Tuesday, 17 February 2009

Corporate Social Responsibility - What companies should do

Yesterday, I posted on what I believe companies should NOT do in the area of corporate social responsibility. I am a strong believer that companies must be very socially responsible. Today I write on what companies should do.

In my opinion, what companies can do, can be divided into three sequential levels. At the basic level, companies should first do what they are supposed to do - operate efficiently and reward all their stakeholders; shareholders, employees and customers. A company must follow the law of the land, in letter and spirit. It must not bend the law - its not OK to give bribes (called by whatever name and political donations and lobbying, come dangerously close to this), just because others are doing it. It must not be economical with the truth in what it says and reports - in accounting, in making product claims, etc. It must pay its taxes as per the law. Tax avoidance is fine; tax evasion is not. It should not take risks with safety - product safety and employee safety. These are the basics. They are black and white - there are no shades of gray. If a company does all this very well, I would term it being "adequately socially responsible". Unfortunately, in my view, very few companies would pass this test in its entirety. And therein lies the problem. Not doing well enough on the basics and instead doing an esoteric charitable act is actually being irresponsible, and falls into the category of washing away the sins, in my list of motives posted yesterday.

Once the basic level is assured, and only when the basic level is assured, a company could proceed to the intermediate level. Initiatives here ought to be linked to the business of the company in some manner. Only then would it be sustainable and effective.

A company could work with the community with whom its operates. This could be geographic - a company might wish to build infrastructure or invest in education in the locality it operates. This binds it to its employees and its neighbours. The Tata Group in Jamshedpur (actually called Tatanagar) is one example. Many American corporations had their roots in small towns, which were actually company towns in those days. Or it could be customer centric - if you are a medical company, you may want to be involved in disease prevention or health education activities. Or it could even be shareholder centric - a financial services company might want to be involved in educating on investing. In any form, this activity must be related to the business the company is in.

A second initiative is employee volunteering. Employees volunteer for activities they choose and the company assists in providing time off or in matching contributions they raise or in providing infrastructure. Activities could be anything the employees choose. Employees increasingly seek meaning in what they do and companies that encourage them to do more than just work on the job, become employers of choice. For a good post on volunteering by Chris Jarvis, click here.

A third initiative is helping disadvantaged sections of the society where they operate (minorities, physically challenged, whatever) to be educated, become skilled and get jobs. Also in this area is how companies handle layoffs, covered in one of my earlier posts - going beyond what is required legally and helping the affected employees to find employment. Jobs and job creation are one of the most socially responsible activities that companies can do and which is directly related to business.

The "advanced" level, in my view, would be companies that have weaved a social responsibility theme into their charter ; that's part of what they want to do. Only shareholders who are interested in the theme that this company propagates, become shareholders. Example of such companies that immediately come to mind are The Body Shop and Ben & Jerry. But its also true that such companies do not survive for very long - Body Shop got taken over by L'Oreal and Ben & Jerry by Unilever and despite claims by their new owners of protection of their social cause, this has inevitably got diluted. Maybe these were stepping stones. I believe there would come a time when such companies would flourish and thrive, independently.

More power to such companies. They would flourish if we as consumers prefer their products to others, other things being equal. Otherwise they will fail. As in all things in business, corporate social responsibility will succeed or fail, with the consumer.

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