Corporate Social Responsibility

Andrew Crane: That's a good question. In some ways it's deceptively simple I think, in that most of us have a fairly clear idea of what we might think of as CSR. The idea that it's about how corporations manage their social role, and impacts in society. But beyond that, it gets a bit more complex when we start thinking, well, what does that actually mean? Is it about going beyond the law, for example, as many people would regard it as consisting of? We have all kinds of regulations to ensure that businesses are socially responsible. CSR, for many people, is about going beyond that. So, giving something back, providing a little extra to society, but for other people it's not really about going beyond the law. I mean, if we think about it in developing country context where regulation may be very poorly in force, where companies may be able to easily get away with exploiting the workforce, doing detrimental things to the environment, simply abiding by the law may be a very responsible activity. Even going as far as just paying your taxes on time, and without trying to avoid them, may be a responsible activity. So as soon as we try and get into those details, it gets very difficult to work out what CSR is really about. It could about lots of different things to different people.

Rachel Salaman: What are some of the activities that fall under the CSR umbrella?

Andrew Crane: Well there's a range of things. I mean, I think for me one of the best ways of thinking about this is to really try and divide CSR up into four areas of activity really. First of all, we have those marketplace activities, so, the kinds of products that organizations produce. Are they produced responsibly in terms of their impacts on the environment, on the employees and those sorts of things? Are those products beneficial to society? Do they have positive effects on the consumers that use them? Do they provide all the benefits they're supposed to provide? Or, on the alternative, do they contain toxic materials? Are they going to harm consumers when they use them? All kinds of issues like that. So there are those market place issues.

Another set of activities is really around the workplace. So, a lot of interest in CSR over the last few years has really been about how corporations, particularly in developing countries, but also here in the West, how they treat their employees. Are they protecting their human rights? Are they discriminating against particular types of employees? Are they employing immigrant labor in some parts of their workforce, which may be illegal or poorly documented? All kinds of issues there, around their workplace issues.

A third area really is about some of those issues you mentioned in your introduction, about community initiatives. How firms give back to communities in which they operate, whether through charitable donations, through employee volunteering and all kinds of activities like that.

And the fourth area really is a much broader one around the environment. So, what are the environmental impacts of the company, and that can go right through from extraction to production, to use and then disposal of products, and through that whole lifecycle of the products and services the companies provide. So I think those four areas really help us to capture the types of activities but, as you can see, it's an almost endless list of activities that could potentially come under the radar of CSR.

Rachel Salaman: Who's doing it? Is it possible to categorize the companies that are doing CSR?

Andrew Crane: Well, I think if you listen to a lot of what corporations are talking about now. If you read the business press, it sounds like everybody's doing it. That's clearly not the case, but there's a lot of talk now, from a lot of companies, about how they're engaging in CSR-type activities, and that goes right up from particularly the large multinational corporations, who are those really at the front of the game, really, in terms of CSR. Particularly those that might be, if you like, the usual suspects in terms of working in high profile, often very dirty industries such as mining, energy companies, chemical companies, were often the first that were starting to engage in CSR activities, but increasingly we are seeing big brand companies, from food companies to apparel companies of all sorts getting involved in this. So the large corporations are clearly the ones that we notice but beyond that, the interesting thing, I think, about CSR is it's also something of a movement. It's not just about big corporations. We can also see non-Government organizations talking a lot more about CSR now, in terms of their partnerships with companies. We see Governments promoting Corporate Social Responsibility. The UK Government has a Minister for CSR and if we look even across at China, for example, the Chinese Government has been making a lot of noise over the last two or three years about promoting CSR as part of its harmonious society vision. So there's all kinds of organizations that have started to become involved in the CSR space.

Rachel Salaman: Why do you think it's grown so much over recent years?

Andrew Crane: I think a lot of it's to do with there's a much greater attention from the media, from NGO communities, that's non-Government organizations and charities, putting more of the spotlight on business, and as companies increasingly have focused on other activities, on high-value creating activities a lot of focus now on increasing their brand value. Managing their reputation then becomes all important, and the dangers of being seen as irresponsible when you've invested billions of dollars in promoting your brand can be a really major challenge for corporations. So that's one of the really strong reasons, is this increasing the spotlight being put on corporations, the amount they've invested already in promoting their brands, but there are other reasons too, and I think we have also seen a much greater attention to the kinds of social problems that corporations have been involved in as they've gone global. So, whereas 20 years ago we may have looked at whether, say, a large British company was engaged in charitable activities in its own country, we may have seen that as being sufficient. But, as they've gone much more globalized and we see they have impacts on third world employees, on communities in far off countries who maybe suffering degrees of poverty that are unknown in the West, so we've seen a much greater attention to the kinds of social issues that the businesses may be concerned about.

Rachel Salaman: Is it ever used as a kind of distraction to poor business practices? You mentioned some of the dirty industries who are prone towards CSR activities.

Andrew Crane: Yes, I think that's a good question. I think, unfortunately, yes, I think that does happen. Some firms are going to be using CSR, at least initially, as a way to try and cover up some of their irresponsible activities. To put what people might call a 'green wash' on their activities. There's a real danger in doing that of course. I think as soon as companies start to promote themselves as being responsible, without having any substance behind it, that's really offering a great story to the media, to non-Government organizations, in terms of firms not walking the talk. It's really shooting themselves in the foot if they do take that approach, but it does happen. It clearly does happen.

Rachel Salaman: We've been mentioning a bit about the idea of giving back. Why should decent ethical businesses feel they need to give anything back? Haven't they already given, just by doing ethical business?

Yeah, that's a good question. I think sometimes there's a danger, I think, in using that language of giving something back, and when we think about it, obviously there's a great deal of social value that comes from businesses simply doing what they do, from providing employment, providing great products that we all love to use. It's very easy to be critical of business when what they're doing is what we've asked them to do in the first place, which is provide employment and give us good products. The question comes though, is whether those jobs that are being provided, whether those products that have been provided, are meeting genuinely the requirements of those stakeholders. Are those good jobs? Are the products really valuable for consumers? Are they, in the end, harming consumers because they don't know enough about what the implications are of using them? We could think about the recent attention to obesity. There's a good example here. What sort of responsibility should firms take for ensuring that consumers don't get fat from eating their products? There's clearly a change in expectation here, about how far firms should go to try and manage the impacts across the lifecycle of their products. So it's not just about giving back, it's about looking at what firms are giving in the first place.

Rachel Salaman: So the way you look at it, CSR is not just about philanthropy, it's actually about your core business as well?

Andrew Crane: Exactly. Exactly. You could think of it like this. For some people CSR is about what you do with your money once you've made it. I think a much more effective way to think about it is how you make your money in the first place. How you build it into the core of your business practices. There's no point in producing shoddy products that harm the environment, if then you're going to spend two million dollars on giving it to a charity. You're just trying to clean up the mess that you've already made. The important thing is to focus on how a firm can be responsible from the beginning, building these activities, building them into the core business of the organization.

Rachel Salaman: Well, following on from that, you've written at length that CSR has now become that core area of management alongside marketing and accounting. How has that happened?

Andrew Crane: I wouldn't say it's exactly there yet. It's not at the same status as accounting or marketing, or finance or strategy, but it's getting there. I think people are starting to talk about CSR as if it's becoming one of those core activities. That's happened because we've seen a lot more professionalization of social responsibility. In the past, we may have seen it as firms thinking about "Okay, how do we give away two million dollars this year? What's the pet cause of the CEO or the CEO's partner, the way you want to give money away to in a very informal way?" And now firms are looking at it much more strategically, and much more in a way that ensures that CSR has measurable objectives, that it has clear goals that you can work out what are the key steps in achieving those goals, and about reporting on them. If you look at most of the top corporations now will provide very extensive social reports of one sort or another. Now these are still at a fairly early stage of development, but we see a great deal more investment, by companies, in demonstrating what they've done on the social side, as well as demonstrating their financial prowess. So we've seen a lot of things happening there, and I think, when I say that it's starting to become a core area of management, we need to just look at what's happening in business schools at the moment. I mean, I work in certainly one of the world's leading schools, in terms of integrating CSR into the curriculum. But, if you look at almost any business school now, you look at its MBA program or even its undergraduate programs in Business Studies you'll see that there are courses in CSR, Business Ethics, Business and Sustainability are starting to infuse throughout business programs. So, in the education of the managers of tomorrow, these issues are becoming much more central.

Rachel Salaman: What should organizations be aiming to achieve when they're designing their CSR strategies and trying to integrate them into the rest of the business?

Andrew Crane: That's a good question. It's a difficult one to answer really, because I think there's not a one size fits all approach to CSR. Different firms could be seeking to achieve different things. At a general level though, we can talk about, I think really, just two main types of objectives. One is, if you like, about the economic objectives, about achieving the business case for CSR, so, looking at introducing responsibility programs, because they have some tangible effect on the bottom line, and that requires firms to really measure what they're doing, and invest in activities that have some value-creating potential. On the other side, I think one of the other main objectives of firms to try and achieve is about social legitimacy. That CSR is not just about improving the bottom line. If it is, then it's just a normal activity for a business, but it's also about ensuring that they remain legitimate in the eyes of their stakeholders. So building and sustaining positive stakeholder relationships and this is all about maintaining the firm's license to operate. Over the past decade we've seen lots of challenges to the corporation, particularly to large multinational corporations. There's been a loss of faith, a loss of trust, if you like, following the scandals of the turn of the century, following all kinds of accusations of child labor, and those sorts of things, in supply chains. Firms now really have to focus a lot of attention on rebuilding trust with their stakeholders, so it's those two areas, really, where firms are seeking, often, to try and get returns on their CSR investments. There's all kinds of ways of doing that, but that will often depend on what industry the firm is in, what level of competence it has in CSR, and where it is on the learning curve.

Rachel Salaman: Well talking about the first scenario there, about the business case for CSR, how can CSR help the bottom line?

Andrew Crane: Well, there are all kinds of ways it can potentially help the bottom line. If we think about some of those core areas that I mentioned at the beginning, if we think about in the marketplace. Clearly there is some demand from a niche of consumers for responsible business practices. I mean, when it comes down to it, all of us would prefer companies to be responsible if there's no cost to us. Unfortunately, that's rarely the case. These things do cost money. So the question then is what percentage of consumers are willing to pay for more responsible products? So if we think about areas such as, I mean Fair Trade is a great example here. We've seen an enormous growth in the Fair Trade market, particularly in the UK and in other European countries. Here, we've seen a sizeable proportion of consumer markets willing to pay extra for products that they know are going to be providing a decent wage for the farmers that grow them in developing countries. So looking for those market advantages can be essential, and that doesn't just go for companies that have end consumers like you or I in the marketplace, but also for business to business markets. Increasingly, it's the large corporations that are expecting their suppliers to live up to a whole set of standards, which might be bad environmental standards, or social standards, in order to just do business with them. So there can be clear marketplace incentives for firms to adopt responsible practices. That's in the marketplace. We can think about in the workplace as well, in that we have an increasing shortage of talent, particularly in large companies and medium-sized companies. Employees want to work for firms that they see as responsible, and I think the evidence is shown that graduates increasingly are concerned about these issues, and so, there's clearly an incentive at that level as well, for firms to be responsible in the eyes of the people that come and work for them. So we can see those sorts of issues across that whole range of different activities the firm may be involved in.

Rachel Salaman: And for companies that might be looking for causes to support on the philanthropy side of things, how should they go about choosing what to support?

Andrew Crane: That's a good question. I think there's different ways of going about it. I mean, the way in which I think most of the leading voices in CSR now are going is to say charitable activities need to add value to the corporation; for companies in business to create value and to make profit for shareholders. If you're just going to give away money just for the sake of it, what value is that really providing? So, the way in which the debate is going now is about how corporations can create win/win strategies. How they can really add value both to the communities in which they operate, as well as to their own bottom line in the same place. Now that takes some degree of creativity, but there are clearly ways in which that can happen. So, for example, if we think about a mining company in Africa, what we've seen over the last few years is a great deal of attention amongst mining companies, but also firms in beverage industries and all kinds of things in Africa, to focus in on HIV Aids strategies. So not just giving money away to charities, but thinking about how we can ensure that we have a workforce that's healthy, that is living in communities that are healthy, that supports our business in a long term sustainable way, and that's involved increasingly donating funds to local NGOs, but, more than that, working with the charities, working with health organizations to provide testing procedures for their own employees, to providing drugs and immune mediation for their employees, counseling services, and increasingly also, protections also to employees' families, to the local communities, and also in a much broader sense to the much wider community. So we're seeing corporations thinking about not just giving money away, but trying to improve the competitive context in which they're operating. So that's really where a lot of the debate has gone, it's about how firms can really create value for different stakeholders simultaneously, through some of their charitable efforts.

Rachel Salaman: You talked earlier about the need to measure the results. What kind of a return on investment should you be looking for, and how do you go about measuring it?

Andrew Crane: Yeah, that's really a tough one to answer. I mean, for a start, there's two types of returns we're talking about here. There's the return to the firm, but there's also the return on society for the investment that the firm is making. It's very difficult to disentangle the effect of the corporation from all the kinds of other activities that are going on. When we're talking about these types of social problems, we're talking about very complex problems that firms are increasingly engaged in trying to address. But there are some which can be more straightforward if we are thinking about the impacts of a program that's trying to address child labor, or poverty amongst employees in the supply chain. You know, there are ways of simply measuring how many employees in a supply chain may be at a particular age. How much they're earning. How many are earning below a fair wage, and those sorts of things. So firms are – many firms, particularly of branded high street brands, have been investing quite substantially in auditing procedures through their supply chains and you can start to measure the impacts on the societies in which they're operating.

But the bigger picture is much harder to assess. When it comes to measuring the return on investments of the firm itself, again, it's very hard to disentangle the effect of a CSR strategy on the bottom line, compared to the other activities that the firm is conducting. So, although many people talk about the business case as being essential, an essential one for driving business, when it comes down to it, there's very little data around that really can say, absolutely for certain, that this social program has led to this rise in the share price, or this rise in profitability. It's virtually impossible to do, with the current metrics that we have.

Rachel Salaman: So should you set limits on the amount of resources you're prepared to put towards a CSR program?

Andrew Crane: I think that's one way of looking at it. Clearly, there are dangers in going too far with CSR if it's going to make a major impact on profitability. The worst thing a firm can do is invest too much in these things and go out of business and then employees become unemployed, the products they are producing no longer gets applied, and all kinds of impacts happen to their suppliers, and various other stakeholders. So, just investing more and more money is not really the answer. So yes, limits have to be set, but the question is; what are they trying to achieve with a particular CSR strategy? And so that's when the question of, whether it's about trying to have an economic return on that investment, but also a return in terms of the legitimacy of the corporation. And that can be measured, for example, by things such as setting up a reputation index to measure how the reputation of the firm is, in terms of its key stakeholders. So lots of firms now do surveys of their core stakeholders, and these sorts of things, to try and assess how they're doing. So, yes, there needs to be limits, but it will also depend on really what you're trying to achieve with the program.

Rachel Salaman: Now I mentioned before that you co-author a blog, Crane and Matten. Why did you start that?

Andrew Crane: We started out just at the beginning of this year, really as a way of trying to provide a bit more, I think, serious analysis to many of these activities that are going on in the CSR space. Everyone had got an opinion about these things and I think everyone is very excited and interested about them. Many people disagree, and I think what happens, though, is we can often lose sight of the forest because of the trees. And so what we are trying to do with the blog is really provide a bit more of an analysis, at a distance from people that aren't actively involved in a corporation or an NGO, but from an objective academic standpoint, about some of the issues that are going on. It provides a really serious analysis of some of these things that are happening. And really for us, I mean, we – my co-author Dirk Matten and I – we've produced a series of textbooks and articles looking at CSR, and sometimes, also, the time it takes between when you write something and when it comes out, is simply too long and Many of these things happen all the time, and it's wonderful to be able to comment on them as they happen, rather than waiting six months or a year until the book comes out. So it gives us an immediate contact with our readership on some of those issues that matter.

Rachel Salaman: What response have you got from readers to the blog?

Andrew Crane: Well I think that, I mean, the great thing for us, and what we've found really exciting about the readership of the blog, is that it's completely global. We're – because most of our – the market for our books and our courses tends to be in Europe and North America we're expecting most of our readership to come from there, but we get readership from across the world, from China, from Indonesia, from Thailand, in Africa. We get readers in Latin America, in the Caribbean, and it's wonderful to see the breadth of the debate on these issues, and the different perspectives that may come from people in those communities. So that's been the exciting thing for us is just seeing that there is a global appetite for discussion on these issues.

Rachel Salaman: So finally, what's your forecast for the future of CSR, looking globally? Will this trend last?

Andrew Crane: Well Rachel, it's always nice to look into the crystal ball and try and predict what's going to happen. The trend will last. I think that's fairly certain. In many ways, the history of CSR has been an uncertain one over the past century. It's kind of risen and declined in interest, I'd say, since people first started talking about it at the very beginning of the 20th century, but I think the momentum is really there, over the past 20 or 30 years and, what's really driving that I think is this increased transparency about corporate activities. It's no longer possible for companies to hide the activities that they're engaged in, if they're irresponsible. It's impossible to just sweep those things under the carpet, simply because they're happening in another country, or because they're happening to – in another community. So the scrutiny of companies is just getting more and more, so the incentive for them to engage in these activities is not going to go away. So the trend will continue, and I think what we've clearly seen is it has gone increasingly global. What started off as very much a North American and European phenomenon is now clearly a global one. We see companies in Asia, in Japan and in China, for example, and India, who now are adopting the CSR policies, and some even have done for the past 100 years. If we think about the Tata Corporation in India, for example, it's been a great leader in terms of its social responsibility. But we also see companies, increasingly in Latin America, and even in Africa, looking at their social responsibility practices. So it's going global, but the challenge though will be whether some of the standards that have been started to be institutionalized in business, for example, around working conditions or environmental protection are also taken up by companies emerging from other regions, such as Russia or China for example, where there may be less pressure on them to do so. If we think about some of these environments, for example, where there may be a much weaker civil society, that means a much weaker institutionalization of non-Government organizations and charities, where there may less of a free media, the incentives for companies may be less and it may be easier for them, in those contexts, to get away with irresponsible practices. So those are some of the things that we need to focus on. If the movement towards CSR continues, and I believe it will, to make it work, to make it effective, we also need strong institutions from media, from non-Government organizations, and Governments themselves, to make CSR work and that's going to be the challenge for all of us.

Rachel Salaman: Andrew Crane, thank you very much for joining me today.

Andrew Crane: Thank you, Rachel.

Rachel Salaman: Andrew expands on some of these ideas in his book entitled Business Ethics and he has another new book coming out, along with co-authors Dirk Matten and Laura Spence. It's called Corporate Social Responsibility – Readings and Cases in a Global Context. You can find his blog at craneandmatten.blogspot.com. That's craneandmatten.blogspot.com. I'll be back next month with another expert interview. Until then, goodbye.