Kasturi Rangan, Lisa Chase, Sohel Karim

Most companies have long practiced some form of corporate social and environmental responsibility with the broad goal, simply, of contributing to the well-being of the communities and society they affect and on which they depend. But there is increasing pressure to dress up CSR as a business discipline and demand that every initiative deliver business results. That is asking too much of CSR and distracts from what must be its main goal: to align a company’s social and environmental activities with its business purpose and values. If in doing so CSR activities mitigate risks, enhance reputation, and contribute to business results, that is all to the good. But for many CSR programs, those outcomes should be a spillover, not their reason for being. This article explains why firms must refocus their CSR activities on this fundamental goal and provides a systematic process for bringing coherence and discipline to CSR strategies.

To understand how companies devise and execute CSR, over the past decade we conducted in-depth interviews with scores of managers, directors, and CEOs who are directly or indirectly responsible for their firms’ CSR strategies, and we have developed more than a dozen case studies on the topic. Most recently we surveyed 142 managers who attended Harvard Business School’s CSR executive education program during the past four years. Our findings were remarkably consistent.
Despite the widely accepted ideal of pursuing “shared value”—creating economic value in ways that also create value for society—our research suggests that this is not the norm. Rather, most companies practice a multifaceted version of CSR that runs the gamut from pure philanthropy to environmental sustainability to the active pursuit of shared value. Moreover, well-managed companies seem less interested in totally integrating CSR with their business strategies and goals than in devising a cogent CSR program aligned with the company’s purpose and values.
But although many companies embrace this broad vision of CSR, they are hampered by poor coordination and a lack of logic connecting their various programs. Although numerous surveys have touted the increased involvement of CEOs in CSR, we have found that CSR programs are often initiated and run in an uncoordinated way by a variety of internal managers, frequently without the active engagement of the CEO.
To maximize their positive impact on the social and environmental systems in which they operate, companies must develop coherent CSR strategies. This should be an essential part of the job of every CEO and board. Aligning CSR programs must begin with an inventory and audit of existing initiatives. Our research and work with corporations across the geographic and business spectrum show that companies’ CSR activities are typically divided among three theaters of practice. Assigning CSR activities accordingly is a crucial first step.

Theater one: focusing on philanthropy
Programs in this theater are not designed to produce profits or directly improve business performance. Examples include donations of money or equipment to civic organizations, engagement with community initiatives, and support for employee volunteering.

Theater two: improving operational effectiveness
Programs in this theater function within existing business models to deliver social or environmental benefits in ways that support a company’s operations across the value chain, often improving efficiency and effectiveness. Thus they may—but don’t always—increase revenue, decrease costs, or both. Examples include sustainability initiatives that reduce resource use, waste, or emissions, which may in turn reduce costs; and investments in employee working conditions, health care, or education, which may enhance productivity, retention, and company reputation.

Theater three: transforming the business model
Programs in this theater create new forms of business specifically to address social or environmental challenges. Improved business performance—a requirement of initiatives in this theater—is predicated on achieving social or environmental results. Hindustan Unilever’s Project Shakti (“empowerment”) in India provides a good example. Instead of using its customary wholesaler-to-retailer distribution model to reach remote villages, the company recruits village women, provides them with access to microfinance loans, and trains them in selling soaps, detergents, and other products door-to-door. More than 65,000 women entrepreneurs now participate, nearly doubling their household incomes, on average, while increasing rural access to hygiene products and thus contributing to public health. These social gains have been met by business gains for the company: As of 2012 Project Shakti had achieved more than $100 million in sales. Its success has led Unilever to roll out similar programs in other parts of the world.
As Project Shakti demonstrates, theater three programs need not be comprehensive. Most are narrow initiatives undertaken with a focused market segment or product line in mind, but with significant potential to alter the company’s social or environmental impact and financial performance. Theater three initiatives almost always call for a new business model rather than incremental extensions.
Although each CSR activity can be assigned principally to a single theater, the boundaries are porous: Programs in one theater can influence and complement those in another or even migrate. For example, a theater one initiative might improve the company’s reputation and consequently increase sales. Thus, while it was not designed to drive business results, it may end up doing so and as a result migrate to theater two. The valuable brand reputations of Tata in India, Grupo Bimbo in Mexico, and Target in the United States, to name just a few, are built in part on those companies’ philanthropic and community engagement.
Similarly, activities in theater two may give rise to new business models and thereby migrate to theater three. Consider IKEA: Its People & Planet initiative calls for its entire supply chain to be 100% sustainable by 2020, even as the company aims to double sales by the same year. This aggressive goal is driving the development of new business models to close the post-consumer recycling loop. IKEA will have to radically alter how it designs furniture and, even more important, devise new models for collecting and recycling used furniture.

Source: Harvard Business Review (January 2015); https://hbr.org/2015/01/the-truth-about-csr#