CSR, Oversimplified

In Associate Professor Anil Karnani’s world, Corporate Social Responsibility professionals at the world’s largest companies only do two things: propose projects that the business should already be doing because they make total financial sense, and propose projects which are financial disasters and companies should never seriously consider. And if you lived in his world, you’d reach the same conclusions that Dr. Karnani does in his article in today’s WSJ, “The Case Against Corporate Social Responsibility”: CSR is at best irrelevant, and can even be dangerous.

Speaking as someone who ran a CSR group at a F250 corporation (Sun Microsystems) for 5 years, I can tell you that it would be great if the real world were so simple, but its not. While he’s right that CSR and the business of the company need to always go hand-in-hand, the situations aren’t nearly so clear-cut, organizations aren’t as smart, and CSR professionals aren’t as dumb as he suggests.

Let me illustrate with a few points:

  • Measuring project RIO is not cut and dry, just ask BP. Many CSR activities are grounded in a discussion of risk, as opposed to measurable items like parts cost. Skilled CSR professionals bring careful analysis of a new set of risks into the corporate decision process. In many cases the CSR input may not change a decision, but in some cases it does.
  • Dr. Karnani points out the important role of legislation (or, as important, the threat of legislation) and the influence of NGOs, including watchdogs and advocates. But who represents these issues in the corporation? In my experience it is the CSR function which often acts as the interface between these activities and the corporate decision process. When designing products that will hit the market in 3 or 5 years, as is the case in many companies, speculating about the global legal and social opinion environment that the product will be sold into is now an important set of inputs to the design process.
  • Companies have a finite bandwidth to take on new activities, so naturally lots of perfectly sound “win-win” projects don’t make the list unless they have an advocate. Energy efficiency projects have always “made sense” for companies to do - CSR and environmental awareness just made them more visible, provided a surer ROI, and got them higher on the corporate to-do list.
  • At the other end of the spectrum are projects which are CSR winners but financial losers. CSR’s role here is not to give up in a huff, but to keep the corporations major societal impacts on the front burner, for these are the company’s biggest long-term risks. If they really are major negative societal impacts, the company will pay for them in some way eventually, and in the meantime the company is horribly exposed to a competitor who figures out a way to lessen or avoid these impacts. CSR needs to drive the key questions: can we lessen the impact in a financially sound way? What can we do differently over time? Are we investing in innovation that may lessen our liability?
  • In the last two points I’ve hit Dr. Karnani’s two big CSR project buckets, but he’s missed the most important one, the area where two choices have different societal impacts, but the financials aren’t that different. These come up all of the time, but aren’t visible in the decision process unless someone is keeping score of societal impacts. Vendor A and Vendor B have similar prices, but Vendor B has dubious employment practices in some of its factories. Or maybe Vendor A’s products use more energy for the same amount of work. Datacenter A and datacenter B may have a similar 5-year cost of ownership, but Datacenter B may use 30% less energy per year with lower resulting CO2 emissions. Or maybe Datacenter A has a major solar panel going in next door and will have no CO2 emissions from that point on. These are a couple of simple examples, but I could give many, many others. In my mind this is when the CSR function shines in a company, and where it can have the biggest impact.

In conclusion, if your company trivializes the role of CSR, as Dr. Karnani suggests, then CSR will not play a useful role in your organization, so you should probably just fire them all.

If, on the other hand, you recognize that societal issues are playing an important role in complex corporate decision processes, and that all evidence suggests that the role will increase going forward, then hire some good CSR folks and integrate them into your management team.

And, oh yeah, be careful of academics talking about real world corporate issues: they can be irrelevant, and in some cases even dangerous.