CSR: Does “S” Stand for Strategic?

Posted by Milos Sugovic

Starbucks is a textbook example of clear reporting and excellent corporate social responsibility (CSR) positioning. They’ve skillfully integrated cause marketing and CSR initiatives that are bottom-line "friendly." CSR should be strategic and the only way to attain that is to have some sort of competitive analysis of the CSR marketplace. It should advance the business while doing good and being transparent. But most companies fall short and that resonates in their CSR reporting. 

Starbucks has used CSR to strengthen its supply chain, and more importantly, the product via an improvement of the suppliers' business. This did several things: it established their brand as a synonym for high quality, it introduced a large number of suppliers into their supply chain, it elevated the standards that suppliers need to meet (meaning new supply chain entrants have to become better at what they're doing), and most importantly, they've been able to tie the cause marketing bow around it all. Not only does the supply chain story make sense from a business case perspective, it's marketed as a cause that justifies a higher price. They've shown how an integration of different strategies can create significant business opportunities, and they did a pretty good job at communicating it. 

So why don't other companies evaluate and report on their CSR initiatives with a competitive analysis and strategic eye? It'd be an effective and simple way of communicating a CSR niche to stakeholders. There’s an infinite number of ways to look at it: per product category, stakeholder group, internal/external relations, you name it. It'd communicate achievements and shortcomings clearly, and would pave the way for an in-depth understanding of the CSR opportunities, or conversely, threats from falling short. I'm sure investors, internal management personnel, and external groups would love such an approach.  

But many institutions construct their CSR reports in terms of goals. If you look at earnings, investor relations and annual reports, they’re usually focused on the state of the company's financial performance as is. CSR reports, on the other hand, focus on where we should be, and report the here and now relative to a set of goals.  

It’s an interesting approach, especially since it diverts attention away from the current state of affairs, and establishes focus on future goals. In effect, it helps manage outside groups, their comments, and particularly expectations. That way, corporations can say, "Yes, we're polluting, but we're also working on it, so be patient." The budgetary and moral responsibility is, in effect, diluted over a long period of time. 

From a bottom-line perspective, there's merit in approaching the issues in this fashion. From an environmental degradation standpoint, there's a legitimate counter-argument.

But there’s another implicit point I’m trying to make here: Communicating is important, and many companies realize it, but don’t always take it to the "next level." Simply saying, "We'll cut emissions by X%" is a great goal from an environmental standpoint, but why that level? Why X%?  

On top of it all, many forget that there's an efficient level of pollution from a societal point of view, and there's definitely an efficient level of pollution for the firm. The problem arises when the two don't match up. Firms are setting goals based on what's profit maximizing for them, and my concern is that they're not setting, let alone meeting, the socially optimal levels as goals (hence why government has to step in). So the fact that many of these goals are spelled out in reports and are or will be met is only half the battle. 

The conclusion is simple: What's important for many socially responsible companies is to understand the space they're working in, where their competitors are, what opportunities for differentiation exist, and how to "own" that CSR niche. The second step is communicating that niche and creating a market position from it.  

Companies and investors are learning that CSR does pay, and they're carving out this newly created market. There’s an infant market that’s creating a first mover advantage -- the first one to be associated with the pink ribbon wins. But with additional entrants, the pie will shrink and it's increasingly important for companies to understand what they can "own" in order to ride the coattails of positive public perception.  

Just remember this: It is easy to communicate your goals and achievements. But differentiating yourself by actually moving toward those goals, and being transparent about this effort, takes skill.