Business-Society Dynamic

Journey from CSR to CSV

Introduction
Origins of CSR and need for directors to act as trustee for interests of social claimants Need to provide service without/ beyond profits Second World War Interruptions and 1950s Fundamental Idea: Business Corporations have obligations to work for social betterment Obligations can be Mainstream and peripheral Voluntary or coerced by governments

Why Corporations Started Engaging in CSR?

Obligation from wide variety of sources Possession of technical skills and resources needed for social problems Exercise of enlightened self-interest by corporate executives Desire of Corporations to be good citizens of respective communities Fear of violence and social disruption

The Problem with CSR1

Operational meaning is vague Is it conformity to legal regulations or it refers to extra legal voluntary acts Institutional Mechanisms through which idea of CSR can be done 1. Business Response to traditional Market forces 2. Voluntary Response beyond immediate considerations 3. Government authorized business responses through subsidies Trade-off between economic goals and costs versus social goals and costs cannot be stated with precision Moral Underpinnings are neither clear nor agreed upon

CSR2: Addressing the CSR1 Shortcomings

Corporate Social Responsiveness: Capacity of corporation to respond to social pressures Key Questions? 1. Will it?/Does it? 2. How does it respond? 3. To what Extent? 4. With what effect? Ability to manage companys relations with various social groups

Difference Between CSR1 and CSR2

CSR2 Philosophical More practical and responsive Social problems are treated as unrelated Stress on phenomena and in process/systems knee-jerk fashion Anticipatory scanning f (CEOs conscience) procedure to detect emerging problems Why/Whether? Institutionalized company policy for successful implementation CSR1

Making a Case for CSV

Businesses prospering at expenses of broader community More the businesses have engaged in CSR the more it is blamed Legitimacy has fallen leading politicians to set policies undermining competitiveness The Problems: Are companies responsible? May be Outdated approach to value creation Overlooking wellbeing of customers-depletion of natural resources- viability of key suppliers- economic distress of communities in which they produce and sell Shifting activities to cheaper locations with cheaper wages Governments and NGOs exacerbated the problem by addressing social concerns at the expense of business Result: Presumed tradeoffs b/w economic efficiency and social progress institutionalized in decades of policy

The Solution?
Creation of Shared Value: Businesses need to respond to social needs and challenges-Nee to reconnect company success with social progress Shared value as the new mantra of successLeading e.gs are GE, Google, IBM, Intel CSV in nascent stages and realizing its value needs deeper appreciation of societal needs Customers, employees, new generation asking new businesses to step up The purpose of businesses now is to redefine themselves as CSV

Creating Shared Value

Defining Shared Value: Policies and operating practices that enhance competitiveness of a company while simultaneously advancing economic and social conditions in communities in which it operates Salient Features of Shared Value Focuses on identifying and expanding connections between societal and economic progress Economic and social progress must be addressed using value principles Value Creation traditionally= Revenues- Costs Businesses rarely approached societal issues from value perspective and at most these have been treated peripherally

Roots of Shared Value

Intimate relationship b/w competitiveness of a company and health of communities Business needs community for critical public assets and supportive environment Communities need business to provide jobs and wealth creation opportunities for its citizens This inter-dependence means that public policies have undermined productivity and competitiveness of businesses especially in todays globalised economy Shared value is neither about personal values nor about redistribution- It is about focusing on improving growing techniques, strengthening local clusters, increasing farmers efficiency, product quality and sustainability

How is Shared Value Created?

Preconceiving products and markets

Redefining Productivity to Value Chain

Building supportive industry clusters at companys locations

Reconceiving Products and Markets

Increasing societal needs in terms of health care, housing, greater financial security Companies seem to have lost sight of basic questions- Is our product good for our customers / customers customers? F&B companies refocusing on fundamentals of better nutrition- Intel and IBM devising ways to help utilities harness digital intelligence In India, rise of market based solutions to drive inclusive growth-e.g. Life spring hospitals, Vatsalya Hospitals

Redefining Productivity in Value Chain

Companys value chain affected by numerous societal issues such as natural resources and water use, health and safety, working conditions, equal treatment Many externalities actually inflict internal costs for the firm Growing realization that congruence between societal progress and productivity in value chain is far greater than traditionally believed Synergy increases when firms approach societal issues from shared value perspective-One can see CSV in the following forms Energy use and logistics: Gyanesh Pandeys Husk Power systems, Sanjay Bhatnagars Waterhealth International and Paresh Rajde of Suvidhaaa Infoserve Resource Use: Coca -cola and Dow chemicals Procurement: Nestle in Africa and Lat Am Coffee growing regions Distribution: Project Shakti of Hindustan Unilever

Enabling Local Cluster Development

Need to broaden understanding of relevance Clusters: It not only means geographic concentration of firms, service providers, logistical infrastructure but also means institutions such as academic programs, trade associations, broader public assets like schools, colleges and VTCs,Clean water Capable local suppliers foster greater logistical efficiency- Boost productivity Need to revive cluster thinking-Nestles alliance with Rainforest International

CSR Value: doing good

Comparing CSR and CSV

Basic Idea: citizenship, philanthropy, sustainability

Profit Maximization: Separate from profit

Agenda: External reporting and personal preferences Impact: Impact limited by corporate footprint e.g.: Fair-trade purchasing

CSV Value: economic and Societal Benefits relative to costs Basic Idea: Joint company and community value creation Profit Maximization: Integral to profit maximization Agenda: Company specific Impact: realigns entire company budget e.g.: Transforming procurement

Ages and Stages of CSR

Age of greed and defensive CSR

Charitable CSR and Age of Philanthropy

Promotional; CSR and age of Marketing Strategic CSR and age of Management

Systemic CSR and Age of Responsibility

Curses of Modern CSR

Peripheral CSR: CSR restricted to largest companies and mostly confined to PR rather than integrated across business Incremental CSR: Adoption of quality Management Model, results in incremental improvements that cannot match scale and urgency of problems Uneconomic CSR: CSR does not make sense as short-term markets still reward companies that externalize costs to society

Need for Transformation from CSR to CSV

What Can Businesses do? Creativity Scalability Responsiveness: Transformative Circularity: Kenneth Bouldings cowboy economy (where endless frontiers imply no limits on resource consumption) to spaceship economy concept (where there is no away and everything is constantly recycled)

Few Indian Examples

Financial Services Ujjivan Financial Services : Raised $25 millionRaised capital from FMO and WCP Mauritius Holdings Presence in 20 states IFC- investing arm of World Bank invested 45 crores Bandhan: Largest MFI by outstanding loans Exploring newer markets in retail sector by retiling handicrafts and leather products by borrowers of Bandhan Attracted investment from IFC and SIDBI Caters to low income states in North-east

Few Indian Examples.Cont

Healthcare Lifespring Hospitals Chain of low-cost maternity hospitals >70% of customers from low-income communities who earn Rs150-300 a day Delivery costs INR 4000/ 50:50 JV by Acumen fund and HLL Lifecare Vaatsalya Hospitals Affordable healthcare chain Focus on non-urban market One crore funding raised from angel investors

Conclusion
Wayne Vissers DNA Model of CSR Essence of CSR 2 DNA Model of VEGS V Stands for Value Creation E Stands for environmental Integrity G stands for Good Governance S stands for Societal contribution Need for reorientation of purpose of businessPositive contribution to society is not a marginal afterthought but a way of doing business