Corporate Social Responsibility in a Downturn

Executive Summary:

Financial turmoil is not a reason to scale back on CSR programs—quite the opposite, says HBS professor V. Kasturi “Kash” Rangan. As a marketing scholar Rangan is optimistic about strategic CSR efforts that provide value in communities and society. Q&A Key concepts include:

Corporate social responsibility (CSR) means “activities undertaken by businesses that enhance their value in the community and society and thus benefit their reputation and brand,” says Rangan.

CSR should be treated as a business discipline and practiced with the same professionalism and rigor as other aspects of a firm’s strategy. “For example, many of the programs that come under the umbrella of ‘climate change’ have the potential to benefit the environment as well as a company’s bottom line,” Rangan adds.

Good examples are the early childhood literacy initiative of PNC, a financial services organization based in Pittsburgh, and the 10,000 Women initiative of Goldman Sachs, which facilitates a business education for underserved women.
Companies should classify their CSR programs according to the ability to enhance and even transform the firm’s business practices.

And there’s no time like the present, he adds. “Effective programs that serve the community in a compelling way, and that also demonstrate a strong potential to influence the business, must be retained and grown.”

At HBS, Rangan serves as cochair of the Social Enterprise Initiative (with Herman B. “Dutch” Leonard) and as faculty chair of the Executive Education program Corporate Social Responsibility: Strategies to Create Business and Social Value (to be held November 4-7, 2009). He has taught a variety of MBA courses, including the second-year electives Business at the Base of the Pyramid and Customers, Commerce and Society: Business Value and the Private Creation of Social Value.

Rangan agreed to take part in an e-mail Q&A with HBS Working Knowledge to describe the value of corporate social responsibility to businesses in economically uncertain times.

Martha Lagace: What is corporate social responsibility as you define it?

Kash Rangan: Activities undertaken by businesses that enhance their value in the community and society and thus benefit their reputation and brand. In general these activities create a win-win for the company and its larger group of stakeholders.

Q: Many nonprofits from museums to food banks are worried about the dwindling number of donors and their future in the midst of our market turmoil. Is the role and importance of corporate social responsibility evolving during the current recession?

A: There is no doubt that corporations are engaging in less philanthropy, but that is not necessarily bad as long as they cut the ineffective ones and consolidate those that are synergistic to their business.

Here is where the problem might arise: I believe the tendency is to make across-the-board cuts, without reflecting on the company’s business strategy and its relationship to the larger environment. Some companies will end up making very poor decisions that will hamper their ability to leverage their reputations when the recession turns around.

Q: How would you advise that executives best communicate their CSR efforts to stakeholders when the economy is in such turmoil?

A: This is the time for executives to undertake a CSR audit and classify the programs according to their ability to enhance, and in some cases transform, the firm’s business practices. We have built a simple classification system that when combined with an “assessment” model could yield powerful diagnostics on how to migrate and manage a company’s portfolio of CSR programs.

Effective programs that serve the community in a compelling way, and that also demonstrate a strong potential to influence the business, must be retained and grown. This is also the best time to be pruning initiatives that have lost their relevance and leverage.

Q: What constitutes effective CSR? Can it always be measured or otherwise justified in a strategic business sense?

A: PNC [a financial services organization based in Pittsburgh] is an excellent example of how a business has focused on a cause that the company, its employees, and its customers deeply care about: early childhood literacy. Not only is support for the program continuing at the projected pace, there already are signs of how the program has started to impact PNC’s business initiatives. The leading indicators are there; as for business impact, it is still too early to call.

There are other programs as well, some of which directly address opportunities in a firm’s supply chain or demand chain (i.e., the customer-facing side of the business), which are easier to quantify because of their direct impact on the top or bottom line.

Q: Assuming that organizations value their CSR initiatives, how do you think they could best craft a strategy to prepare for future storms, not just the current one?

A: As I mentioned earlier, CSR should be viewed as a business discipline and practiced with the same rigor as other aspects of a firm’s strategy. Remember, however, that rigor does not always equate to short-term financial profits. It means that a company should aim to manage the broader environment for the business to be engaged to its stakeholders in creating value for itself and the community in which it operates.

But the assessment of what that value is should be undertaken rigorously. While there might not be a neat quantitative metric, at the least there should be a robust logic model that is able to connect the dots and make a credible projection. –Martha Lagace,  HBS Working Knowledge