CSR: More hype than heart

It isn’t just me. My discomfort over the state of CSR turning out more hype than heart was also expressed in a recent Businessweek article. Two contributors to Businessweek, both senior business executives, one of whom wrote the book Corporate Social Investing, lamented that “despite PR posturing, corporate philanthropy is down from 25 years ago.”

I don’t know the exact figures in the local setting but my dismayed reaction last week, as I listened to the Social Investment Report made by Marilou Erni, the Chair of the League of Corporate Foundations (LCF), was not unusual and quite justified. The situation in the United States is apparently similar, according to the Businessweek article.

“Too prevalent today are heavily promoted, self-generated snippets designed to show how businesses are meeting their obligations to society. Paid advertisements that wave banners about how companies address global warming, curb health-care costs, or improve public education often are smoke screens to hide a troubling trend: the significant falloff in corporate charitable contributions.”

In the United States, the article recalls, “twenty-five years ago, businesses allocated about two percent, on average, of their pretax profits for gifts and grants, according to a report by the Giving USA Foundation and Indiana University Center on Philanthropy. Today, companies are only about one-third as generous.” I recall that is about the ballpark figure under the old PBSP guidelines, with PBSP members remitting one percent to PBSP and the other one percent to be used in the company’s own programs.

According to the report delivered by Ms. Erni, the Philippine private sector contributed P26 billion to CSR over the last 10 years. That’s just about P2.6 billion a year. Given that a billion pesos is not what it used to be, that’s not much. PLDT alone reported 1Q08 Consolidated net income of P10.4 billion. PLDT is maintaining its core profit guidance of P37 billion for 2008, ahead of last year’s P35.2 billion by P1.8 billion. And that’s just one Philippine corporation, albeit the most profitable.

But I will be the first to concede that measuring overall corporate responsibility should cover more than just what a company donates to “worthy causes.” As the Businessweek article also concedes, “fair treatment of employees, making or selling safe products, paying taxes, and complying with environmental standards are all ingredients that should be in the social responsibility stew.” But, I also agree with Ms. Erni’s approach in using actual pesos and centavos in her Social Investment Report. It just turns out that the pesos were really more like centavos … barya barya lang.

I am sure there are more than a handful of local companies who contribute to the old PBSP prescribed level or even more significantly, have actually integrated CSR into their business operations. A good example of one such business is the Figaro chain of coffee shops. Chit Juan has so integrated the assistance Figaro gives coffee farmers in Batangas, both technical and financial, so that farmers become productive and are able to supply a good part of Figaro’s coffee requirements. It would have been simpler for Figaro to import.

CSR couldn’t be more integrated to the profit making operation than being part of Figaro’s supply chain. Chit is one CEO-entrepreneur who walks her talk on corporate social responsibility. That fact even makes me feel good in the knowledge that every time I buy my cappuccino from Figaro, I become part of the fight against poverty as coffee farmers in Batangas also earn their living in the process.

But for most of the other LGF members, it seems it is still largely the philanthropy model for them. It is tough to convince senior management to increase budgets for corporate donations in this turbulent times. The challenge for CSR bureaucrats is to educate their bosses because if properly understood and implemented, the way Chit Juan of Figaro has understood it, CSR has the look and feel of an investment, not a handout. That’s language even skeptical CEOs should appreciate.

Bottom of the pyramid

Actually, I want to get away from the concept of CSR as merely corporate philanthropy. I want to define CSR as the integration of business operations and values, whereby the interests of all stakeholders including investors, customers, employees, the community and the environment are reflected in the company’s policies and actions. Old fashioned corporate philanthropy may be inescapable under our local conditions, but it should not be the main thing.

If I were to point to an ideology or a concept that should be the basis of CSR, it will probably take off from the book The Fortune at the Bottom of the Pyramid by C.K. Prahalad of the University of Michigan. Prof. Prahalad’s book suggests replacing traditional notions of aid to the poor with a new model for relieving poverty and stimulating development. He suggests starting with a simple proposition: If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up.

This new framework makes sense. As Prof. Prahalad points out, “four billion poor can be the engine of the next round of global trade and prosperity. It can be a source of innovations.” And it may prove easier to get CEOs skeptical of CSR’s value on board because applying this new mindset will necessitate aligning poverty alleviation with a corporation’s profit making objectives.

 ”Serving the BOP consumers will demand innovations in technology, products and services, and business models. More importantly, it will require large firms to work collaboratively with civil society organizations and local governments. The opportunities at the BOP cannot be unlocked if large and small firms, governments, civil society organizations, development agencies, and the poor themselves do not work together with a shared agenda.”

In this new light, CSR will be seen also in terms of revenues rather than mere donations. “If large firms approach this market with the BOP consumers’ interests at heart, it can also lead to significant growth and profits for them. Poverty alleviation will become a business development task shared among the large private sector firms and local BOP entrepreneurs.”

But for this to happen, “BOP markets must become part of the firms’ core businesses; they cannot merely be relegated to the realm of corporate social responsibility initiatives. BOP markets must become integral to the success of the firm in order to command senior management attention and sustained resource allocation.”

Prof Prahalad rejects the dominant assumption “that the poor do not have money to spend and, therefore, are not a viable market. Certainly, the buying power for those earning less than US $2 per day cannot be compared with the purchasing power of individuals in the developed nations. However, by virtue of their numbers, the poor represent a significant latent purchasing power that must be unlocked.”

I guess the success of microfinance in creating creditworthy grassroots entrepreneurs attests to the wisdom of the BOP concept. This grassroots credit concept is not new. It was introduced here 30 years ago by then PCIBank President Ramon “Ray” Orosa in PCIBank’s Moneyshop and Social Credit programs. I know because I was among those who helped implement projects that embody Ray’s revolutionary view of credit with Armando “Balty” Baltazar. Ray lost an internal management shuffle and the programs eventually died. Unfortunately, Ray was too much ahead of his time.

CSR today gives the impression of a helter skelter conglomeration of PR-genic projects that does more for the giver because it does not have a good ideology behind it. Maybe, if we adopted BOP as Philippine CSR’s basic ideology or model, we have a better chance of meeting our MDGs which translates to an effective anti-poverty program.

First order of business for CEOs who want effective CSR along these lines is to fire all the PR people working in their CSR programs. Instead, hire trained social development workers who understand and speak the language of business and still manage to have the heart for the kind of work real CSR programs entail. Real CSR should be more heart than hype.

Top, bottom, beyond and behind

Agapito Espinoza forwarded this one.

Teacher: Norway is land on top, Australia is land down under, Alaska is land beyond. What country is land behind?

Pinoy Student: Philippines

 Boo Chanco’s e-mail address is [email protected]