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Last Friday, I outlined what I believe to be the main benefits of the trend away from simple corporate donations towards community and stakeholder engagement by companies through community business partnerships.

To recap, community business partnerships involve one or more business entities partering with one or more NGOs or community based organizations to produce a desired social outcome. The benefits of such partnerships include but are not limited to:

• greater certainty in terms of funding and resource commitments through longer term commitments from companies;
• the opportunity to bring corporate expertise and resources to social projects;
• greater impact on public relations and employee morale through tangible community outcomes;
• greater corporate accountability through allowing the community to evaluate the impact of CSR projects more effectively;
• greater understanding of dynamics of local target markets; and
• opportunities for employee learning and development outside of their everyday responsibilities;

Today, I would like to focus on potential drawbacks or disadvantages of greater corporate engagement with the community as opposed to mere corporate donations.

Arguments against community business partnerships

The case against corporate participation in business community partnerships appears to be a difficult case to make. There are few apparent drawbacks or disadvantages of the community business partnership approach. Nevertheless, I would like to consider some possible arguments against this approach to CSR:

 
• Management distraction from the ‘core business.’Unlike straightforward corporate donations, community business partnerships involve active participation from the company and its employees.

Accordingly, such projects have the potential to distract management attention its first and foremost priority – the effective management of core business operations. 

 
• Cost.

Community business partnerships entail costs as well as benefits, which can include management and employee time as well as investment in equipment or facilities.

Companies should carefully weigh such costs against the expected benefits of the project in order to ensure that such projects are mutually beneficial for the company and the community.

 
• Reputable charities are experts at social programs, companies are not.

The lads (and ladies) at BMW are experts at making what are indisputably amongst the best automobiles in the world. They are probably not experts at providing essential blood related products services to hospitals and patients.

But staff at the Red Cross are. BMW should focus on making great cars and leaves the business of blood related services to the experts.  However, BMW’s $1 million donation in America alone, along with donations from private citizens and other corporations, (refer donor’s list) provide the critical funding necessary for the delivery of this vital service.

Community business partnerships are most effective in cases where companies have particular expertise or facilities to contribute toward the project concerned. Where this is not the case, straightforward corporate donations, rather than community business partnerships, may be a more effective way to produce desired community outcomes.

  
• Potential to sway projects toward a corporate agenda.

Some in the community may suspect that corporate involvement in community projects may cause such projects to be swayed in such a way that they meet the corporate demands for publicity rather than underlying community needs.

I cannot see much logic behind this viewpoint. Community business partnerships involve business partnering with NPOs and community organizations, neither of which would enter partnerships which did not provide real community outcomes.

NPOs and community organizations are in the business of delivering real positive community outcomes, not assisting companies with public relations.

 
Conclusion

There are many cases in which community business partnerships provide the most effective way for corporations to assist in meeting community needs as well as providing net benefits to the corporation.

In deciding whether and which projects to participate in, business should carefully weigh up the benefits and the costs of participation.

 
Over to you

Are community business partnerships the best way for companies to contribute to society?

Please feel free to provide your thoughts, opinions and viewpoints by clicking on the ‘comments’ section below.

Introduction

The purpose of this post is to discuss the advantages of companies becoming actively involved in social or community projects – as opposed to simply handing out large corporate donations to charities.

The potential drawbacks to this approach toward Corporate Social Responsibility (CSR) will be discussed next Friday.

As with all articles on this site, the purpose of this article is to stimulate interactive debate. Accordingly, please feel free to voice your opinion in relation to this topic by clicking on ‘comments’ above.
 

The Coca Cola Story: A River in Trouble

Major problems face the Matagua River in Guatemala, on which millions depend for their water supply.

These include erosion, pollution, water born disease and seasonal overuse.

But do not fear – The Coca-Cola Company is there to help. In conjunction with WWF and CARE, the company created the Water Fund, an initiative in which the above organizations work with local businesses and communities to devise and implement practical solutions. (Refer Where the River Flows – Partnership in Action) These initiatives include:

• upgrading local irrigation systems;
• installing bottle rinses which use clean, highly ionized air instead of water, at the local Coca-Cola plant;
• providing environmentally friendly stoves to residents, which help to reduce dependence upon firewood and improve the water filtering capability of local forests in relation to runoff: and
• educating local communities about the dangers of using unsanitary water.

This is one of almost seventy projects across forty countries in which Coca-Cola is a participant. It’s part of a commitment which the company made in Beijing to become ‘water neutral.’ (2)

Gone are the old days

In addition, the above project illustrates a trend in terms of corporate philanthropy and corporate social responsibility.

Gone are the old days where companies simply doled out cheques at the end of the year. Nowdays, companies are going further.

Firstly, companies are donating more than straight cash. There is a tendency toward donating employee time and expertise as well as inventory and materials.

But more significantly, companies are seeking to engage communities in which they operate. They are seeking partnerships and alliances with government departments, non-for-profit organizations (NPOs) and community groups.

These are commonly being referred to as community business partnerships, and involve one or more businesses and one or more community organizations working together to achieve specific community outcomes.

Advantages of corporate engagement with the community

Is the movement toward greater business involvement with communities in CSR a beneficial trend?

There are many advantages for both communities and corporations of a more collaborative approach. These will be discussed in this article. The following article in this series will discuss potential drawbacks to this approach.

In my opinion, the advantages of a more collaborative approach toward CSR include, but are not limited to:

 
• Greater predictability in funding.

Under the old system, companies would simply send out large corporate cheques to reputable charities and NPOs at the end of the year.

One problem – in difficult economic times, these cheques may not be so large, but the community need for the service is just as great, if not greater. The upshot is NPOs having to curtail their activities at a time of greater need.

On the other hand, under a community business partnership model, companies make long term funding and resource commitments. Companies feel a greater level of commitment to these projects, and a reduction in participation in the event of difficult economic times, management changes or takeover activity is less likely.

The benefit for communities and NPOs is a greater level of certainty in relation to corporate resource commitments – a key benefit of the community business partnership model.

 
• Corporate expertise.

Companies can bring much more than financial resources to business community partnerships. They often bring facilities and much-needed expertise to the project.

In the previous post in this series, I mentioned TNT’s 48 Hour Emergency Response Team (ERT) – a team dedicated to assisting the World Food Program with logistical arrangements in order to enable a fast relief response to emergency situations. (3) With TNT’s vast resources, global facilities and expertise in transport and logistics management, they are extremely well placed to provide effective and reliable assistance to this critical program.

Unlike straightforward donations, community business partnerships allow for the community to benefit from a company’s resources and expertise – not just its cash.

 
• A tangible impact.

Community business partnerships involve tangible objectives, actions and outcomes.

When promoting their participation in such projects, companies can clearly demonstrate how the project meets specific community needs. Accordingly, these projects are likely to have a significantly greater impact on public relations and employee morale than with straightforward donations.

This is particularly true for projects which are high profile and projects which entail a considerable level of employee involvement.

 
• Greater accountability.

Related to the point above, the tangibility of community business partnerships provides both the company and the community with greater clarity in evaluating the effectiveness of CSR projects.

It can be difficult to evaluate the specific impact of a ten-million dollar donation to a charity. However, it less difficult to evaluate the impact of installing three hundred rainwater structures in India to collect rainfall for community use.

The ability to measure specific outcomes against specific objectives provides for much greater accountability in measuring whether companies are meeting their community responsibilities.

 
• Greater understanding of customer needs

Companies can compile mass amounts of data from copious volumes of customer surveys, but spreadsheets and databases have their limitations in helping the companies to understand the dynamics of their target market.

The most effective way for companies to understand their target markets is to become actively engaged in working alongside local communities. Only through active engagement can companies truly gain an understanding of local cultures and customs, and how best to tailor their products and services to meet the needs of the local target markets.

The subtle dynamics of local target markets cannot be learned by staring at numbers on a screen on the twenty-eighth floor of a city office tower.

 
• A true learning experience.

I alluded to the effect of community business partnerships on employee morale above. I wish to now expand on that point.

The effect of community based projects on human resource management extends well beyond ‘warm and fuzzy’ issues. Community based projects, if well managed, can produce real and substantial business benefits for companies from a human resource management perspective.

Community based projects allow employees to challenge and expand their comfort zones by undertaking a different range of tasks than those in their regular position. They also allow companies to experiment and what type of roles which particular perform well at tasks outside their everyday role.

Companies can use this process in at least three ways. Firstly, CSR projects can be used to broaden and diversify the skill base of their human resources. In addition, this process can help identify, develop and nurture future leaders or managers. Finally, it allows companies to experiment with different teams, foster greater collaboration and it helps to break down internal departmental barriers.

Best of all, as these are external projects, companies can experiment without any risk of an adverse impact upon core operations.

Over to you

What do you think? Are there any other advantages of community business partnerships as opposed to straightforward donations?

Please feel free to add your thoughts, insights and opinions in relation to the above topic by clicking on the ‘comments’ section at the head of this post.

Introduction

This is the fourth post in a series about Corporate Social Responsibility (CSR) and the third which discusses whether or not companies should aspire to be socially responsible.

The previous two posts looked at two objections to CSR, namely that:

(a) Social responsibility is not the role of business; and
(b) CSR provides a distraction to effective business management.

A third objection to CSR is that it involves spending other people’s money (and resources). This is the topic of today’s discussion. 

 
The manager works for the owner

Milton Friedman, among others, argues that managers are simply agents of shareholders who employ them. The money and resources which companies expend in CSR efforts belong to the owners of the company, not the company itself.

Management should not, Friedman says, spend shareholders’ money or other resources on social projects unless those projects are justified by business-case considerations. Instead, they should focus on maximizing profits and dividends to shareholders.

(Shareholders themselves can then go and spend money on positive social projects, if indeed that’s what they wish to do. But that’s a decision for shareholders, not managers entrusted with their money.)

This argument refers specifically to CSR projects which are outside the scope of a company’s regular business operations. I do not believe that proponents of this argument are saying that companies should disregard ethical considerations in everyday operations, such as labor relations, product excellence, corporate governance or environmental considerations.

I have considerable empathy for this viewpoint.

Managers are first and foremost responsible to their employers. Moreover, in many countries, company directors are legally bound to act in the best interests of shareholders. Company assets and resources belong to shareholders – not management. Management is mandated to make business decisions on behalf of shareholders, not social decisions.

Critics of this argument might argue that the companies themselves, and hence shareholders, benefit from corporate participation in community based projects through improved public relations and increased employee morale.

That’s certainly true, but I believe that it confuses the argument.

The argument about spending other peoples’ money does not relate to CSR projects which can be justified by business-case considerations. Participation in such projects is in the best interests of their shareholders as well as the community. Therefore, companies should participate in such projects.

But what about projects for which a strong business case cannot be made? This is where the argument about spending other people’s money comes into play.

 
Counter arguments

There are, I believe, two reasonably strong counter arguments.
(a) Many investors want and expect companies to act in a socially responsible manner.

There is considerable evidence to support this argument, not least the huge growth in professionally managed Socially Responsible Investment funds (SRIs), which now account for approximately 11% of total funds under management in America, and 15% in Europe. (referEUROSIF European SRI Study 2006)

The growth of such funds, added together with increasing levels of shareholder advocacy, provide clear evidence that investors expect positive ethical behavior from firms in which they invest.
(b) Companies, not individual shareholders, charities or even governments, are often the best placed to successfully deliver many CSR projects.

Consider TNT’s 48 Hour Emergency Response Team (ERT), a joint initiative between TNT and the World Food Program (WFP). Under this initiative, TNT staff are on standby twenty-four hours per day to provide logistical support and assist WFP with any food emergency – anytime, anywhere in the world.

The company provides assistance in areas such as airport co-ordination and ramp handling, transport co-ordination, warehouse management and reports and communication.

With its vast resources and expertise in logistics management, the company is well positioned to provide this valuable service. Individual TNT shareholders, on the other hand do not have sufficient resources to arrange such a service.

This demonstrates an important point. Large companies, with their vast financial, labor and infrastructure resources, are sometimes better placed to deliver CSR projects than governments, charities or individuals.

In such cases, companies, to a reasonable degree, should be willing to undertake CSR projects regardless of business case considerations.

 
Conclusion

I have considerable empathy for the argument that management should not expend company assets on social projects which do not have strong business-case justification.

However, in cases where companies are in the best position to assist with or deliver CSR projects, they should do so to a reasonable extent.

This certainly appears to be what shareholders want their companies to do.

 
Over to you

Should managers think only of their shareholders, or should they consider all stakeholders in decision making?

Please feel free to share your thoughts by clicking on the ‘comments’ section at the head of this post.

Introduction

This is the third post in a series relating to corporate social responsibility, and the second which deals with the question of whether or not companies should aspire to be socially responsible.

As discussed in the previous post last Friday, there are at least three main objections toward CSR:

• Social responsibility is the business of government, not companies;
• CSR is a distraction from ordinary business activities; and
• Companies should not give out of other people’s (shareholders) money.

This post deals with the second objection.

Defining the objection

The second objection asserts that CSR distracts management from the core business of the company.

By far the greatest contribution that a company makes to society, according to this argument, is from managing its core operations efficiently and effectively. It is the core operations of a company that produce products and services for customers, income for suppliers, employees, owners and lenders, and taxes to pay for roads, schools and hospitals.

The benefit to society which a company provides in the course of managing its operations effectively far outweighs any benefit from ‘sideshows’ such as CSR.

I agree with this argument to a point.

First, I feel that it’s important to clarify what the argument actually states. My understanding is that proponents of this argument are not opposed to adopting positive ethical practices which are simply part of the effective management of business operations.

Good ethics, to a degree, is good business. Good labor and environmental practices are simply good management. Sound corporate governance practices indicate effective management. Ethical sales and marketing practices are effective business practices. Delivering safe, reliable, high quality products to customers is, and will always be, good business.

Positive ethical practices in the above areas are not a distraction – they are simply effective business practices. I do not believe that these areas are what the argument refers to.

Side projects – yes, but first things first

Instead, I believe that critics are referring to ‘side projects.’ These are projects which are not part of a company’s regular operations, but which are undertaken specially for CSR purposes.

Here, I feel that the critics have a point. Whilst I have no doubt that many of these side projects are worthy projects in themselves, such projects have the potential to divert management attention from core business operations.

In my opinion, companies should be encouraged to take part in and support projects which have a positive impact on society even if such projects fall outside of the scope of the standard operations of the company. But it is imperative that such projects in no way divert management attention core business operations.

The first and foremost priority of management must be the production of safe, quality products and services to customers and the deliverance of healthy and sustainable financial returns to shareholders. Only then, will the company be in a position to maximize its positive impact on all stakeholders over the long term.

Non-core projects must never be allowed to distract management from the core business.

Practical Suggestions

Some practical suggestions include putting more resources into fewer CSR projects, targeting projects more closely and limiting participation to projects which are at least loosely related to the company’s regular operations.

The above suggestions are aimed at ‘simplifying’ participation in CSR projects, whilst assisting companies achieve maximum results from the projects which they do undertake.

In addition, the company may be able to minimize the distraction of the project to operational managers by delegating the management of such projects to specialized teams who are specifically allocated to the particular projects concerned.

Conclusion

Companies should be encouraged to participate in some projects where the primary benefit is a social good. But these projects must never force management to take their eye off the ball.

If they do, both the company and its stakeholders will lose out.

Over to you

Should companies undertake specialized CSR projects outside the ordinary course of business? Are such projects valuable or simply a management distraction?

Please feel free to comment on this discussion by clicking on the ‘comments’ section at the head of this post.

Should companies attempt to be socially responsible?

At first, this appears to be a moot point.

In modern times, no large company would dare dispute need for Corporate Social Responsibility (CSR). Governments, activists and the media and many others place companies under enormous pressure to act in a socially responsible manner.

Society demands and expects it. Companies are doing it.

For better or worse, CSR is here and here to stay.

The question nowadays is “not whether, but how” according to John Ruggie, from Harvard University’s Kennedy School of Government. (refer The Next Question, The Economist, Jan 19-25)

 
Common arguments against CSR

But before we look at how CSR should be done, I feel that it’s important to take a step back and first ask whether companies should try to be socially responsible at all.

There is no doubt in my mind that companies should strive to act in a responsible manner. However, those who object to CSR do raise some legitimate issues, and these are worth consideration.

Accordingly, in the next three posts, I will discuss three of the most common objections to CSR, namely:

• Social responsibility is the business of government, not companies;

• CSR is a distraction from ordinary business activities; and

• Companies should not give out of other people’s (shareholders) money or resources.

Today, I would like to discuss the first of these objections. The following two posts will deal with the second and third objections.

 
The first objection

The first objection asserts that the job of looking after the overall social good of societies is one for governments, not business.

Governments, elected by the people, should provide social services and look after the people and environment. Governments, not business, should decide what behavior is acceptable and make laws accordingly. Business should concentrate on maximizing financial returns to owners, and leave the needs of broader society to government.

I do not have much empathy for this argument.

Firstly, government regulations provide for a minimum standard of behavior only. Companies should seek to go above and beyond the minimum.

Secondly, government regulation is not always sufficient to meet the needs of the broader common good. This is the case particularly in third world or developing countries, where labor or environmental regulations are often weak and governments fail to provide adequately for the people.

In such cases, companies need to go above and beyond legal requirements.

Thirdly, the actions of a company affect a broad range of stakeholders. Decisions which companies make, particularly large companies, can have a major impact on the societies in which they operate.

This degree of impact gives a company power. With power comes responsibility.

Companies have the power to positively impact the societies in which they operate.

They also have the responsibility to do so where they reasonably can.

 
Over to you

What do you think? Should business leave social responsibility to the government?

Please feel free to share your thoughts and opinions by clicking on the ‘comments’ section above.