The S-Word, CSR 2.0 and the Creation of Shared Value.

In my previous post, I reacted to the fact that Advertising Age had named sustainability one of the “jargoniest jargon” words of 2010 that they “wish you would stop saying.” Although I agree that some of the vocabulary used by sustainability practitioners is actually jargon, I didn’t agree at all when asked to stop using the “S word” : Here you go. SUS-TAI-NA-BI-LI-TY.
There’s undoubtedly a need for a better definition of what sustainability actually means and the same goes for the acronyms usually related to this concept, such as CSR – Corporate Social Responsibility – sometimes amputated of its Social part, CR – or ESG – Environmental Social and Corporate Governance.

As one of the ambitions of this blog is to be a space that helps clarifying the concepts, I recently asked several key actors in this field to share their definition of sustainability.

Alberto Andreu Pinillos, Global Director of Reputation, CSR, and Sustainability at Telefónica, one of the world major operators in the telecommunication sector, leader of the Dow Jones Sustainability Index (DJSI) in its sector, for the second year in a row, in 2010, says that its company “likes the DJSI’s definition for Corporate Sustainability: a business approach that fosters value creation in the long term for shareholders, taking advantage of the opportunities and the effective risk management, related to social, economic and environmental development’.

This definition provides to Telefónica the guiding principles to define and execute its corporate sustainability strategy.

1. Managing risk: according to Alberto Andreu the objective of this “defensive strategy” is “to minimize the negative impact” of the company’s global activities: supply chain, integrity, privacy, data protection, health & safety, electromagnetic emissions, etc.”
2. Managing new opportunities: here, the objective of what Alberto Andreu describes as an “offensive strategy”, capable to “generate more revenues related to social business”, is to “maximize the positive impact” of the business, “putting special focus on green ICT, accessibility ICT for handicapped & elderly people, and reducing the digital divide.”
3. Managing stakeholder engagement, through “the implementation of social programs (conducted mainly by Telefónica’s Foundation), developing social networks, and working with the stakeholders to build the digital agenda.”

But one of other reasons why some commentators tend to affirm that the terminology around CSR and Sustainability is jargon, is that, on top of a lack of clear definition, there’s still many ongoing discussions and debate around the concepts themselves. Which, in my opinion, is a very good thing.

HBR CREATION OF SHAREDVALUE

For example, in this month’s Harvard Business Review, Michael E. Porter and Mark R. Kramer, in an article that explains “how to reinvent capitalism—and unleash a wave of innovation and growth by Creating Shared Value, write that “creating shared value (csv) should supersede corporate social responsibility (csR) in guiding the investments of companies in their communities.
According tho them “CSR programs focus mostly on reputation and have only a limited connection to the business, making them hard to justify and maintain over the long run. In contrast, CSV is integral to a company’s profitability and competitive position. It leverages the unique resources and expertise of the company to create economic value by creating social value.”
The authors give an example that illustrates quite well their CSV approach: fair trade purchasing. ‘Fair trade aims to increase the proportion of revenue that goes to poor farmers by paying them higher prices for the same crops. Though this may be a noble sentiment, fair trade is mostly about redistribution rather than expanding the overall amount of value created. A shared value perspective, instead, focuses on improving growing techniques and strengthening the local cluster of supporting suppliers and other institutions in order to increase farmers’ efficiency, yields, product quality, and sustainability”.

Another example is what Alberto Andreu, Global Director of Reputation, CSR, and Sustainability at Telefónica calls “CSR 2.0″. ‘Doing new business with social impact” – he says – requires the creation of “an external ecosystem”. “For instance”, he explains, “to launch new ICT solutions for disabled people you must create an external network with governments, NGO’s, civil organizations, employee associations…”. That’s what he callsCSR 2.0, because you can’t do these kind of business on your own, you need a complex ecosystem. CSR 2.0 is doing things with others, through a network.”

Alberto Andreu says that, in 2011, one of Telefónica‘s priorities is to “better link CSR to new business opportunities” and for that, “supporting social entrepreneurs to maximize the positive impact of our business on the community” will be key. The main focus areas for the company will be “green IT and the development of ICT solutions for handicapped & elderly people.”

This approach echoes what Porter and Kramer describe in their HBR article, when they write that shared value is not about personal values. Nor is it about “sharing” the value already created by firms—a redistribution approach. Instead, it is about expanding the total pool of economic and social value. In the Fair Trade example one of the clear benefits of a shared value approach is that “this leads to a bigger pie of revenue and profits that benefits both farmers and the companies that buy from them”.

Porter and Kramer also write that “companies must take the lead in bringing business and society back together“, emphasizing that shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. The solution, they say, lies in creating economic value in a way that also creates value for society by addressing its needs and challenges. “Businesses must reconnect company success with social progress.”

Alberto Andreu definitely sees the connection between company success and social progress when he describes the strategy of the company and the results so far. “CSR 2.0, he wrote in a paper for the Reputation Institute of London, in may 2010, “requires identifying new income sources with a positive impact on social development, new ways of reducing costs, as well as understanding the impact of responsible behaviour on margins and customer satisfaction.” Corporate Responsibility is not something new at Telefónica that released its first CR report in 2002 and when asked about the results of Telefónica’s effort in this domain, Alberto Andreu says that he’s particularly proud that his company is leading the DSJI for the second consecutive year but he also gives two examples of how CR activities effectively contribute to the company’s profitability:
1. One of the major impact of the company’s CR effort, he says, is that they “give the company a premium price on the market”, adding that “companies included in the DJSI have delivered a premiun of 0.48 pp on the markets vs those companies not included in DJSI, in a 8 years series.”
2. Furthermore, he explains that “some years ago, the company did an internal research to link their financial metrics to CSR and corporate reputation”. The conclusion they reached was that “the behavior of these financial indicators explained 11 percent of the variations produced in the corporate reputation”; “That is to say, he explains, “the variations that are produced in the client’s perceived reputation impact Telefonica’s financial results.”

According to Porter and Kramer, the new paradigm they describe, reconnecting company success with social progress, “will require leaders and managers to develop new skills and knowledge—such as a far deeper appreciation of societal needs, a greater understanding of the true bases of company productivity, and the ability to collaborate across profit/nonprofit boundaries.”
For Alberto Andreu, these new managers will also have to be change managers” inside and outside their organization.

You can follow Alberto Andreu on Twitter at @aandreup

2011: The Year Of “The Sense Of Purpose”?

  

“People without a sense of values can make a great deal of money, but they will have an ache in their heart”.

 With this quote by Jack Ma, one of the contributors of this month HBR special report, let me wish you a happy sustainable and responsible 2011!

  

2011: The Future of Work

In a special report, The HBR agenda 2011, published by the Harvard Business Review this month, two dozen business and management leaders explain what projects they’ll take on in 2011.

The contributors address a broad range of topics; most of them related to the future of work, as well as leadership issues, such as succession planning, the decision-making process at CEO level, or the management of new forms of teams, multicultural or highly flexible like the “sand dune teams” described by Harvard University Professor J. Richard Hackman.

  http://hbr.org/web/extras/hbr-agenda-2011/j-richard-hackman

 

 

2011: The year of the $300 house?

Vijay Govindarajan’s “$300 house project” and his agenda to make it happen, which he shares with a contagious passion, is definitely a great read.

http://hbr.org/web/extras/hbr-agenda-2011/vijay-govindarajan

  

 

 

 

 

 

 

 For further information, I strongly recommend to check the project’s official website  http://www.300house.com/ .

 

2011: The awakening of “a sense of purpose in our companies”?

Two contributions, in the HBR special report, focus particularly on Sustainability and Corporate Social Responsibility.

First of all, Daniel H. Pink, the author of various books about the changing world of work, wonders if companies “have reached the limit of the profit motive” and asks if “the path out of our economic doldrums” will come from the “awakening of a sense of purpose in our enterprises” rather than a “tighter focus on profits, processes or productivity.”

 http://hbr.org/web/extras/hbr-agenda-2011/daniel-pink

2011: Celebrating the Year of Sustainability in China?

One of the other contributors of the HBR special report, Jack Ma, Founder and CEO of China’s Alibaba Group describes the effort that his company is undertaking to drive a sustainability strategy that can benefit not only to the Group itself but to China in general.

http://hbr.org/web/extras/hbr-agenda-2011/jack-ma

“A company our size has a responsibility to do the right thing” writes the founder of the Alibaba Group, which employees around 20000 people in about 60 countries, adding that “people without a sense of values can make a great deal of money, but they will have an ache in their heart”.

The Chinese Group, founded in 1999, is a family of Internet-based businesses that includes business-to-business international trade, online retail and payment platforms and data-centric cloud computing services. The scale of the company is quite impressive; it’s like Ebay for business to business (B2B) transactions, like Amazon for business to consumer (B2C) transactions, like Paypal, with an escrow function, like Google for affiliate marketing, and they also run China Yahoo! and are expanding into many other areas.

One thing that I found remarkable is that Alibaba decided, 2 years ago, to ban trade in shark fins on all its sites which was a particularly difficult decision in the local cultural context. I read the HBR article the very same day I watched for the first time the amazing documentary “Oceans”. The movie is a wake-up call. It shows how beautiful life is in the Oceans, but it also explains how fragile it is. There’s a sequence where sharks are being brought out of the sea and their fins cut off just to be used for soup. The bodies are subsequently thrown back into the sea meaning that these sharks have been condemned to death.

http://disney.go.com/disneynature/oceans/

After reading the HBR article I decided to find out more about the Group’s sustainability and CSR activities. I checked its website and read its 2009 Annual Report, as the company, unfortunately, didn’t produce any separate Sustainability or CSR report. The amount of CSR information provided in the Annual Report is quite light with only 4 pages dedicated to this topic for a total of 152 pages.

 http://img.alibaba.com/ir/download/201004/E_2009AnnualReport.pdf

However, it doesn’t seem to be because the Group hasn’t been involved in this area. On the contrary, browsing the web I found quite a lot of activities that deserve to be highlighted.

Alibaba in the Community

Alibaba is engaged in the development and support of local communities through its Ali-Loan program, introducing proprietary credit scoring models developed by the Group to facilitate loans made by their partner banks to our customers in China. Since the launch of Ali-Loan, the Group say they have facilitated more than RMB6 billion of loans to more than 3,000 of their customers.

Talent Incubation

It also provides e-commerce and management training and education services for small businesses and individuals in China through both offline learning centers and an online learning platform.

 Community Volunteerism and Sichuan Earthquake Relief

 The Alibaba Group says that it encourages employees in its Group companies to become active in community service programs.

After the tragic Sichuan earthquake in May 2008, Alibaba reacted immediately by sourcing urgently needed goods that were key to the rescue efforts, launched an online campaign for donations from its employees and members of its websites and formed a relief team made up of employees and volunteers from outside the company.

The team made a number of trips to Sichuan to provide first-hand earthquake relief and delivered a large shipment of stationery supplies donated by employees which benefited nearly 1,000 local students. As winter approached, the team also organized a clothing donation drive for the earthquake victims and Alibaba waived the membership fees for supplier members based in the earthquake areas, in order to help them get back into the business of providing jobs and economic stability to their communities.  

 Environmental Protection

Alibaba.com has been promoting environmental issues from within the organization by running a series of campaigns under the name “Orange Alibaba, Green Earth”. The campaigns aim to promote energy and resource conservation by its employees. The company also launched a “Tradeshow Alliance Environmental Protection Fund” in October 2007 to promote environmentally friendly and energy-efficient tradeshows. The proceeds were donated to the China Environmental Protection Foundation.

In the HBR article Jack Ma writes that employees who demonstrate “a commitment to the environment might merit a better parking place”, which is, undoubtedly, in China’s crowded cities, an outstanding employee benefit. But, if I may suggest an alternative, rewarding employees’ commitment towards environment with free or subsidized electric bicycles or “e-bikes”, would be more consistent with Environmental Protection, rather than encouraging employees to commute to work by car.

In May 2010, the Alibaba Group announced that it would begin in 2010 to earmark 0.3 percent of annual revenues to fund efforts designed to spur environmental awareness and conservation in China and around the world.

Integrity and Compliance

Finally, in its company website, Alibaba Group, says it’s committed to the highest standards of business conduct in its relationships with each of its stakeholders, including its customers, suppliers, shareholders and other business partners. This commitment is reflected in the Alibaba Code of Business Conduct, requesting employees to conduct all business with outside parties in a manner that reflects the Group values of integrity, fairness and trust.

In the HBR report, Jack Ma writes that he believes that, “in China, environmental change will come about only through education.”

With an average employee age of 27, like many companies in China, the Alibaba Group has a great opportunity: through its corporate sustainability strategy and CSR activities, it can infuse strong values that will shape the future of the company’s, and the country’s, workforce and leadership.

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