Corporate Social Responsibility; ever-increasing role in Corporate Strategy

The growth of international human rights law in recent times, first targeting government actions and later corporations are one of the factors that created the basis for international principles on business and human rights. The United Nations Guiding Principles on Business and Human Rights contain three main pillars: protect, respect, and remedy. According to the UN Office of the High Commissioner for Human Rights, each pillar defines concrete, actionable steps for governments and companies to meet their respective duties and responsibilities to prevent human rights abuses in company operations and provide remedies if such abuses take place. The excesses by executives in some firms and lack of investment in host communities including degradation of the environment have spurred greater scrutiny. The focus could no longer be on just one stakeholder, the shareholder, but on other parties who could be directly and indirectly impacted by the activities of the corporate. How it conducts its business operations, social and ethical standards, and environmental impacts – good corporate governance and corporate citizenship.

The triple bottom line concept of measuring corporate performance has grown in significance and become intertwined with corporate strategy. The modern-day Multi-National Corporation (MNC) is required to comply with a plethora of corporate codes, standards, and laws from jurisdiction to jurisdiction requiring compliance with the triple bottom line. Environment, Social, and Governance (ESG) reporting amongst leading international firms has taken on the rigor equal to financial reporting and spurred an industry focused on ESG indicators and sustainability reporting. In the case of South Africa and many other African countries, specific legislation requires compliance with indigenous economic empowerment, employment equity, skills development, and corporate social responsibility (CSR). To respond to these requirements, MNCs have created various special-purpose vehicles to drive compliance and have created whole departments to manage these obligations. Some executives view these compliance obligations as burdensome and serve to lower competitiveness. Suffice it to say, many countries now carry localization obligations on MNCs seeking to invest and can be viewed as part of doing international business. In a Harvard Business Review (HBR) article in December 2002, ‘The competitive advantage of corporate philanthropy’, Michael Porter and Mark Kramer way back then argued that executives increasingly see themselves in a no-win situation. Caught between critics demanding ever higher levels of corporate social responsibility and investors applying relentless pressure to maximize short-term profits. Giving more does not satisfy the critics—the more companies donate; the more is expected of them.

In recent times corporate attitudes to philanthropy have changed and migrated from giving several small donations to a few local charities, and, taking photographs to be published in the company newsletter, to a more strategic and context-based approach. These CSR obligations have increasingly taken on increased significance, take the example of mining companies who are increasingly required to comply with social and environmental plans and stringent reporting requirements as part of the continuation of their mining licenses. These plans require collaborations with local authorities, traditional councils, and communities to undertake social development initiatives that can amount to more than 5% of turnover. Executives have increasingly come to realize that CSR when implemented strategically, can enhance the quality of relationships with host communities, and increase competitive advantage and public image of the corporation all of which advance corporate strategy. Some investors, for example, USA-based pension funds, demand certain minimum performance indicators on the ESG index before taking up shareholding. This cemented the relationship between corporate strategy and social and environmental responsibility.

The ability of corporate leaders to implement context-based CSR programmes that have positive effects on stakeholders and enhanced corporate strategy requires some of the following approaches based on our experience advising various MNCs in over 20 countries:

  1. Create deliberate linkages of the CSR strategy to the corporations existing capabilities and strengths – if you run an investment bank as an example, then utilise the immense skills amongst your staff in financial analysis, modeling, and deal origination to support pro bono high-impact startups working on waste to value initiatives in your ecosystems or municipality to reach scale as an example. Use some of the recycled products at your bank and offer business development support services tailored to the entrepreneur’s needs for growth.
  2. Create Staff buy-in and buzz about your CSR initiatives – staff are the greatest resource in any organisation and their active participation and infusion of ideas will be a key success factor. Increasingly staff views employers that are active in social causes and upliftment of communities as desirable places to work.
  3. Align with other worthwhile major global trends and initiatives – partnership with like-minded, influential, and reputable donor organisations and causes are important to stay relevant.
  4. Develop clear baseline and measurement matrices to determine the impact – what cannot be measured does not get done. Be clear about what matters to the investor markets, regulators, and communities and how to measure and communicate your impacts. Align with best practice international reporting standards and benchmarks and entrench these into core business operations and ensure data collection, analysis and reporting, and feedback loops are dynamic.
  5. Use your CSR funding pools to invest in long-term programmatic initiatives – avoid the scatted approach to investments. Focus on medium to long-term programmatic interventions that show potential for significant impact. That does not mean one does not donate for emergency relief efforts or humanitarian disasters, however, those are the exceptions and not the norm.
  6. Apply strict governance procedures and reporting protocols to ensure activities in the CRS programme can withstand scrutiny even during times of crisis– nothing could harm an MNCs image more than compliance irregularities in the CSR programmes.
  7. Build long-term financial sustainability in whatever CSR vehicle you have created – many MNCs have financial structures that ensure a long-term funding plan for CSR such as issuance of shares, guaranteed annual contributions, and endowments, in some cases from the estates of the senior executives or founder(s).

Eloquently articulated by Potter and Kramer in their HBR article, ‘Philanthropy can often be the most cost-effective way for a company to improve its competitive context, enabling companies to leverage the efforts and infrastructure of non-profits and other institutions.’

Dr Mthandazo Ngwenya

18 April 2023