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//-->SpotlightHBRMaking a Real Differenceby Michael E. Porter and Mark R. KramerStrategyG&SocietyThe Link Between Competitive Advantageand Corporate Social Responsibilityovernments, activists, and the mediahave become adept atholding companies to account for the social consequences of theiractivities. Myriad organizations rank companies on the performance oftheir corporate social responsibility (CSR), and, despite sometimes questionablemethodologies, these rankings attract considerable publicity. As a result, CSR hasemerged as an inescapable priority for business leaders in every country.Many companies have already done much to improve the social and environ-mental consequences of their activities, yet these efforts have not been nearly asproductive as they could be – for two reasons. First, they pit business against so-ciety, when clearly the two are interdependent. Second, they pressure companiesto think of corporate social responsibility in generic ways instead of in the waymost appropriate to each firm’s strategy.harvard business review | hbr.orgDOUG FRASER78HBRSpotlightMaking a Real DifferenceThe fact is, the prevailing approaches to CSR are sofragmented and so disconnected from business and strat-egy as to obscure many of the greatest opportunities forcompanies to benefit society. If, instead, corporationswere to analyze their prospects for social responsibilityusing the same frameworks that guide their core busi-ness choices, they would discover that CSR can be muchmore than a cost, a constraint, or a charitable deed–it canbe a source of opportunity, innovation, and competitiveadvantage.In this article, we propose a new way to look at the re-lationship between business and society that does nottreat corporate success and social welfare as a zero-sumgame. We introduce a framework companies can use tocompanies discovered that they were expected to respondto the AIDS pandemic in Africa even though it was far re-moved from their primary product lines and markets.Fast-food and packaged food companies are now beingheld responsible for obesity and poor nutrition.Activist organizations of all kinds, both on the rightand the left, have grown much more aggressive and effec-tive in bringing public pressure to bear on corporations.Activists may target the most visible or successful compa-nies merely to draw attention to an issue, even if thosecorporations actually have had little impact on the prob-lem at hand. Nestlé, for example, the world’s largest pur-veyor of bottled water, has become a major target in theglobal debate about access to fresh water, despite the factThe prevailing approaches to CSR are so disconnected frombusiness as to obscure many of the greatest opportunitiesfor companies to benefit society.identify all of the effects, both positive and negative, theyhave on society; determine which ones to address; andsuggest effective ways to do so. When looked at strategi-cally, corporate social responsibility can become a sourceof tremendous social progress, as the business appliesits considerable resources, expertise, and insights to activ-ities that benefit society.that Nestlé’s bottled water sales consume just 0.0008%of the world’s fresh water supply. The inefficiency of agri-cultural irrigation, which uses 70% of the world’s supplyannually, is a far more pressing issue, but it offers noequally convenient multinational corporation to target.Debates about CSR have moved all the way into cor-porate boardrooms. In 2005, 360 different CSR-relatedshareholder resolutions were filed on issues ranging fromlabor conditions to global warming. Government regula-tion increasingly mandates social responsibility report-ing. Pending legislation in the UK, for example, would re-quire every publicly listed company to disclose ethical,social, and environmental risks in its annual report. Thesepressures clearly demonstrate the extent to which exter-nal stakeholders are seeking to hold companies account-able for social issues and highlight the potentially largefinancial risks for any firm whose conduct is deemedunacceptable.While businesses have awakened to these risks, theyare much less clear on what to do about them. In fact, themost common corporate response has been neither stra-tegic nor operational but cosmetic: public relations andThe Emergence of Corporate SocialResponsibilityeightened corporate attention to CSR has notbeen entirely voluntary. Many companiesawoke to it only after being surprised by publicresponses to issues they had not previously thought werepart of their business responsibilities. Nike, for example,faced an extensive consumer boycott after theNew YorkTimesand other media outlets reported abusive laborpractices at some of its Indonesian suppliers in the early1990s. Shell Oil’s decision to sink theBrent Spar,an obso-lete oil rig, in the North Sea led to Greenpeace protestsin 1995 and to international headlines. PharmaceuticalHMichael E. Porteris the Bishop William Lawrence University Professor at Harvard University; he is based at Harvard Busi-ness School in Boston. He is a frequent contributor to HBR, and his most recent article is “Seven Surprises for New CEOs”(October 2004).Mark R. Kramer(mark.kramer@fsg-impact.org) is the managing director of FSG Social Impact Advisors,an international nonprofit consulting firm, and a senior fellow in the CSR Initiative at Harvard’s John F. Kennedy School ofGovernment in Cambridge, Massachusetts. Porter and Kramer are the cofounders of both FSG Social Impact Advisors andthe Center for Effective Philanthropy, a nonprofit research organization.80harvard business review | hbr.orgStrategy and Societymedia campaigns, the centerpieces of which are oftenglossy CSR reports that showcase companies’ social andenvironmental good deeds. Of the 250 largest multina-tional corporations, 64% published CSR reports in 2005,either within their annual report or, for most, in separatesustainability reports – supporting a new cottage indus-try of report writers.Such publications rarely offer a coherent frameworkfor CSR activities, let alone a strategic one. Instead, theyaggregate anecdotes about uncoordinated initiatives todemonstrate a company’s social sensitivity. What thesereports leave out is often as telling as what they include.Reductions in pollution, waste, carbon emissions, or en-ergy use, for example, may be documented for specificdivisions or regions but not for the company as a whole.Philanthropic initiatives are typically described in termsof dollars or volunteer hours spent but almost never interms of impact. Forward-looking commitments to reachexplicit performance targets are even rarer.This proliferation of CSR reports has been paralleledby growth in CSR ratings and rankings. While rigorousand reliable ratings might constructively influence cor-porate behavior, the existing cacophony of self-appointedscorekeepers does little more than add to the confusion.(See the sidebar “The Ratings Game.”)In an effort to move beyond this confusion, corporateleaders have turned for advice to a growing collection ofincreasingly sophisticated nonprofit organizations, con-sulting firms, and academic experts. A rich literature onCSR has emerged, though what practical guidance it of-fers corporate leaders is often unclear. Examining theprimary schools of thought about CSR is an essentialstarting point in understanding why a new approach isneeded to integrating social considerations more effec-tively into core business operations and strategy.The Ratings GameMeasuring and publicizing social performance is a po-tentially powerful way to influence corporate behavior –assuming that the ratings are consistently measured andaccurately reflect corporate social impact. Unfortunately,neither condition holds true in the current profusion ofCSR checklists.The criteria used in the rankings vary widely. The DowJones Sustainability Index, for example, includes aspectsof economic performance in its evaluation. It weights cus-tomer service almost 50%more heavily than corporatecitizenship. The equally prominent FTSE4Good Index, bycontrast, contains no measures of economic performanceor customer service at all. Even when criteria happen to bethe same, they are invariably weighted differently in thefinal scoring.Beyond the choice of criteria and their weightings liesthe even more perplexing question of how to judgewhether the criteria have been met. Most media, nonprof-its, and investment advisory organizations have too fewresources to audit a universe of complicated global corpo-rate activities. As a result, they tend to use measures forwhich data are readily and inexpensively available, eventhough they may not be good proxies for the social or en-vironmental effects they are intended to reflect. The DowJones Sustainability Index, for example, uses the size ofa company’s board as a measure of community involve-ment, even though size and involvement may be entirelyunrelated.1Finally, even if the measures chosen accurately reflectsocial impact, the data are frequently unreliable. Most rat-ings rely on surveys whose response rates are statisticallyinsignificant, as well as on self-reported company data thathave not been verified externally. Companies with themost to hide are the least likely to respond. The result isa jumble of largely meaningless rankings, allowing al-most any company to boast that it meets some measureof social responsibility – and most do.1. For a fuller discussion of the problem of CSR ratings, see AaronChatterji and David Levine, “Breaking Down the Wall of Codes: Evalu-ating Non-Financial Performance Measurement,California Manage-”ment Review,Winter 2006.Four Prevailing Justifications for CSRroadly speaking, proponents of CSR have usedfour arguments to make their case: moral obliga-tion, sustainability, license to operate, and repu-tation. The moral appeal – arguing that companies havea duty to be good citizens and to “do the right thing”– isprominent in the goal of Business for Social Responsibil-ity, the leading nonprofit CSR business association inthe United States. It asks that its members “achieve com-mercial success in ways that honor ethical values and re-spect people, communities, and the natural environ-ment.” Sustainability emphasizes environmental andcommunity stewardship. An excellent definition was de-veloped in the 1980s by Norwegian Prime Minister GroHarlem Brundtland and used by the World Business Coun-december 2006Bcil for Sustainable Development: “Meeting the needs ofthe present without compromising the ability of futuregenerations to meet their own needs.” The notion of li-cense to operate derives from the fact that every companyneeds tacit or explicit permission from governments,81HBRSpotlightMaking a Real Differencecommunities, and numerous other stakeholders to dobusiness. Finally, reputation is used by many companiesto justify CSR initiatives on the grounds that they will im-prove a company’s image, strengthen its brand, enlivenmorale, and even raise the value of its stock. These justifi-cations have advanced thinking in the field, but none of-fers sufficient guidance for the difficult choices corporateleaders must make. Consider the practical limitations ofeach approach.The CSR field remains strongly imbued with a moralimperative. In some areas, such as honesty in filing fi-nancial statements and operating within the law, moralconsiderations are easy to understand and apply. It is thenature of moral obligations to be absolute mandates,however, while most corporate social choices involve bal-ancing competing values, interests, and costs. Google’s re-cent entry into China, for example, has created an irrec-oncilable conflict between its U.S. customers’ abhorrencePhilanthropy may contribute to the “sustainability” ofa society. However true these assertions are, they offerlittle basis for balancing long-term objectives against theshort-term costs they incur. The sustainability schoolraises questions about these trade-offs without offeringa framework to answer them. Managers without a strate-gic understanding of CSR are prone to postpone thesecosts, which can lead to far greater costs when the com-pany is later judged to have violated its social obligation.The license-to-operate approach, by contrast, is far morepragmatic. It offers a concrete way for a business to iden-tify social issues that matter to its stakeholders and makedecisions about them. This approach also fosters con-structive dialogue with regulators, the local citizenry, andactivists – one reason, perhaps, that it is especially preva-lent among companies that depend on government con-sent, such as those in mining and other highly regulatedand extractive industries. That is also why the approach isThe vehemence of a stakeholder group does not necessarilysignify the importance of an issue – either to the companyor to the world.of censorship and the legal constraints imposed by theChinese government. The moral calculus needed to weighone social benefit against another, or against its financialcosts, has yet to be developed. Moral principles do not tella pharmaceutical company how to allocate its revenuesamong subsidizing care for the indigent today, develop-ing cures for the future, and providing dividends to itsinvestors.The principle of sustainability appeals to enlightenedself-interest, often invoking the so-called triple bottomline of economic, social, and environmental performance.In other words, companies should operate in ways that se-cure long-term economic performance by avoiding short-term behavior that is socially detrimental or environ-mentally wasteful. The principle works best for issues thatcoincide with a company’s economic or regulatory inter-ests. DuPont, for example, has saved over$2billion fromreductions in energy use since 1990. Changes to the ma-terials McDonald’s uses to wrap its food have reduced itssolid waste by 30%. These were smart business decisionsentirely apart from their environmental benefits. In otherareas, however, the notion of sustainability can becomeso vague as to be meaningless. Transparency may be saidto be more “sustainable” than corruption. Good employ-ment practices are more “sustainable” than sweatshops.82common at companies that rely on the forbearance oftheir neighbors, such as those, like chemical manufactur-ing, whose operations are noxious or environmentallyhazardous. By seeking to satisfy stakeholders, however,companies cede primary control of their CSR agendas tooutsiders. Stakeholders’ views are obviously important,but these groups can never fully understand a corpora-tion’s capabilities, competitive positioning, or the trade-offs it must make. Nor does the vehemence of a stake-holder group necessarily signify the importance of anissue – either to the company or to the world. A firm thatviews CSR as a way to placate pressure groups often findsthat its approach devolves into a series of short-term de-fensive reactions – a never-ending public relations pallia-tive with minimal value to society and no strategic bene-fit for the business.Finally, the reputation argument seeks that strategicbenefit but rarely finds it. Concerns about reputation, likelicense to operate, focus on satisfying external audiences.In consumer-oriented companies, it often leads to high-profile cause-related marketing campaigns. In stigmatizedindustries, such as chemicals and energy, a company mayinstead pursue social responsibility initiatives as a formof insurance, in the hope that its reputation for socialconsciousness will temper public criticism in the eventharvard business review | hbr.org [ Pobierz całość w formacie PDF ]
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