GLOBAL: Just good business

Corporate
social responsibility, once a do-gooding sideshow, is now seen as
mainstream. But as yet too few companies are doing it well, says Daniel
Franklin (interviewed here)

IN
THE lobby at the London headquarters of Marks & Spencer, one of
Britain's leading retailers, the words scroll relentlessly across a
giant electronic ticker. They describe progress against "Plan A ",
a set of 100 worthy targets over five years. The company will help to
give 15,000 children in Uganda a better education; it is saving 55,000
tonnes of CO ₂ in a year; it has
recycled 48m clothes hangers; it is tripling sales of organic food; it
aims to convert over 20m garments to Fairtrade cotton; every store has
a dedicated "Plan A " champion.

The M&S ticker says a lot about the current state of what is commonly known as corporate social responsibility ( CSR ). First, nobody much likes the CSR label. A year ago M&S launched not a CSR plan but Plan A ("because there is no Plan B ").
The chief executive's committee that monitors this plan is called the
"How We Do Business Committee". Other companies prefer to describe this
kind of thing as "corporate responsibility" (dropping the "social" as
too narrow), or "corporate citizenship", or "building a sustainable
business". One Nordic executive glories in the job title of director,
accountability and triple-bottom-line leadership. All this is
convoluted code for something simple: companies meaning (or seeming) to
be good.

Second, the
scrolling list shows what a vast range of activities now comes under
the doing-good umbrella. It spans everything from volunteering in the
local community to looking after employees properly, from helping the
poor to saving the planet. With such a fuzzy, wide-ranging subject,
many companies find it hard to know what to focus on.

Third, the M&S ticker demonstrates that CSR
is booming. Whether through electronic screens, posters or glossy
reports, big companies want to tell the world about their good
citizenship. They are pushing out the message on their websites and in
advertising campaigns. Their chief executives queue up to speak at
conferences to explain their passion for the community or their
new-found commitment to making their company carbon-neutral. A survey carried out for this report by the Economist Intelligence Unit, a sister company of The Economist, shows corporate responsibility rising sharply in global executives' priorities (see chart 1).

None of this means that CSR
has suddenly become a great idea. This newspaper has argued that it is
often misguided, or worse. But in practice few big companies can now
afford to ignore it.

Beyond the corporate world, CSR
is providing fertile ground for think-tanks and consultancies.
Governments are taking an ever keener interest: in Britain, for
example, the 2006 Companies Act introduced a requirement for public
companies to report on social and environmental matters. And the United
Nations promotes corporate responsibility around the world through a
New York-based group called the Global Compact.

Business schools, for their part, are adding courses and specialised departments to keep their MBA students happy. "Demand for CSR
activities has just soared in the past three years," says Thomas
Cooley, the dean of New York University's Stern Business School.
Bookshelves groan with titles such as "Corporation Be Good", "Beyond
Good Company" and "The A to Z of Corporate Responsibility".

Why the boom?
For a number of reasons, companies are having to work harder to protect
their reputation-and, by extension, the environment in which they do
business. Scandals at Enron, WorldCom and elsewhere undermined trust in
big business and led to heavy-handed government regulation. An
ever-expanding army of non-governmental organisations ( NGO s)
stands ready to do battle with multinational companies at the slightest
sign of misbehaviour. Myriad rankings and ratings put pressure on
companies to report on their non-financial performance as well as on
their financial results. And, more than ever, companies are being
watched. Embarrassing news anywhere in the world-a child working on a
piece of clothing with your company's brand on it, say-can be captured
on camera and published everywhere in an instant, thanks to the
internet.

Now comes concern over climate change, probably the biggest single driver of growth in the CSR
industry of late. The great green awakening is making company after
company take a serious look at its own impact on the environment. It is
no surprise, therefore, that 95% of CEO s
surveyed last year by McKinsey, a consultancy, said that society now
has higher expectations of business taking on public responsibilities
than it did five years ago.

Investors too
are starting to show more interest. For example, $1 out of every $9
under professional management in America now involves an element of
"socially responsible investment", according to Geoffrey Heal of
Columbia Business School. Some of the big banks, including Goldman
Sachs and UBS , have started to integrate
environmental, social and governance issues in some of their equity
research. True, the finance industry sends mixed signals: it demands
good financial results above all else, and in parts of the financial
world-notably the private-equity part-scepticism on CSR
still runs deep. But private equity itself is having to respond to
public pressure by agreeing to voluntary codes of transparency.

As well as these external pressures, firms are also facing strong demand for CSR
from their employees, so much so that it has become a serious part of
the competition for talent. Ask almost any large company about the
business rationale for its CSR efforts and you
will be told that they help to motivate, attract and retain staff.
"People want to work at a company where they share the values and the
ethos," says Mike Kelly, head of CSR at the European arm of KPMG , an accounting firm.

Since there is so much CSR about, you might think big companies would by now be getting rather good at it. A few are, but most are struggling.

CSR
is now made up of three broad layers, one on top of the other. The most
basic is traditional corporate philanthropy. Companies typically
allocate about 1% of pre-tax profits to worthy causes because giving
something back to the community seems "the right thing to do". But many
companies now feel that arm's-length philanthropy-simply writing
cheques to charities-is no longer enough. Shareholders want to know
that their money is being put to good use, and employees want to be
actively involved in good works.

Money alone is not the answer when companies come under attack for their behaviour. Hence the second layer of CSR ,
which is a branch of risk management. Starting in the 1980s, with
environmental disasters such as the explosion at the Bhopal pesticide
factory and the Exxon Valdez oil spill, industry after industry
has suffered blows to its reputation. Big pharma was hit by its refusal
to make antiretroviral drugs available cheaply for HIV/AIDS sufferers
in developing countries. In the clothing industry, companies like Nike
and Gap came under attack for use of child labour. Food companies face
a backlash over growing obesity. And "Don't be evil" as a corporate
motto offers no immunity: Google was one of several American technology
titans hauled before Congress to be grilled about their behaviour in
China.

So, often belatedly, companies respond by trying to manage the risks. They talk to NGO s
and to governments, create codes of conduct and commit themselves to
more transparency in their operations. Increasingly, too, they get
together with their competitors in the same industry in an effort to
set common rules, spread the risk and shape opinion.

All this is
largely defensive, but companies like to stress that there are also
opportunities to be had for those that get ahead of the game. The
emphasis on opportunity is the third and trendiest layer of CSR : the idea that it can help to create value. In December 2006 the Harvard Business Review published a paper by Michael Porter and Mark Kramer on how, if approached in a strategic way, CSR could become part of a company's competitive advantage.

That is just
the sort of thing chief executives like to hear. "Doing well by doing
good" has become a fashionable mantra. Businesses have eagerly adopted
the jargon of "embedding" CSR in the core of their operations, making it "part of the corporate DNA " so that it influences decisions across the company.

With a few
interesting exceptions, the rhetoric falls well short of the reality.
"It doesn't go very deep yet," says Bradley Googins, executive director
of the Boston College Centre for Corporate Citizenship. His centre's
latest survey on the state of play in America is called "Time to Get
Real".

There is, to
be fair, some evidence that companies' efforts are moving in a more
strategic direction. The Committee Encouraging Corporate Philanthropy,
a New York-based business association, reports that the share of
corporate giving with a "strategic" motivation jumped from 38% in 2004
to 48% in 2006. But too often corporate strategy is not properly joined
up. In the car industry, Toyota has led the way in championing green,
responsible motoring with its Prius hybrid model, but it has lobbied
with others in the industry against a tough fuel-economy standard in
America. Surveys point to a big gap between companies' aspirations and
their actions (see chart 2). And even corporate aspirations in the rich
world lag far behind how much the public expects business to contribute
to society.

According to Mr Porter, despite a surge of interest in CSR ,
in most cases it remains "too unfocused, too shotgun, too many
supporting someone's pet project with no real connection to the
business". Dutch Leonard, like Mr Porter at Harvard Business School,
describes the value-building type of CSR as "an act of faith, almost a fantasy. There are very few examples."

Perhaps that
is not surprising. The business of trying to be good is confronting
executives with difficult questions. Can you measure CSR performance? Should you be co-operating with NGO s,
and with your competitors? Is there really competitive advantage to be
had from a green strategy? How will the rise of companies from China,
India and other emerging markets change the game?

This special report will look in detail at how companies are implementing CSR .
It will conclude that, done badly, it is often just a figleaf and can
be positively harmful. Done well, though, it is not some separate
activity that companies do on the side, a corner of corporate life
reserved for virtue: it is just good business.

• 104 Globalization
• 106 Money & Politics
• 188 Consumerism & Commercialism