MARYLOU ANDREW: How would you define CSR as companies currently practice it?
SHADAB FARIDUDDIN: There have been three waves of CSR. The first focused on philanthropic activity, where companies went out to do good deeds. Then they realised that CSR has a lot of pull and they started indulging in PR-related CSR which involved leveraging the CSR face of the company for PR mileage. The third phase is when they actually deploy business capabilities to solve real social issues, and that is real CSR.
MLA: Internationally there is a shift from corporate philanthropy to triple bottom line (TBL). What is TBL?
SF: According to the theory propounded by Milton Friedman, the only responsibility of business is to earn a profit; however in practicing this theory they have harmed people and the planet. Take the case of Nike and its inhumane labour practices in Bangladesh and Latin America or the more recent example of the BP oil spill, which has caused so much damage to the environment. Because companies were motivated purely by profit, they had a license to kill as it were. Now the realisation has come that businesses have to balance their desire for profit with what benefits people and the planet.
MLA: What motivated this shift in thinking?
SF: Businesses will never change unless there is incentive or punishment. The incentive came when non-profit organisations stood up against businesses and their unfair practices and started making customers aware about why they should not buy products that are damaging to people and the planet. When faced with the threat of decreased demand for their products and services, businesses saw the need to focus on a triple bottom line (profit, people and the planet). A well known example is De Beers and the conflict diamonds they used to sell. When Global Witness single-handedly created awareness about these diamonds, people stopped buying them and De Beers had to clean up its act.
MLA: What is motivating Pakistani companies to do CSR?
SF: Most companies in Pakistan are doing corporate philanthropy. Pakistan’s social and economic issues are so immense and there is a dismal failure by the government to provide any kind of social services, so private individuals have taken it upon themselves to do this. But there is another important element to consider. In Pakistan, CSR is an expression of the passion of the chairman or the CEO. Usually it is not integrated into the corporate strategy.
MLA: Why is integration important?
SF: Integration is a must to ensure that CSR does not remain leadership dependant. A good example of integration comes from National Foods (NF). NF is a huge buyer of chillies and Pakistan produces some of the best chillies in the world. But the Pakistani chilli also suffered from a fungus which made it unfit for human consumption. To grow fungus free chillies, changes in cultivation and preservation techniques were required. NF brought in bio-technology experts to study the problem and identify the causes of the fungus. They then piloted the solution at their own expense and finally took it to the farmers. Now the farmers required an incentive to change their techniques so NF offered them a premium on the price and paid them in advance. The farmers adopted the new techniques and this not only benefited NF but the entire sector and Pakistan became known as a fungus free chilli producer. And there was the huge benefit to the farming community. This is an example of true strategy integrated CSR.
MLA: Why don’t more companies have a strategy integrated CSR plan?
SF: It’s a painful process and requires a huge change of mindset. Let’s say I’m the CEO of a company and I am passionate about doing business ethically. That raises a number of issues. First I have to persuade my employees to care about my cause, which takes time. If I manage to persuade them and I decide to look for say, cleaner energy sources, this will incur a sizable cost. This means that the cost of my goods and services will increase and so will the price; then I will have to ask myself whether my customers are educated enough to want to pay this extra cost. If they are not, is the government willing to subsidise the good I am doing? If the support structures are not available at the industry and macro level then I will have to step back and continue doing the kind of CSR which is good to the eyes but not necessarily to the society.
MLA: Companies spend a lot of time and money publicising their CSR initiatives. Do these strike a chord with consumers?
SF: I want to point out an interesting phenomenon. When companies want to make even the smallest change to their product they will immediately commission research. But when it comes to CSR activities, companies will never undertake research to find out whether the cause they want to promote is dear to the consumer or not. Instead they will launch a CSR campaign and evaluate it afterwards to see whether there is an impact on sales and brand equity. Why not do the evaluation before and base your campaign on a cause held dear by the consumer? This is why most consumers remain unaware of the company’s CSR initiatives.
MLA: If that’s the case, why do companies continue to do CSR?
SF: Sometimes the CSR budget, as a percentage of the overall budget, is small change, so companies do it in order to have something to put down in their annual reports. These reports, of course, will only list the activities but not the results or the socio-economic impact. Another reason is that although you know your customers don’t care, you just keep spending hoping that it will click in the future; this is a very, very long term approach. Finally, companies sometimes indulge in CSR as reputation insurance. At BP for example, their big defense has been that despite the oil spill, their past record shows how much they have done for the community. Companies cannot anticipate when and how their reputation could go on the line, but if and when it happens, CSR can act as a way to defend their track record.
MLA: Where do you see CSR heading in the next three to five years?
SF: It will evolve and this will be governed by two or three factors. The government is promoting public-private partnerships in two ways; the public sector partnering with for-profit private sector companies as well as with non-profit private sector companies. A third type of partnership is private-private (for-profit-non-profit) partnerships. Such partnerships are important because foreign aid is drying up and donor dependent organisations are seeking alternative sources of funding. As a result there is a great deal of pressure on the non-profit world to start behaving like a business and identify business opportunities. All these factors will increase the quantum of CSR initiatives.
MLA: Will consumers become more demanding that companies become more transparent and ethical?
SF: Yes and no. When a society reaches a certain level of per capita income and that income is well distributed, consumers start thinking of the higher needs of fairness and triple bottom line. However the public in Pakistan is so tied to the routine of earning a livelihood that even if you educate them they will not do anything about it.
First published in the September-October 2010 issue of Aurora.