The difficulty of doing good

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V Kasturi Rangan is the Malcolm P McNair Professor of Marketing at the Harvard Business School. He is also the co-chairman of the school’s Social Enterprise Initiative. In this interview with Vivek Kaul, Rangan talks about why it is important for companies to have a corporate social responsibility (CSR) strategy and how can they go about creating it. Kaul is the author of the Easy Money trilogy, which deals with the evolution of money and the financial system and how that led to the current financial crisis.
Does every company needs a CSR strategy?
Absolutely. Any business in the world operates in the context of a community. Not all members of the community are investors in the company or are its customers. But they are impacted by what the company does. Businesses operate in a social, cultural and regulatory context, a lot of which is not directly in the value chain. If that is the context in which a business operates it is absolutely important for business to have a CSR strategy.
Does every company have a CSR strategy?
They don’t, including the big companies. A lot of big companies have CSR programmes, but that is different from having a CSR strategy. They always do something useful. Take for example a textile mill sets up a school feeding programme and decides to feed ten schools by providing them a mid day meal. Someone else says that I am going to provide education. Or I am going to provide free food in the canteen for all my workers. So they have programmes. I am not faulting them for not having programmes. Just having programmes is not equal to having a CSR strategy. The CSR strategy requires the company to think very carefully about its business purpose.
Could you substantiate that through an example?
There is a terrific water utility in Philippines called the Manila Water Company. They have got the concession to run the water utility in Eastern Manila. Eastern Manila has some 5-6 million people. As a part of the water franchise, other than providing water, the company needed to ensure that within 10 years they provided water connections to 95% of the households. Of the five million, around 2.5 million people did not have a water connection. These were people who lived in the slums. The company looked at them as an opportunity because ultimately they got water from somewhere, which was typically poor quality water, which had been stolen from the main pipe anyway.
What happened next?
The company said these poor people are paying more for poor quality water. So they came up with a brilliant idea making sure that they gave a connection to everybody, but the water bill was collected through a community leader. If they went to collect the water bill from every hut it would be very expensive. So the community leader collected the bill. This lowered their cost. But the community leader also ensured that when the water mafia came to steal water illegally, the community acted as a self policing force. Its also worked like a self help group. If one member of the community could not pay the water bill, other people pitched in for one or two months. Also, it was an incremental revenue for the company because water pipes are a fixed cost.
Anything else that they did?
The government gave them the permission to dump the sewage in the sea. But they processed it and made it into sewage cakes which went to regenerate areas which had seen a volcanic eruption in the Philippines. The took the grey water for city boulevards. So it is a very profitable company and is directly linked to the business, where the poor people are seen as an opportunity. And it is a completely integrated company where you will not be able to separate their CSR from their business strategy. It is all integrated. And when the company so profitable the consumers are not saying that they are making too much money like has been the case with micro-finance in Andhra Pradesh.
Any other example that you can share?
There is a bank called the Pittsburgh National Bank(PNC), which operates in mid-west United States, in places like Pittsburgh, Cleveland. The parts that they operate in used to be an industrial area, where the factories have left and so there is a lot of unemployment. The area also has families with a lot of single mothers. They decided to put all their effort into early childhood education.
So how is that a strategy?
Earlier they were doing philanthropy. Some sections were giving to art and culture organizations. Some other directors were supporting their local sports team. They said, let’s aggregate and put it behind one initiative—early childhood education. They got $100 million in early childhood education. So when a company puts in $100 million, then the CEO of the company sits on the national board of education. This $100 million leverages the state budget. They can move the needle. What I am saying is that if you do CSR and if you can focus only one or two things which can move the needle, then it has an impact. The point about CSR is that just like you measure business impact you also have to measure social impact.
How does a company go about having a CSR strategy?
Here is my view. If you go in and take the helicopter view of some of the better companies. You will find that they have their CSR programmes which falls into three theatres. Theatres one is by and large like philanthropy. Theatre two CSR is more like shared value. I am going to be environmentally responsible by using alternate fuels rather than fossil fuels. That sort of thing. The third theatre is transforming the business. It is like Manila Water. It is like saying I am going to do a completely different business formula.
Could you elaborate on that?
When you go in, the company will have all the three theatres operating at the same time. What you have to do is two things. First, you have to look at each of these silos, whatever programme is their in the silo has got some kind of a connection to the business purpose. The second thing which is the biggest drawback of companies whether international or Indian, the philanthropic CSR programmes are usually run by their community affairs director or the CSR manager or the foundation head. The operation stuff is usually run by the line managers, the factory head, the functional manager etc. And “change the business” is run by the executive committee of the CEO. These three rarely talk to each other on CSR. When the three talk to each other, a CSR strategy emerges.
Any examples?
That is what Ambuja Cement has done. They have the Ambuja foundation that does very good community development work. The mining managers work with local managers. They think in terms of water usage because they produce cement which needs water. They are thinking in terms of how can we give water back to the farms. And then the CEO is thinking in terms of how can we sustain the mining activity etc. They put together a process where the CEO, the operational manager and the foundation started talking to each other. The CSR strategy emerged from that. Now the company has a CSR strategy where they are saying that we have to be a sustainable business where we should put in more into the environment than we take from it. So they are not only water positive they are 3x water positive i.e. they put three times the water back than the water they consume. They want to be plastic positive. They are not yet.
What does that mean?
They sell cement in plastic bags. So the plastic goes into a landfill somewhere and that is not good for the environment. What they have thought of doing is collecting the plastic bags and burning it as alternate fuel in the kiln. If they do that they don’t have to use so much of fossil fuel. So, the strategy is that this whole process of becoming plastic positive. Also, now that they are 3x water positive the farm yields have improved in and around them. The profits of farmers has gone up. So, what I am saying is that a CSR strategy emerges when you link the three theatres and that changes the way the business operates.
The interview originally appeared in The Corporate Dossier, The Economic Times on June 20, 2014