Milton Friedman said, “The only social responsibility of business is to increase its profits”. On the other hand, Michael Porter said, “CSR has emerged as an inescapable priority for business leaders in every country.”
Who’s right, the Nobel prize-winning economist or the world renowned strategist? I would contend that they both are. Business should pursue profits foremost but in today’s economic environment, particularly with respect to the workforce, their strategy must include efforts to improve society.
In their landmark 2006 Harvard Business Review article, “Strategy and Society: The link between competitive advantage and corporate social responsibility,”Michael Porter and co-author Mark Kramer, argue that corporate philanthropy and CSR confer competitive advantage when they are aligned with business strategy and the pursuit of profit.
They conclude: “Each company can identify the particular set of societal problems that it is best equipped to help resolve and from which it can gain the greatest competitive benefit. Addressing social issues by creating shared value will lead to self-sustaining solutions that do not depend on private or government subsidies. When a well-run business applies its vast resources, expertise, and management talent to problems that it understands and in which it has a stake, it can have a greater impact on social good than any other institution or philanthropic organisation.”
Thus, strategic corporate activity to improve society should not be described as a “responsibility” as that ignores its other purpose, which is to drive competitive advantage and higher profits. Porter suggests the term “Corporate Social Integration”; but I prefer “Corporate Social Investment” (CSI) because it incorporates the dual mindsets an organisation should possess as it pursues these initiatives.
Regardless of the term, a growing body of research demonstrates that companies (and individuals) gain when they support the improvement of society in general. However, companies gain much more when they direct philanthropy and CSI toward causes that are aligned with their strategy and which are intended to drive profits.
In terms of human capital, it is becoming increasingly evident that an organisation’s reputation for CSI impacts its ability to recruit, retain, and engage talent. Robert Reich, for example, believes that knowledge workers seek organisations that are known for their commitment to improving society.
In Towers Perrin’s 2007 Global Workforce Study of almost 100,000 workers in 19 countries, “Corporate Social Responsibility” ranked an unprecedented third overall in drivers of engagement, ahead of other important factors including “career advancement opportunities”, “challenging work” and “relationship with supervisor”. In a May 2007 survey of 1.6 million employees, Sirota Survey Intelligence found similar evidence. According to Sirota, “86 per cent of employees who are satisfied with their organisation’s CSR commitment have high levels of engagement. When employees are negative about their employer’s CSR activities, only 37 per cent are highly engaged”.
As compelling as these studies are, they only capture the tip of the iceberg. In keeping with Porter and Reich’s philosophies of alignment, an organisation hoping to get the most benefit will look for CSI opportunities that position it for reputational gain as well as immediate and future human capital advantage. Sandy Cohen, founder and executive director of CommunitiWorks, a non-profit investment organisation which provides sustainable primary school education and skills training in rural communities, offers the following advice to India’s multinationals, particularly business process outsourcing (BPO) companies, who are heavily dependent on a constant supply of call-centre talent:
“Indian multinationals should look to CSI to gain advantages in at least three distinct ways. (1) Societies are becoming more aware and sensitive to global social issues. As a result, corporate CSI practices will begin evaluating and mitigating risks by strategically buying from firms committed to ameliorating the existing wealth and opportunity inequalities in their own countries. (2) By investing in skills training of ‘unemployed but educated youth’ in the rural communities, Indian BPOs will gain talented employees at lower costs than offered in the tier one and two cities. (3) Investments in education at the bottom of the pyramid, particularly in rural communities, will provide answers to future shortages and cost of talent issues. Of course, the investors will also better engage their current employees, especially if some of them become active as volunteers in the schools. In these ways, strategic companies can do tremendous service to society while gaining clear competitive advantages.”
There is no question that knowledge workers prefer to work for socially responsible companies. They would also seem to work harder in those companies and stay longer. Strategic CSI has become a tool in the competition for talent worldwide and, for those that do it best, a competitive advantage.
By Allan Schweyer, president of the Human Capital Institute