Corporate Responsibility Weblog - Instituto de Empresa Business School

· Myriad organizations rank companies on the performance of their corporate social responsibility (CSR).
· If, instead, corporations were to analyze their prospects for social responsibility using the same framework that guide their core business choices, they would discover that CSR can be much more than a cost, a constraint, or a charitable deed – it can be a source of opportunity, innovation, and competitive advantage.
· In 2005, 360 different CSR-related shareholder resolutions were filed on issues ranging from labor conditions to global warming.
· Of the 250 largest multinational corporations, 64% published CSR reports in 205, either within their annual report or, for most, in separate sustainability reports – supporting a new cottage industry for report writers.
· This proliferation of CSR reports has been paralleled by growth in CSR ratings and rankings.
· Companies should operate in ways that secure long-term economic performance by avoiding short-term behavior that is socially detrimental or environmentally wasteful.
· You can continue reading more of Porter and Kramer's paper by following this link.

Michael Porter is a renowned scholar in the field of competitive advantage. In this piece he introduces the rationale behind the adoption by multinationals of corporate social responsibility.

Multinationals have the choice in today’s world of incorporaring CSR into their agendas, a choice that nobody imposes, a choice tha nobody questions, that nobody judges. A choice that should become an obligation in a world needy of enhancing, of stressing the ethical component, the social and environmental dimensions.

Corporations have to be judged by external, independent units, on their ethical manners. Corporations need to withstand the pressure of the consumer market that will (penalize) reward them accordingly for (not) being socially engaged.

Michael Porter doesn’t find a clear connection between a firm’s adoption of CSR and its success in the consumer and capital markets. Whether or not this is true, consumers have to change the current trend where multinationals with their advertising power seek to influence and impact consumer’s choice. Consumers ought to believe that their purchasing power is a weapon that has not been used in the real world thus far. Purchasing power is so powerful that is likely to push unengaged firms out of the market, and force others to become sustainable.

Society doesn’t need multinationals to prosper. The same role can be played by NGOs or Government.

Sustainability is the word of this century. Everything has to turn sustainable. There is no other way around today’s problems. There is no other way around.

· As for the concept of CSR as insurance, the connection between the good deeds and consumer attitudes is so indirect as to be impossible to measure.
· The Global Reporting Initiative, which is rapidly becoming a standard for CSR reporting, has enumerated a list of 141 CSR issues, supplemented by auxiliary lists for different industries.
· Perceiving social responsibility as building share value rather than as damage control or as a PR campaign will require dramatically different thinking in business.
· Measuring and publicizing social performance is a potentially powerful way to influence corporate behavior – assuming that the ratings are consistently measured and accurately reflect corporate social impact. Unfortunately, neither condition holds true in the current profusion of CSR checklists.
· Beyond the choice of criteria and their weightings lies the even more perplexing question of how to judge whether the criteria have been met.
· Finally, even if the measures chosen accurately reflect social iimpact, the data are frequently unreliable.
· Nestle’s approach to working with small farmers exemplfies the symbiotic relationship between social progress and competitive advantage. Nestle came to Moga to build a business. Today, Moga has a significantly highe rstandard of living than other regions in the vicinity.

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As a very big fan and strong follower of Michael Porter’s ideas since reading his book “Competitive Advantage” in 1985, I say with great respect that the discussion and framework on the link between competitive advantage and corporate social responsibility needs a little more work. Competitive strategy and competitive advantage, as Porter says, are about: positioning, making choices, and superior performance vis-à-vis the competition.

Linking competitive strategy with CRS makes perfect sense and a great first step, especially for companies that need an excuse to get back to thinking strategically as part of ongoing corporate planning.

After the Harvard Business Review article by Michael E. Porter and Mark R. Kramer was published in December 2006, we associated CSR issues with our database of over 9,000 industries that make up the global economy. For example, milk manufacturing is linked to world hunger, and PC manufacturing is linked to computer literacy. But once companies link each of their business units to their naturally-linked CSRs, and they map the social impact of every activity of each business as well as the interrelations between business units, as well as appropriately prioritizes all problems and opportunities - then what?

After a lot of work, the biggest issue is still unresolved. How does an individual or a business unit that comes up with an innovative solution decide if it is better to use that invention to beat the competition or to instantly better society by making the innovation known to all? How can a business keep investors happy by giving away “competitive advantages.”

Examples might include: the invention of a non-polluting engine, an environmental-friendly grocery bag, or a new seed that produces much stronger and healthier rice to feed the world’s poor. I am very grateful that Dr. Salk never patented his polio vaccine; but if someone works for a public company, what is the correct strategy, or action, to be taken?

I look forward to Porter & Kramer on CSR’s Part II – helping corporate executives make strategy and CSR tradeoffs when the two are not aligned.

August 31, 2007

The link between competitive advantage and corporate social responsibility

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