WHY "THINKING CSR" CAN OPEN THE DOORS TO NEW BUSINESS DAVID GRAYSON AND ADRIAN HODGES - GLOBAL COMPACT EDITION OF PARLIAMENTARY BRIEF - JUNE 2004

It will not be long now, and rightly so, that a commitment to CSR is the norm in the majority of large publicly quoted businesses around the world, because it makes sound business sense. More than 2000 leading companies internationally now report regularly on their environmental and social impacts and the majority of Fortune 500 companies already have someone responsible for CSR.

But there is a danger that "CSR" becomes associated with extra costs, burdens, obligations. CSR has largely been promoted on the back of the need for risk management and the 'fear' of what could go wrong. For example, a company is at risk of losing talented employees if it is not responsive to their needs to achieve a work/life balance. That company could be potentially saddled with loss of institutional memory and skills, as well as having to bear the costs of recruitment and training replacements. On the other hand, by implementing family-friendly workplace practices, a company might improve retention levels and have the 'opportunity' to attract talented employees in the future.

But not many companies we know have achieved a strong and sustainable position in a crowded, competitive market-place because of attention to sound risk management (apart perhaps from those in the insurance industry). That may have helped them retain that position, but not earn it. The driver for successful business leaders is opportunity and the competitive instinct, not fear. It is about harnessing entrepreneurial innovation. That is why, in our new book, to be published in July, we introduce a potentially more substantive 'next generation' set of corporate social opportunities. These can be summarised as a combination of possibilities for innovation in products and services; possibilities to serve underserved markets or create new markets - not least the Bottom of the Pyramid markets that C.K.Pralahad and Stuart Hart have promoted; and, possibilities to organise business differently by adopting new business models. Typically, these opportunities reflect several of these possibilities. In each case, we are talking about commercially viable business activities which also help address environmental and social sustainability.

The most common examples of corporate social opportunity are to be found in the field of environmental innovation, thanks to growing interest in conservation, stiff environmental regulation and technological developments.

Car manufactures are investing heavily in developing more efficient fuel based vehicles as well as hybrid-cars, such as Toyota's 'Prius.' There are some interesting collaborative inter-industry research and development projects on the go too, for example DaimlerChrysler, Shell and Norsk Hydro working together in Iceland to convert buses, cars and even ships to run on hydrogen made from renewable sources.

HP has built state of the art recycling plants with Miranda Mines of Canada. They have found that whereas traditional copper mines produce 6oz of copper per ton; the recycling plants are producing 12oz per ton of waste - making these hp recycling centres excellent copper "mines!
Product and market development and changes in business models are not only driven by environmental factors. Social triggers like health are increasingly driving innovation.
Unilever has developed a number of product lines which appeal to lower spending market niches, adding value to the products by enriching them with vitamins and essential minerals. In Ghana 'Annapurna' salt is fortified with Idokine K-15 supporting preventive healthcare for pregnant women, packaged in small portions, and priced accordingly. This was developed as a result of a partnership between the company, UNICEF and the Ghanaian Ministry of Health.
Nestle has a range of 'branded active ingredients' in some 30 markets worldwide. For example, 'Caring' in Switzerland and Nutriservices' in France are product ranges designed for institutional markets such as hospitals, senior citizens homes, schools, etc., which are enriched with proteins, calcium and fibres.
The market characteristics that have led to these corporate social opportunities also play out in non-food sectors.
British telecommunications company O2, is partnering with a University's engineering department to look at innovative uses of mobile technology to help asthma sufferers monitor their breathing and to be in touch with their doctor every time a bad attack seems imminent and get immediate advice on how to prevent it. Mobile technology is making this possible for the first time.
Competitor activity and the traditional behaviours of Indian consumers led Hindustan Lever Ltd, a division of Unilever, to develop the 'Wheel' detergent formula to a reduced oil to water ratio, reducing potentially harmful environmental impacts when consumers wash clothes in rivers and public water supplies. The product is manufactured at decentralised centres, distributed by small vendor units - 'bicycle brigades'- reaching rural areas, and sold at low price points matching consumer spending ability and patterns. Core rural markets generate some 50% of Hindustan Lever's turnover.

A "Corporate social opportunity" mindset can also lead to new business models: to how a business is developed, how finance is raised, how products and services are delivered to market, how a business is staffed and how purchasing practices are organised.

Business Development

- The UN Millennium Goals inter alia involve delivering safe drinking water to 125,000 new people every day. Procter and Gamble's PuR water purifier in a sachet is a commercial product enabling people in the developing world to decontaminate water in their own homes and store it safely.

Business Financing

- Four Polish lighting manufacturers have been funded by the International Finance Corporation of the World Bank with $5million to enable them to sell compact fluorescent lamps (CFLs) and related products at below cost price to Polish consumers and small businesses. The objective is to accelerate the development of the Polish market for energy efficient lighting technologies to realize global and national environmental benefits.

Market Delivery

- Schindler, the elevator maker, would prefer to lease "vertical transportation service," rather than sell their elevators because they think their elevators use less electricity and maintenance than competing ones. So the resource efficiency of the elevator becomes for them, not a reduced revenue but a reduced cost and enhanced revenue.

Purchasing

- Companies like do-it-yourself retailer B&Q are helping their suppliers to understand how to implement environmental and social practices; and making this part of tendering requirements.

Staffing

- The UK's leading supermarket Tesco has initiated 14 regeneration partnerships in low to moderate income communities to develop new retail stores. Tesco partners with community groups, public and private sector agencies to put together, finance, and deliver, appropriate and customised skills training to the local community whilst the store is being built. Key to the success of the programme is a job guarantee to all those who successfully complete the training - which has necessitated changes to Tesco's internal personnel practices. Providing jobs to local residents helps to build community support for the stores and community protection in what are often high crime areas.

"These products and business model innovations can significantly improve lives, and help build our business at the same time. This is not business as usual and it is not philanthropy; it is building social, environmental and economic sustainability into our business in a strategic way. "

George D. Carpenter, Procter & Gamble

Sound and effective CSR policies and practices, whilst very much needed and good to have, are not the end game in themselves. They are but a staging post on the journey to future growth and development afforded by corporate social opportunities. We predict that the most sustainably successful companies will be those who advance from simply complying with CSR requirements to capitalising on Corporate Social Opportunity possibilities.

If a business has really integrated the management of CSR into the firm, it will be more likely to find corporate social opportunities. Staff will make suggestions. External groups will be more likely to make proposals for collaboration. What characteristics will such a business display? What are the critical success factors that will help ensure it moves from a 'have-to-do' compliance based approach to a 'want-to-do' mentality?

Over the last few months, we have been talking to a number of international company chairmen and CEOs, in an effort to understand better how companies can really integrate Corporate Social Responsibility into the way they run their business. This is very much a work in progress. We suggest, however, ten key Characteristics of a Corporate Social Opportunity Corporation.

Ten Key Characteristics or Critical Success Factors for a Corporate Social Opportunity Company

1. Alignment and explicit articulation of Purpose, Vision and Values of the organisation consistent with responsible business practice. Ownership and commitment will be easier when Purpose, Vision and Values are co-created by people throughout the organisation rather than being imposed from the top leadership.
2. Leadership and Senior Management Team which fully believes in and lives those values and purpose - and demonstrably so. This means that leaders have to become their workers' greatest asset! Leaders who are walking the talk of CSR are championing CSR (chairing taskforces etc); investigating CSR when they are out and about; publicising the issue in speeches, articles, business meetings; praising their staff through awards, promotions, creating extra opportunities; demonstrating conviction through their own activities; and giving air-cover to help employees find opportunities.
3. Purpose, Vision and Values are intensely and continuously communicated throughout the organisation and beyond.
4. Purpose, Vision and Values are constantly reinforced through culture, processes and rewards. This includes being incorporated into recruitment, Induction and management / staff training; into performance objectives / appraisal / reward and recognition structures. It is a key for promotion; a fundamental part of procurement criteria and processes; and of due diligence for assessing business partners; and there are effective mechanisms for whistle-blowing on any "Values Gaps" i.e. gaps between Values espoused and Values lived.
5. There are effective tools and processes for scoping and then prioritising risks and opportunities associated with responsible business practices; and a framework for deciding how to reach decisions and to check for consistency with corporate values
6. There is a decision-making process at the top of the organisation (board / board sub-committee etc) for oversight; and a capacity for capturing and codifying knowledge to ensure continuous improvement in responsible business practice.
7. Effective stakeholder engagement processes which are proactively seeking corporate social opportunities and have built the trust, openness and empathy with internal and external stakeholders, which encourage such opportunities to emerge.
8. The business has an ethical code governing relations with stakeholder partners to determine a fair share of risks and rewards (Intellectual Property Rights etc) in exploiting Corporate Social Opportunities which are developed with stakeholder partners.
9. Corporate entrepreneurialism and creativity is stretched with an openness and curiosity for corporate social opportunities
10. appropriate measurement and reporting of company's performance. - and processes for rectifying gaps and learning from the emergence of gaps.

By championing an opportunity-based approach, we believe that CSR will become much more embedded and sustainable in many more companies.

© David Grayson and Adrian Hodges April 2004.
This article is based on: "Corporate Social Opportunity - Making Corporate Social Responsibility work for your business - Greenleaf - July 2004.