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Time To Hit The Corporate Social Responsibility ‘Reset Button’

Dr. Harry G. Broadman

By Harry Broadman

(Forbes) – It is only a slight overstatement to say that over the last several decades corporate social responsibility “CSR” programs have become commonplace within many large companies and financial institutions, particularly those who have investments abroad. This is especially the case for sizeable private foreign firms operating in emerging markets, where enterprise-sponsored initiatives aimed at facilitating economic development are seen as avenues for business to “do well by doing good.”

But carrying out traditional CSR activities is becoming a dying breed. And the faster the better.

Why? Rarely do the deeds match the words. Indeed, in an increasing number of cases, on balance the intended beneficiaries are not made better off; in fact, sometimes they actually are made worse off. And the same is beginning to happen to the CSR sponsors.

It is past the time for a comprehensive “CSR Reset.”

Here are a few areas where things have gone wrong.

Sometimes CSR projects are designed, indeed even implemented, without fulsome consultation with representative groups of the local stakeholders. Discussing the priorities of a proposed CSR initiative only with the community leadership—usually government officials–and not elements of the broader society, including the poor, minority groups, women, religious leaders, educators and local businesses and workers, may result in a project that only serves to validate, if not embolden, the objectives of the most powerful vested interests. And this may come at the expense of the rest of the community that is already disadvantaged. At worst, the initiative can introduce wholly new distortions within the local socioeconomic and political fabric.

Indeed, there have been cases where a sponsor, eager to garner local support for a potential CSR project, has given gifts or donations—dressed up as “philanthropy”–to the most significant influencers of the government, or directly to government officials themselves. These actions not only can exacerbate status quo ante societal problems, but they can expose the sponsor to criminal charges under various anti-corruption laws (for example, in the U.S., the Foreign Corrupt Practices Act (FCPA) and in the U.K., the Bribery Act)).

Then there have been truly significant problems owing to weaknesses in the fundamental day-to-day execution of CSR programs. There are, unfortunately, several well-known instances of CSR investments where literally nothing has been created in the local setting after hundreds of millions of sponsor dollars (or equivalent) were “spent” on an endeavor: for example, the $175 million given by two U.S. companies to establish a research center in Angola.  More than three years later there is no such center and no one seems to know where the money actually went.

While nascent or even non-existent in-country legal and policy regimes, whether with respect to their content ‘on the books’ or the effectiveness of their implementation, surely contribute to an environment overripe for such so-called ‘leakages’ (aren’t we economists so dignified in our terminology?), in the end, it is a sponsor’s responsibility to ensure there exists a sound administrative and organizational framework that helps drive the program towards the desired performance.

In fact, one would think that putting in place a robust system of checks and balances, including third party audits, would be the absolute top priority for a sponsor to ‘get right’, since calling attention to positive outcomes is likely the overarching goal of the sponsored CSR activities in the first place.  Instead, as has happened in the case above, sponsors can face significant reputational risks, if not criminal charges of corruption. Not exactly the news headline corporate shareholders want to see.

To be sure, traditional CSR initiatives have been evolving for the better recently, in part, spurred on by these types of problems.

One of the best-in-class in this regard is a public-private-partnership (PPP) undertaken by a major beverage firm across three East African countries. As Idescribed in my last column, this PPP has been providing new market outletsfor local fruit farmers; fostering intra-regional trade within Africa (the incidence of which is far below that of other regions of the world); creatingnew jobs; and raising disposable incomes. At the same time, the company has been able to lower its own supply chain costs while maintaining quality and save on use of its foreign exchange by not having to purchase imported fruit,which, previously, had been a key input.

Still, there’s a need for a fundamental CSR overhaul within the business community.

First, the traditional practice of using the ‘Corporate Foundation’ as the principal, if not the only, vehicle for CSR programs is doing more harm than good. Much of the design and implementation of CSR should be at the very core of an enterprise’s corporate strategy–not off to the side and competing among other internal parties for attention from the C-suite. This calls for organizational change.

Second, there needs to be formal recognition among the most senior members of management teams and boards that the utilization of a CSR framework to identify the key stakeholders and influencers in a market is a fundamentally underutilized strategic resource. The key is to focus 360 degrees on both potential proponents as well as potential detractors of a business’ commercial objectives, understand each party’s relative importance, and set a course to build alliances among shared interests, including an approach to keep the detractors at bay.

Third, the tools embodied in such a framework are precisely those that can–and should–be applied to mitigate corruption and other risks upstream—beforethey happen.

A by-product of this approach is the creation of an incentive structure that induces stronger internal coordination among a variety of corporate functions, especially those related to legal issues (General Counsels) and compliance (Chief Compliance Officers and Internal Auditors).

In fact, if used effectively, these tools can not only reduce exposure to risk but actually can also open up new market opportunities as well as expand the bottom (and sometimes the top) line.

In short, the CSR function should be incorporated directly within the business strategy decision-making process from the get-go, not hived on as an after-thought.

It’s time to bring CSR into the mainstream.

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