As the global economy moved from stakeholder to shareholder capitalism, the social responsibility of companies was necessarily eroded. The controlling mechanism of the market became a share price rather than a link between a firm, their employees, suppliers, consumers, and the communities impacted by their work. Globalisation has also meant that the geographical distance between these various stakeholders became ever greater and with it, practices reflecting anything other than short-term economic rationalism have become less common.
It is no coincidence that corporate social responsibility as a concept grew in popularity as globalisation gathered pace. “CSR” as a term has since given way to Environmental, Social, and Governance (ESG) frameworks and considerations for corporates. The emphasis in these frameworks is far more on risk mitigation than proactive outreach or poverty reduction, but many of the activities remain the same.
So, what’s changed?
There is an opportunity for genuinely socially impactful practices to emerge as mainstream corporate strategy. Discursively of course, this has already happened. The triple bottom line, the WEconomy, or shared value; the literature and business school courses on the issue would have you believe that social impact is as important in the business decisions of companies as profit. But anyone who’s worked with or for a major corporation will testify to the fallacy. This has led some to continue to see CSR as little more than an outward facing marketing exercise. Proof of this particular pudding can be found in examining where the budgets for these activities come from and which results are reported. Where CSR sits as slush fund to do ‘nice’ things and report on the number of people who’ve received a free bar of soap, CSR remains very clearly outside of corporate strategy. Meanwhile, ESG is a matter of due diligence and compliance.
While there might seemingly be nothing wrong with giving poor people soap, building a school, or providing meals in a factory canteen, it represents a tiny fraction of the impact (and profit) potential of genuinely inclusive business. It’s dependent on the generosity of the business, undermines local markets, has limited sustainability, and impacts on very small numbers of people.
However, there are a number of reasons why things might be changing meaning that the social impact of a firm’s actions might begin to be a key determinant of commercial strategy.
Growth, diversification, and sophistication of emerging economies as markets: Low-income communities within them are increasingly being recognised as a market for an increasing range of products and services. It’s no longer just processed food and toiletries that characterised the ‘Fortune at the Bottom of the Pyramid’ thinking but software, banking, insurance, and professional services are deriving an increasing proportion of their business from these markets. As such, it’s incumbent upon companies that produce in these markets to be sensitive to their reputations there too as today’s producers are tomorrow’s consumers.
Increased visibility of corporate behaviours in emerging markets: CSR used to involve the nice stories that a company wanted to tell you. Now, there are push and pull factors in the provision of information with various disclosures and transparency requirements on one side and a more democratised media on the other, meaning there is a much greater chance that a story of bad social practice negatively impact the global image of an entire brand.
Ethical Consumption and career choices: Another, perhaps overemphasised driver is the niche ‘ethical consumption’ market in advanced economies and the career choices that these ethical consumers make. In a competitive environment for skilled workers, if firms don’t performance in a multidimensional way, they won’t be able to attract and keep the best talent. Having a mission that your employees share inspires loyalty in a way that financial bonuses can’t.
All of these factors should lead to more socially impactful business practices being more widespread and happening more quickly. So why are such practices not yet the norm?
A greatly underestimated factor in mainstreaming social objectives is that, broadly speaking, companies don’t know how; doing business in a way that inherently benefits society at large represents a paradigm shift in notions of inclusive business. The fragmented structures of organisations find it difficult to reconcile what can appear to be competing objectives.
In low-capacity environments, there are many factors beyond the direct supply chain of a firm where investment might be needed in the short term, which seemingly acts against the firm’s immediate interests. There may be pre-competitive collaboration necessary in order for firms to successfully achieve social change. Firms might need to spend money where the benefit could be shared and not purely internal.
A systemic approach can help firms to analyse emerging markets and look at commercial and social objectives in a coherent way that allows for the development of a future vision of success. Here’s an example of what ‘CSR 2.0’ looks like in practice.
A multinational running a factory in South Africa was underperforming. They say ‘we’re good to our workers’, providing accommodation and free food. But the factory isn’t growing – if these people lose their jobs, then they won’t benefit from the business at all. In a country with high poverty rates, the growth of businesses and sectors which can employ poor people can be hugely impactful.
Using a systemic approach, the firm realised that its true ‘impact’ lay in the number of people it employed and the demand it provided to suppliers lower down the value chain. It needed to look at the constraints to this inclusive growth. Realising that these constraints principally lay ‘beyond-the-firm’, they chose to invest ‘CSR’ money into activities to influence other actors in the sector for their collective benefit and for the benefit of the poor people that they employed and purchased from. They convened competitors to develop a shared plan to increase the participation of smallholders in the sector to increase overall production, factory utilisation, jobs, and incomes for farmers. They supported a bank to offer loan products to farmers to enable them to engage in production for the first season before crop yield was realised.
As a result, this firm, and all of the other firms in the sector, were able to grow, create jobs and increase farmer incomes. Instead of free accommodation, the firm was now able to pay higher wages, for more people, buy from more farmers, and sustainably reduce poverty. Further, the impact of this new approach to CSR does not stop at the factory gate – all of their competitors have benefitted from this and they too employ more people and buy from more farmers.
Considering impact as a mainstream part of corporate engagement in emerging markets makes business sense. Adopting a systemic approach to doing so amplifies the sustainability and scale of any benefits realised. If more corporates are able to adopt this strategy, business truly can fight poverty and impact will no longer be the sideshow.
