It is said that CSR is how companies build their reputation and contribute to helping the world. Cynics suggest that CSR has sprung from a need by corporates to justify what they were doing to the world. Either way, it’s failed to turn things around so far: CSR hasn’t made a material difference to global sustainability; and corporate motives remain the object of widespread suspicion.
According to this article by McKinsey, levels of trust in business are below 55 percent in many countries and less than 20 percent of executives in a recent McKinsey survey reported having frequent success influencing government policy and the outcome of regulatory decisions. No-one’s won – the reasons for which I’ve touched on several times, including here and here. A key reason the McKinsey authors suggest is because of the heightened expectations that consumers have of corporate behaviour, and the increasingly ability to scrutinise and critique those behaviours via social media.
John Browne and Robin Nuttall give four reasons why CSR has failed to impress:
1. Lack of traction for CSR across the business
2. CSR teams adopt too narrow a view particularly of external stakeholders
3. CSR focus too much of their attention of protecting their reputations by limiting the downside
4. CSR programs tend to be short-lived. They run out of endorsement and then money.
But does that mean CSR can’t work? Not necessarily.
There is a way forward, and it’s as exciting as it is disruptive, but things will certainly need to change if companies are to successfully pursue altruistic goals with deliberation and without suspicion. “Companies that succeed in building a profitable relationship with the external world … define themselves through what they contribute … [That] means being explicit about how fulfilling that purpose benefits society … it means recognizing that you generate long-term value for shareholders only by delivering value to society as well.”
Purpose and profit, in other words, need to be linked. And so do purpose and responsibility. In fact, all three aspects of corporate performance, which have tended to be treated separately and to have been controlled by different corporate masters, need to align. Companies must commit to a purpose that changes the world and, in so doing, delivers shareholder value.
Are we there yet? Clearly not – the business case is still being developed for a much closer alignment between how what a business aims for, how it chooses to behave and the money it makes through behaving in those ways and to that end.
But there are signs of a will to find a way. The McKinsey authors quote the Unilever Sustainable Living Plan (USLP), which sets out to double the company’s sales while reducing its environmental impact. To me, that’s still a relatively simplistic expression of the concept, but it does act as a starting point for a convergence of aims that I regard as inspiring, galvanising and defining. The rationale for thinking this way is well summarised by Daniel Vasella: “When people believe change will only cost them, you can be sure they will do everything to make change fail or not even start.” That’s been the problem with CSR up until now I suspect: its perceived “cost” to the business has been too high for anything meaningful to be maintained.
The lack of defined causality between financial returns and good corporate citizenship has been addressed by Kusum Ailawadi and Jackie Luan of Tuck School of Business, Dartmouth – and points to how companies might look to make the alignment of responsibility, purpose and performance work. Having collected field data from more than 3,000 grocery shoppers, Ailawadi and Luan found that the four attributes they measured – environmental friendliness, treating employees fairly, community support and sourcing from local growers and suppliers – all positively influenced consumers’ attitudes toward a retailer. However, consumers only modified their purchase behaviour when an aspect of CSR directly affected their actual experience with the company or brand.
Environmental friendliness and community support built goodwill but little else. Local sourcing and fair employee compensation generated both goodwill and a higher share of wallet. Local sourcing, for example, generated a sales lift of 10% to 15% for the average retailer in the study. Equally an improved CSR perception could translate into a price premium of about 12%. But it is this next observation that I find most interesting: “Consumers don’t just respond to the price charged; they also respond to how fair they think the price is,” the authors note. “High prices are considered fairer if they can be attributed to “good” motives like CSR efforts or costs rather than to “bad” motives like profit-taking. We find that as much as 15% of the share-of-wallet gain from the perception of employee fairness accrues through improved perceptions of price fairness … this indirect benefit is not equal across different CSR initiatives.”
Storytelling, then, is critical. The actions themselves gain not just meaning, but also value, when they are linked to ideas that customers want to hear about; when they provide a rationale for actions that people identify with and see merit in. It’s fair to say that, to date, most companies haven’t spelt out those connections for customers – they haven’t made their performance a relevant result of their purpose and responsibility – perhaps because they haven’t seen the connections themselves.
Time, then, to align the corporate ducks. Doing that appears to require responses to three core questions that need to be intrinsically linked:
1. “What are we most seeking to change across the world?”
At the highest level, where does the business most want to see social change? Purpose should focus on an issue of widespread concern/interest that society wants to see addressed.
2. “Why is that our business?”
In order for consumers to see a connection between what you’re doing and your purpose, there needs to be a reason for involvement. Otherwise, actions will, like environmental friendliness and community support in the Ailawadi and Luan study, generate goodwill but little more. CSR is not an automatic licence to charge more. But it can be a licence for better understanding and a deeper sense of value if you nail the connections around motive.
3. “Who profits and how?”
What’s the pay-off? How do all the stakeholders benefit? There needs to be a strong quid pro quo that matches what the company strives for with how all involved are rewarded. And those concepts need to be hardwired into how customers think about, experience and converse with the brand. As Ailawadi and Luan advise, “Integrate your CSR efforts into consumers’ direct experience with your brand, and monitor their response to make sure your initiatives and your message resonate with them.”
Photo of “Rubber ducks” by Alan Cleaver, sourced from Flickr