Tag Archives: csr

CSR, Oversimplified

In Associate Professor Anil Karnani’s world, Corporate Social Responsibility professionals at the world’s largest companies only do two things: propose projects that the business should already be doing because they make total financial sense, and propose projects which are financial disasters and companies should never seriously consider. And if you lived in his world, you’d reach the same conclusions that Dr. Karnani does in his article in today’s WSJ, “The Case Against Corporate Social Responsibility”: CSR is at best irrelevant, and can even be dangerous.

Speaking as someone who ran a CSR group at a F250 corporation (Sun Microsystems) for 5 years, I can tell you that it would be great if the real world were so simple, but its not. While he’s right that CSR and the business of the company need to always go hand-in-hand, the situations aren’t nearly so clear-cut, organizations aren’t as smart, and CSR professionals aren’t as dumb as he suggests.

Let me illustrate with a few points:

  • Measuring project RIO is not cut and dry, just ask BP. Many CSR activities are grounded in a discussion of risk, as opposed to measurable items like parts cost. Skilled CSR professionals bring careful analysis of a new set of risks into the corporate decision process. In many cases the CSR input may not change a decision, but in some cases it does.

  • Dr. Karnani points out the important role of legislation (or, as important, the threat of legislation) and the influence of NGOs, including watchdogs and advocates. But who represents these issues in the corporation? In my experience it is the CSR function which often acts as the interface between these activities and the corporate decision process. When designing products that will hit the market in 3 or 5 years, as is the case in many companies, speculating about the global legal and social opinion environment that the product will be sold into is now an important set of inputs to the design process.

  • Companies have a finite bandwidth to take on new activities, so naturally lots of perfectly sound “win-win” projects don’t make the list unless they have an advocate. Energy efficiency projects have always “made sense” for companies to do – CSR and environmental awareness just made them more visible, provided a surer ROI, and got them higher on the corporate to-do list.

  • At the other end of the spectrum are projects which are CSR winners but financial losers. CSR’s role here is not to give up in a huff, but to keep the corporations major societal impacts on the front burner, for these are the company’s biggest long-term risks. If they really are major negative societal impacts, the company will pay for them in some way eventually, and in the meantime the company is horribly exposed to a competitor who figures out a way to lessen or avoid these impacts. CSR needs to drive the key questions: can we lessen the impact in a financially sound way? What can we do differently over time? Are we investing in innovation that may lessen our liability?

  • In the last two points I’ve hit Dr. Karnani’s two big CSR project buckets, but he’s missed the most important one, the area where two choices have different societal impacts, but the financials aren’t that different. These come up all of the time, but aren’t visible in the decision process unless someone is keeping score of societal impacts. Vendor A and Vendor B have similar prices, but Vendor B has dubious employment practices in some of its factories. Or maybe Vendor A’s products use more energy for the same amount of work. Datacenter A and datacenter B may have a similar 5-year cost of ownership, but Datacenter B may use 30% less energy per year with lower resulting CO2 emissions. Or maybe Datacenter A has a major solar panel going in next door and will have no CO2 emissions from that point on. These are a couple of simple examples, but I could give many, many others. In my mind this is when the CSR function shines in a company, and where it can have the biggest impact.

In conclusion, if your company trivializes the role of CSR, as Dr. Karnani suggests, then CSR will not play a useful role in your organization, so you should probably just fire them all.

If, on the other hand, you recognize that societal issues are playing an important role in complex corporate decision processes, and that all evidence suggests that the role will increase going forward, then hire some good CSR folks and integrate them into your management team.

And, oh yeah, be careful of academics talking about real world corporate issues: they can be irrelevant, and in some cases even dangerous.

I’ll Be the Judge of That

(note: this is reposted from my Sun blog )

Two different news items recently led me into the same train of thought: we are all increasingly in the business of judging Goodness, and of being so judged. I purposefully capitalized Goodness here, because I mean it in the highest sense of the word. This probably sounds vague, so let me use the examples to explain.

The first item is from the NYTimes, and discusses the conundrum caused by a proposed solar plant in Nevada. While the plant will produce copious free energy, it will also require over a billion gallons of fresh water a year, or over 20% of the water supply for the valley in which it is to be cited.

This is a classic tradeoff that we’re going to hear more and more about. What are we willing to give up in exchange for cleaner energy? Many types of solar power need water, as shown above. But how much water is too much? How many dead migratory birds are too many at a potential wind farm location? How much car safety should we sacrifice for better mileage? How much can the view from the shoreline be impacted by offshore wind farms before it crosses the line? There are tons of these questions, there are going to be more, and they are going to get more and more complex.

Presumably you can see why I described this as judging Goodness. We might try to reduce decisions such as these to financial terms, but its hard to put a price on scenic beauty or a single bird. And your answer may not be the same as someone else’s. I’ll react differently to a wind farm I can see from my deck than one that’s a thousand miles away in a place I’ll likely never visit. How we approach these decisions reflect our personal or group morals.

The second example isn’t about tradeoffs, but about people trying to quantify the Goodness of others. You see this all of the time: green rankings of companies, ethical lists of schools, etc. For example, Sun was recently included in the Newsweek green ranking, coming in 14th out of 500. (Note: I’m not singling out the Newsweek ranking – there are dozens of examples I could have used and this just happened to be a recent, well publicized one.)

This, however, is even trickier than the task above. We’re not talking about an either/or situation, we’re talking about trying to capture all of the factors that make up the green-ness or ethical-ness of an organization in a single number. And to make matters worse, these the organizations being compared usually don’t even do the same thing. How do you compare an airline to a consulting company? A manufacturer to a non-manufacturer? A small school in the north woods to big one in Manhattan?

But as we’ve seen, there’s no shortage of people who feel they are up to the task. They’re willing to put relative weights and scores on various sources of quantitative and qualitative data, deciding what the underlying components of “good”, “green” or “ethical” should be. Sometimes we get to understand these weights and data sources, but usually we don’t.

In the Newsweek case, one of the three major factors in the ranking was a “reputation survey” audit they did using unnamed CEOs and other “experts”. Since Sun Microsystems is not a consumer brand and we don’t advertise much, its not hard to predict that we may not score as high in that as organizations that are household names, or are use big ad budgets to tout their sustainability. Sure enough, Wal-Mart tops the list in that category followed by GE, Coke and Nike. (BTW, Wal-Mart is doing some outstanding sustainability work, but that doesn’t validate the scoring methodology.)

Don’t get me wrong – I’m not saying that Sun deserves to be scored or ranked higher. In fact, I’ll go a step further and say that I have no moral grounds on which to judge the ethics or greenness of any organization, Sun included. I’m confident in telling you that we’re using less fresh water and emitting less GHG than we were a year ago, but that’s as far as I’m comfortable going. In short, who am I to judge?

So what’s the alternative to rankings? I’m a huge proponent of measuring things and making the data public – that’s what we’ve been trying to do at Sun through our CSR report, annual CDP response, OpenEco.org data and other avenues. I hope that companies, investors, and consumers are using that data to understand what we’re up to, and are making better informed decisions.

As organizations are trying to exhibit more social responsibility, there is a necessary increase in moral judgement in business decisions. In light of this, my advice is simple. First, recognize that you’re using moral in your decisions. Second, figure out what’s important to you (not Newsweek or anyone else) for the specific decisions you have to make. Finally, gather your own data.

There are lots of things that are OK to outsource – your moral standards aren’t one of them.