Shifting Paradigms: Why Corporate Social Responsibility, More Than Profitability, Will Drive Organizations in the Future
When businesses focus blindly on financial sustainability, their real purpose—social uplift—is forced behind the shadow of financial muscle. For a long time, businesses have struggled to see themselves as drivers of social progress. But the truth is, corporate social responsibility hasn’t just been an outcome of businesses doing well. It has been a reason all along.
Corporations that see themselves as independent contributors are wrong. The interdependence between business and society form a larger system.
This single larger system is built on the pillars of society, environment and economic wellbeing. It is driven by the common fuel of sustainability. While all businesses claim that developing a sustainable future is their mission, there is a rising need for businesses to comply with this motto and build a better and prosperous future for everyone.
Successful Businesses Integrate With Society
Can businesses thrive by isolating themselves from society?
Let’s imagine a business that thinks it can:
– It will source material based on competitive prices. (It is competing with other businesses at least, and potentially with the government)
– It will hire labor to convert that raw material into finished goods. (Those workers will need wages and other compensation/incentives). Who decides what those incentives are? Where is this labor force coming from?
– The goods will be transported. If there are no environmental laws, what rules will govern the safe storage, handling and transport of those goods?
– Eventually, the finished goods will be marketed and sold. (If buyers cannot afford these goods, or are too ill to consume them, what does the corporation do with those goods)?
Any corporate social responsibility (CSR) paradigm is loosely based on this concept of integration between the business and the elements needed to nurture the progressive growth of the society.
Becoming competitive on CSR metrics allows businesses to maintain an edge over competition for the long term.
Evolving Paradigms Of Corporate Social Responsibility (CSR)
The notion of corporate social responsibility (CSR) isn’t new. It first came up in management literature in the early 1970s. Then too, it was a successor, first to corporate philanthropy, and then corporate stewardship.
The common thread in all these movements was that corporations understood they had a responsibility towards society. What changed was their understanding of that responsibility. Was it charity? Was it a partnership with social agents? Or was it simply an ownership of their markets?
Ownership implies owning systems. And no business can survive in a system where there is a power imbalance.
In the past, businesses have unapologetically taken from society, degraded the environment and increased the rich-poor gap with unfair compensation systems. If these short-term measures worked, they’d still be around. Instead, businesses are rallying to support healthcare research, ocean conservation, children’s rights and other areas that don’t directly connect with their goods or services.
Avoiding reputational risk is of course a good reason. In the past five years alone, corporate scandal has spared no one, and giants like Amazon, Facebook and even Yahoo have come under fire for violations of employee and/or user rights.
The second reason is that corporate social responsibility reflects the values of a firm’s leadership. Or should. Firms are spoilt for choice when presented with charities to espouse. Corporate social responsibility ensures those efforts go in a strong, well-defined direction, which reinforces the firm’s standing on core socio-economic issues.
That said, corporate social responsibility also serves as a business’ unspoken advocate of trust: The trust consumers can place in its products and leadership.
Corporate Capital Vs Human Greed
Have businesses been punished for putting profits over people? Let Bhopal’s Union Carbide disaster be the answer to that. Or Enron. Or subprime. Hardline capitalists believe that without the focus on shareholder value, businesses won’t have the capital to help society.
But there’s another view too. Without the capacity to buy, experience or enjoy products, people will not be able to consume what businesses produce. Corporate social responsibility isn’t about giving. It’s about giving back to society.
Positive Impact Maximization Or Negative Impact Minimization?
CSR comes under fire for focusing on cosmetic gestures, especially those who focus on services. That’s why the real value driver of CSR will be positive impact maximization. This is different from negative impact minimization.
Positive impact maximization is a concept that stresses capacity building, capacity creation and resource mobilization. It is about preparing and equipping future societies. Most social enterprises with a technology base follow the positive impact maximization model.
Negative impact minimization is about removing hurdles to progress. It’s about placing safeguards, such as vaccinations, safety camps, first aid and hunger relief. Most CSR efforts of the past (and to some extent, those in current practice), focus on negative impact minimization.
Business Benefits Of Adopting Systemic Sustainability
Businesses can bring about great benefits to themselves by embracing systemic sustainability. It encourages a closer relationship between businesses and all stakeholders—not just buyers or shareholders. That means they can save resources by collaborating with former rivals instead of wasting resources competing with them. These synergies translate positively for the environment and society—giving customers better choices at better prices.
When businesses reorganize themselves by putting people at the center, supply chains become greener, tax positions become more favorable and their talent is enriched for the long-term.
We see many practical examples in midsized pharmaceuticals: Where competing manufacturers have collaborated to lower R&D costs, shorten the RTM cycle of their drugs, and increase the purchasing power of patients. Without CSR efforts, many of these drugs may have been shelved indefinitely, or would have stayed reliant on government pricing support.
Why Not Profitability?
Firms need profits to survive. Let there be no mistake. Profits make it possible to fund cancer research, encourage reforestation and send impoverished children in developing economies to school.
But profits won’t do any good if they are not adequately distributed. When workers protesting unfair compensation go on strike, business suffers. And profitability suffers. When parachute schemes enrich corporations but don’t protect disadvantaged employees, regulation holds corporate leaders accountable. None of this takes businesses forward.
The Future Of Corporate Social Responsibility
Corporate social responsibility will not be the final word in the relationship between business and society. We are already seeing complementary approaches take shape via social entrepreneurship, angel investments and closer public-private sector interaction.