bruce Cahan

January 15, 2010

The climate and banking crises present a unique opportunity to remake the way banks coin money.  95% of the assets on a typical bank’s balance sheet are “bank debt” money, resulting from loan transactions.  What if the bank tracked the impacts of the money it coins as loans?  What if the impacts were transparent so that a sustainable business owner received credit for improving regional livability?

Whether a bank is ethical or not is hard to see when how the bank operates, where its capital comes from and goes to, and what industries and impacts its activities supports are hidden from public view.

With IDEO and others’ encouragement, GoodBank(TM)(IO) aims to be a very different type of bank, one where high transparency is the norm, and impacts are visually shared with its community of customers daily.  Incentives for socially responsible consumer and business practices and impact feedback tools would be licensed to other community banks to strengthen their competitiveness.  In a grateful nod to TOMS Shoes, GoodBank’s cash back rewards can only be invested in NGO, social entrepreneurial and hybrid profit activities. 

For example, B Corps might find their interest and loan terms improved at a high transparency bank, merely by using B’s impacts assessment accounting as a shortcut first step in bank underwriting for CSR impacts.

GoodBank aims to prove a model of banking on higher values, as the bank that rewards people in their diverse financial roles for honoring their ethical priorities.

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Jessica Margolin

January 16, 2010

HIP Investor (HIP = Human Impact & Profit) has rolled in the new thinking on built-in sustainability in its evaluation of the HIP 100 (as an alternative to the S&P 100), for those who are involved in financial markets.

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Dave Macdonald

January 17, 2010

These are some excellent general tips for organizations that want to have a bonafide CSR strategy.  There are two points I’d like to contribute here.

1)  Measurement and Audit.  For a strategy of any kind to be built into an organization’s strategy, it really needs a foundation in sound reporting and verifiability.  Before saying this is part of transparency, what actually happens here can be quite complex.  An organization local to me in Vancouver, called Vancity (Credit Union / Banking) really overdid its measurement early on and just reported *everything* they did.  This wasn’t effective from a time perspective and it didn’t always yield useful results.  Their recent efforts to align reporting with decision-making and public disclosure has gone a long way to defining their CSR strategies and making them more effective overall.  It’s a trap that many organizations really need to learn from.

2)  Transparency Breeds Innovation.  One of the most amazing things with openness is that it inherently breeds a form of crowdsourcing.  Why does open-source software development or open-government (see http://eaves.ca for any info on that notion) work?  Because everyone has access to the data needed to breed innovation.  It’s one thing to be transparent for reporting purposes and adhering to certain standards, but transparency really gives people the pieces of a puzzle that they can play with - and anyone can play that way.  Relating to my first point, if you overdo your reporting it will be really difficult for the average person to filter and avoid information overload.  Be wary of organizations that actually try to overwhelm with information just to get a pass as well -odds are there’s something hidden in there somewhere.

Cheers,
Dave

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Tina

February 25, 2010

Same should apply to the money we pay via taxes. I’d like to see just how much of my tax money went into the banking system (and out via bonuses) or was used to pay off Afghan war lords. Anything short of transparency is legalized laundering.

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Gerald

August 13, 2010

I think its quite logical to assume that PR is the determinant factor in each corporation’s CSR campaigns. The internet as a “game changer”, in the form of watchdog sites and proliferation of critical information, is very interesting in how that has affected the last 10 years. More companies should really take a note from Paul Newman, may he rest in peace.

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