Doing better at doing good.
FROM RAISING work and living conditions for Gulf's migrant labour to examining the region's aluminium industry's progress towards sustainability, Corporate Social Responsibility (CSR) is the rage of today. The core idea behind CSR is to use the "organisational machinery" to implement programmes and initiatives that create social and/or environmental value.
CSR has a rich history, but why the sudden surge in popularity? Reasons abound but a key one is the belief among business leaders that "doing good" (i.e., creating social value) automatically leads to "doing well" (i.e., business value). But does CSR actually create business value? How and when do concerns for people and planet translate into profit?
Let's take a simple example to deconstruct CSR value. Hotels sometimes have a sign in their bathrooms urging us to reuse our bath towels in deference to the environment. When hotel guests abide by the request, two things happen: the environment benefits by saving water, electricity, etc., and the hotel benefits by saving on washing costs. This is an example of the "direct route" by which CR creates value for both society and business. Think for a moment though, about how stakeholders (e.g., customers, employees, investors) react to the hotel's initiative to request guests to reuse towels. Whether they actually reuse the towels or not, stakeholders may gain heightened consciousness on environmental conservation (social value) as well as be more loyal to the hotel and/or recommend it to their friends (business value). Thus, positive stakeholder reactions manifested through favourable attitudes and behaviours are also a potential source of value; call this the "indirect route."
Many organisations have done a good job with the direct route: for example, the International Aluminum Institute (IAI) initiative "Aluminum For Future Generations" in the Gulf States demanded a 50 per cent reduction in lost time accident (LTA) rate by 2010 compared to 2000. In response, the Gulf smelters such as Dubal and Emal have already shown a significant improvement in the lost time accident rate. This investment in a healthy and safe workplace is beneficial not only to employees and their families but also to the companies that have to deal less with employees' sick notes, absenteeism and related expenditures. But what about CSR value from the indirect route (i.e., stakeholders reactions to these companies because of the IAI initiative)? The recent spate of CSR communications (in print, TV, internet) suggests that companies deem stakeholder reactions to be important. But unless managers understand when, why and how their stakeholders react positively to CSR, the money spent on such communication is mere expenditure and not an investment.
Over the past several years, along with various coauthors, I have researched stakeholders to understand their reactions to CSR; the findings have implications for what companies should do to get the most out of their CR initiatives. Below are a few insights from this research. I learned that often customers and even employees do not know what a company is doing in the social or environmental arena. Consequently, they cannot reward the company for its good deeds. Therefore, marketing and communication departments must work hard to maximise CSR awareness among stakeholders.
Next, stakeholders are often skeptical of company's CSR motives. Does the company really care about social and environmental causes, or is this just green washing? My research shows that as long as stakeholders observe that the company is making a difference to society, they are tolerant of the profit motive behind CSR initiatives. Indeed, they see CSR as an innovative approach to business and are eager to reciprocate by buying the company's products and spreading positive word of mouth. Thus, creating social value is a prerequisite for creating business value; there are no shortcuts!
I also learned that affiliating with a company that runs a CSR initiative helps fulfill some fundamental psychosocial needs of stakeholders.
Recognising this can help businesses implement the "right" CSR initiatives by uncovering causes that resonate with target stakeholders. This leads to happier, more productive employees, and/or loyal customers.
The bottom line is that CSR offers a unique opportunity to combine doing good with doing well -- certainly in the Gulf countries where there are many social and environmental challenges. However, the road to CSR value is long and winding; mere engagement is akin to shooting in the dark. Understanding road rules and navigating skillfully can help companies do better at doing good.
C.B. Bhattacharya is the E.ON chair professor in Corporate Responsibility at the European School of Management and Technology in Berlin. He is the author of "Leveraging corporate responsibility: The stakeholder route to maximising business and social value".
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