Connecting Two Worlds
by Prof. Felipe Alfonso
Over thirty years ago, in his seminal work “The Social Responsibility of Business Is to Increase Its Profits” Milton Friedman argued that business corporations had “no responsibilities other than to maximize profits for the shareholders.” Today, many academics and business leaders and the public at large dispute the Friedman doctrine. With their considerable clout, business corporations in the Philippines and around the world now realize that they cannot exist in a vacuum. They need to be accountable to the communities in which they operate, for the vast resources that they have at their disposal. They need to own not only the economic consequences of their behavior but also its social dimensions.
What is the reality that confronts business today? Very briefly, poverty is a major issue for the Philippines as a whole. A significant percentage of the population has income below the poverty line. Accordingly, economic, social and human inequities continue to heighten, resulting in disparities in income and access to education, health and other social services.
Environment is another pressing problem. We are all witness to the depletion of our forests that has resulted in many calamities resulting in the loss of thousands of lives and many more thousands rendered homeless. The ravaging of the environment through irresponsible mining continues to hug the headlines of our dailies. Planet Report 2004 has estimated that the Philippines, together with the rest of the world, are consuming natural resources at a rate that is 22% above their renewal rate.
How should business corporations and business leaders respond to these realities? Is it appropriate for them to limit themselves to the maximization of profits for their shareholders? Or should they expand their horizon to respond to their other stakeholders? They need to realize that there are other goals beyond the commercial role of business. In the same manner that it has used its talents and resources for creating wealth for its shareholders, business can leverage the same and be a powerful force for solving the social ills that afflict our nation.
All this has led to a rising set of expectations on the part of the public with respect to the role of business in society. In the more advanced economies, surveys have shown that customers prefer to buy goods produced by socially responsible corporations, other things being equal. There has been a similar study done in the Philippines. The result showed that a significant majority across all socio-economic classes of our population considered it important that companies offering products were undertaking projects for the welfare of society. Such expectation was highest in the E segment of the population.
How has business then responded to this challenge? What has it done to bridge the inequalities and inequities in our society? The bridge that business has used is a set of activities and programs that are now more commonly known as CSR (Corporate Social Responsibility) programs.
The nature of this bridge has changed and developed as both business and society learned to work together to address specific issues and problems. At the start, it involved minimal commitment and participation from businesses – writing out checks to support projects. This evolved into much greater cooperation and involvement as trust and comfort levels between business and its partners developed. Greater commitment developed leading into progressively greater integration of social goals into business activities.
While business continues to use these different forms of CSR activities, market solutions are a preferred mode to address issues of sustainability. It is my expectation that as business applies to social problems the same innovation, creativity and commitment it has demonstrated to insure the success of its business ventures, we will be on our way to seeing a better life for all Filipinos. But it will be a continuing challenge, a work in progress.
I was struck by the words of a business leader who has faced this challenge and opportunity as reported in the first report of The Global Responsible Leadership Initiative organized by the European Foundation for Management Development:
“My job (as a business leader) is to create wealth. It is currently impossible to link the two (social agenda and business imperatives). There is an intellectual and cultural gap between what I am supposed to in the world and in the company… I want to make the gap between what I want to do as a human being and what I do in business disappear. Perhaps this is asking the fish to walk on land, but I want to make the two worlds mix.”
CSR is the bridge that links the two worlds.
Integrating CSR into your Business
It is now generally accepted that businesses need to help address social problems that ail societies in which they operate. One of the main challenges confronting corporations with regards to corporate social responsibility (CSR) activities that are intended to address such social problems is the task of insuring that these are sustainable in the long run. For this reason, the preferred form of CSR programs are those integrated into the core of how they do business.
There are various ways by which such integration can take place. One way is to develop products and services that not only address a social issue but also generate profits for the corporation and its shareholders. One such product is the development of hybrid cars. These cars not only reduce emissions that damage the environment but also provide a competitive advantage to those companies producing them.
Access to means of communication is a vital need in any society for the rich as well as for the poor. In the Philippines, access to such means of communication (telephones) was limited for a long time to the more affluent segment of our society. Both Smart and Globe have developed a business model that provided access to such a service to the poorest of the poor which C.K. Prahalad calls the bottom of the pyramid. As a result these two companies are today among the most profitable companies in the country today.
Dumpsites have long been a nuisance to communities but they are now a source of methane that is used to generate electricity. One such project is located in San Mateo, Rizal.
The thrust towards insuring sustainability of CSR programs has driven some food manufacturing and distribution companies like Jollibee and Figaro Coffee to include farmers into their supply chain. These companies want to insure that they get a steady supply of quality raw materials. Farmers on the other hand lack the resources to learn new technologies to improve their yields and the quality of their farm outputs. Moreover, they often lack a steady market for their produce. By helping farmers to learn new technologies and to provide financing for their crops, food companies are helping insure the availability and quality of their raw material. The companies also realized that by integrating the farmers into their supply chain, they no longer needed a separate budget for CSR.
Poor people often do not have access to health products. In response, companies like Unilever and P&G have developed new packaging for their products in sachets to put them well within the reach of even the poor. At the same time this new packaging served to expand the market for such products. Climate change and concern for the environment have also motivated manufacturers to develop new processes. Certain companies like Intel and Coca Cola continue to seek ways of minimizing the amount of water they use in their manufacturing as well as recycling the excess.
What can we learn from the foregoing examples about integrating CSR into the core and strategy of business? The key to sustainability of CSR programs is the link between these programs and the nature of the business of the corporations concerned. The corporation must realize some benefit from the programs otherwise when hard times come the budgets for CSR disappear. After all corporations are formed in order to generate profits for shareholders. But as shown in our examples, it is possible and in fact recommended that they go beyond their accountability to shareholders and likewise address social issues and problems in the way they do their business.
The process begins with identifying the social problems in the environment where the corporation operates. Such problems may revolve around poverty, climate change, environment or access to resources as shown in our examples. Then the corporation can ask itself what resources or capabilities it has that can be brought to bear on the identified social problem. If there is a match between the two, then you have the beginning of a truly sustainable CSR program.
The concept is really simple, but it may require creativity and innovation to implement. To start with it may require other skills and resources that certain corporations do not possess. Hence partnerships with other corporations, NGOs and the government may be needed. It has not always been easy for these three segments of our society to work together. They have been accustomed to work in silos with little or no interaction with one another.
As mentioned earlier, it is my expectation that when business applies to social problems the same innovation, creativity and commitment it has demonstrated to insure the success of its business ventures, we will be on our way to seeing a better life for all Filipinos. But it will be a continuing challenge, a work in progress.
Implementing CSR Initiatives
There are a number of ways companies implement CSR programs. Some companies choose to implement CSR initiatives on their own, through their human-resource or public-relations office or the CSR department. Others choose to do so with other organizations (private, government, nonprofit). Still others choose to create a foundation through which to implement their CSR initiatives. Each of these modalities has its own advantages and disadvantages.
By implementing its own CSR initiatives, the company can encourage employee participation. Since employees are among the major stakeholders in the company, involving them is an important motivation for them. Employees want to know that the company they work for helps communities.
For example, Smart Communication’s corporate values of service, integrity and commitment are further enhanced in the consciousness of their employees through a community service program known as “Smart Employees Responding as Volunteers in the Community and Environment” (SERVICE). Under this program, employees are credited with a one-day community service leave if they join the company’s CSR programs.
However, if the company is to implement the project on its own it is important to ensure that the organization has the skills needed to implement the project. It is also important to consider what and how much resources to commit. Where a wide range of social issues present themselves, focus is critical. When not enough resources are allocated, the expected results do not materialize.
Companies also implement their CSR activities through Corporate Foundations that they have established. A growing number of companies are beginning to use this mode of implementation because of the tax advantages for doing so. One advantage of creating a corporate foundation to implement CSR initiatives is that it does not disrupt the organization. Furthermore, the people hired for the foundation are experts in their fields and are often better qualified than the existing staff of the company to implement such initiatives. They bring into the organization other types of skills relevant to implementing CSR programs.
However, according to some practitioners and writers, the problem with creating a separate entity to implement CSR for a company is that projects may not be in line with its business objectives. There is also a tendency for people in the parent company to be less involved with the CSR projects because the foundation staff is not considered part of the entity and difficulty may arise in the working relationship between the two organizations.
Another mode of implementation is through collaboration. In recent years, the trend towards cross-sector collaboration has been growing especially in cases of large undertakings. Companies have come to see the benefits of working with other organizations. Recent examples of such collaborations are the reforestation of La Mesa Dam and the Philippine Business for Education program to elevate the quality of teachers in the public schools. In both cases even competitors have collaborated to undertake these projects. Another project that will need such collaboration between business, government and civil society is the clean-up of the Pasig River.
More and more corporations are discovering the importance of forging alliances for their CSR activities, especially when dealing with the community. Such alliances with community-based groups are an important source of legitimacy for the corporation. Since a community tends to be suspicious of the motives of a company implementing CSR initiatives, it makes sense for the company to partner with an organization based in the host community. This is particularly true of mining companies.
Trust is an important element of such collaborations and it must be explicitly developed because researchers have noted that there are differences in the objectives of business, government and civil society. Businesses have various stakeholders; their shareholders make up but one category but they are the one that cannot forego the profit agenda. Civil society on the other hand is focused on social development, while government is focused on providing public goods. Still, there is an opportunity for partnership because the community is the common denominator.
There are of course other issues and lessons in the implementation of CSR initiatives.
Partnerships for CSR
Among the modalities for implementing such initiatives was the use of partnerships and collaborations between the company, government and nonprofit organizations (NPO). Because of the growing prevalence of cross sector collaboration to implement CSR projects it deserves further discussion.
As a background, it is appropriate to recall that these three major institutions of our society – the government, business and NPO sector traditionally operated not only as independent silos but were often times at odds with one another. Recent experience, however, is showing that many social problems and ills can be addressed in a sustainable manner only with the cooperation and collaboration of the three. However, there are many factors such as goals, objectives, and institutional capacity that need to be considered in such collaboration.
As far as goals are concerned, nonprofit organizations develop programs to fight for specific social causes or to fulfill the needs of specific communities, while businesses produce specific products and services targeted to fulfill the needs and demands of consumers. While the motivations for targeting these people are different, all these take the needs of the people into account. Businesses cannot ignore people because they are also the consumers.
When forging a partnership it is important to consider the “who,” why and how of it. The “who” refers to the choice of partner, the “why” to the objectives of the partnership, and the “how” to the mode of operation.
In choosing a partner, it is important to evaluate the nature of the organization. The organization chosen should be involved with whatever CSR initiative the company wants to deal with. Obviously, the NPO should have a good standing in the community. This cliché is all the more true when partnering with a government organization.
Since trust is critical to such a partnership, the company should take steps to build a relationship with the partner organizations. It may be worthwhile collaborating with a new organization “provided that trust is established through other means.” The Asian Development Bank suggests asking the following questions at the outset:
- What is the mandate of the organization?
- What is its reputation?
- How will its reputation affect the corporation?
- If the organization has been critical of the company’s operations in the past, will the partnership help alleviate such criticism or will it intensify them?
In addition, when assessing the level of trust, it is important to determine if there are feelings of distrust on the partner’s part that may stem from skepticism or lack of understanding of the company’s operations or whether the partner has specific concerns regarding the company’s operations to know whether the distrust could be overcome or not.
Partnerships are formed because there is common ground or a shared interest. There must be a shared vision of what is to be accomplished and recognition that motives can be complementary even when they are different.
Organizations that enter into partnerships do so for different reasons. For the company the reasons may be a need for a social license to operate while for the partner – the nonprofit organization (NPO) it may be the need for financial assistance. There may be some overlaps, for instance, the need to help the community. Otherwise, there would be no basis for partnership. It is important to have at least similar goals for the initiative, even if overall organizational objectives may vary.
In selecting a partner, a company must know what it wants to achieve so that it can evaluate if its prospective partner is suitable. At the same time, the company must ensure that the partnership is mutually gainful. NPOs would not go into such partnerships if there were no benefit for them.
Once the partner has been identified and the cause chosen, the next challenge is to work together successfully. Aside from having shared objectives, it is important that expectations are clearly defined for accountability and transparency. Thus, the company has to decide if they would be playing an active role in the delivery of the program or not. It should also be clear as to who will make what decisions in the initiative and who would measure its impact.
According to James Austin in his book The Collaboration Challenge there are three stages of partnership: philanthropic, transactional, and “integrative.” At the philanthropic stage, there is little involvement between the company and the NPO aside from the company giving a donation to the NPO. It may be a one-time arrangement or it may continue for several occasions, but there is no real involvement between the two parties.
At the transactional stage, there is more involvement and also more benefits for both parties. The company’s business objectives are approached more closely.
At the integrative stage, there are even more dealings between the employees of the organizations: their individual mission and vision are more in line; the relationship also becomes institutionalized.
ALFONSO, Felipe B. (MBA, New York, 1967) is the Vice-Chairman of the Asian Institute of Management (AIM) Board of Trustees and the AFCSR Executive Director of the AIM-Ramon V. del Rosario Sr. Center for Corporate Social Responsibility. He is also Vice Chairman of the Lopez Group Foundation, Inc.
The content of the above article was first published in Prof. Alfonso’s column in the Philippine Daily Inquirer as four separate articles in 2009 and 2010.
