From CSR to the transformation of business models

When corporate social responsibility (CSR) is mentioned, the reaction is sometimes a grunt, sometimes a groan. More often than not, driven by performance and return on investment imperatives, companies produce a negative perception of CSR initiatives, both internally and externally.

Cécile Renouard, Director of the research programme "Business and Development in Emerging Countries" (CoDEV) at ESSEC IRENE, draws on her experience of field research with multinationals to propose avenues for analysis and resolution of ethical dilemmas. It proposes to engage in a transformation of business models.

Ihere are in fact differing perceptions of what CSR is from one country to another. In India, for example, companies are required to spend 2% of their profits on CSR activities, without a strict definition of the nature of these activities (philanthropy, etc.). In 2011, the European Commission defined CSR as "the responsibility of companies for their impact on society". The Organisation for Economic Co-operation and Development (OECD) has published guidelines for multinationals to contribute to economic, environmental and social progress towards sustainable development. The United Nations has developed a set of principles for companies and states: the "Protect, Respect and Remedy" approach. For companies committed to ethical conduct, these guidelines help them stay on track.

 

However, these "soft law" guidelines have not yet been translated into national and international law. Moreover, many ethical dilemmas go beyond mere compliance with the law, standards or regulations. In terms of tax policy, for example, transfer pricing practices, which are often legal, may seem illegitimate when companies move their profits to tax havens and reduce the amount of taxes paid in the countries where they operate. To manage such dilemmas, companies need to develop a vision of their responsibilities in the broadest sense.

 

The notion of responsibility is linked to a reflection on what a company is, from a philosophical point of view. Money is only one facet of a business. A company is a group of people who have an impact on the environment in which it operates. There is also a general misunderstanding that shareholders own the business, when in fact the law distinguishes between owning a share and owning a business. From this point of view, a business is a project that must be financed by profit, but which must also - as a body corporate and legal person - be in line with the public interest. A company is not simply a player in the economy but is in many ways a political institution in the sense of the ancient Greek polis, i.e. "living together". This is where its sense of responsibility lies, and more precisely its political responsibility to collaborate in a social project.

Responsibilities are linked to impacts: managing each responsibility involves minimizing negative impacts and maximizing positive impacts on stakeholders. There are a multitude of approaches to measuring impacts. The Emerging Countries Enterprise and Development Research Programme (CODEV) of ESSEC IRENE at ESSEC Business School applies both qualitative and quantitative methods (an alternative to the RCT (randomized control) methods used by pharmaceutical groups) to analyse and measure the impact of a multinational company on its stakeholders - and more specifically on the populations around the production sites where they operate, in Nigeria, Indonesia, India and Mexico, as detailed below:

- Total's Societal Impact in the Oil Extraction Regions of the Niger Delta, Nigeria (2008-2014)

- Evaluation of a Danone project to empower ragpickers in Indonesia: managing the increase in plastic waste and fighting poverty (2011-2014)

- Veolia's project in Nagpur, India: Public-Private Partnerships and access to water in emerging countries (2011-2012)

- Michelin in India: Reputation and legal risks around an industrial site (2012-2015)

- Danone in Mexico: Measuring the social impact of Danone's Pepenadores Project (2013-2015).

 

These studies show that philanthropic initiatives do not work: it is not enough to give books and material aid, as oil companies have been able to do in the Niger Delta. What is effective is Development with a capital D - that is, Capacity Building among the populations concerned, in terms of behaviours and skills. This implies participation in the various projects, involving people, giving them the means to evolve and become aware of their capacities so that they can be actors of change. A company's impact on society is also an impact on people's relationships with each other. When analysing a company's impact on its environment, we notice that social relations are often weakened. It is essential for a company to create social relationships, links and sustainable social cohesion within the communities where it operates. This requires a change of mindset and taking the time to consider how local development can be helped - not in the short term, as is so often the case, but in the long term. Companies should not be afraid of the complexity of the development issues they face, especially in emerging countries. That's a lesson that Danone, for example, had to learn on the ground when it tried to set up a development program in Indonesia, which proved ill-suited to the informal environment in which it had to fit. Other Danone projects have worked better in Brazil and Argentina.

This view of responsibilities invites us to see stakeholders not only as direct suppliers or customers, or as social groups around a production site, but as different groups affected by operations along the long value chain to which they belong, from producers to final consumers. This presents companies with "political" challenges such as education, the fight against pollution and global warming, poverty reduction, etc., which are not only a matter for the company itself but also for the society as a whole. It is no longer a question of local projects carried out on a very limited scale, for a small number of people, but of a necessary transformation of business models, i.e. a profound transformation of strategy, production, marketing, finance or the supply chain. Our economy (and most of our laws) was created at a time when it was thought that resources were inexhaustible. Replacing humans with machines also seemed like a good idea, mainly to improve living standards. But these concepts were based on principles that today seem false: there is no longer "always enough land to share" as John Locke put it. Nor is there an unlimited supply of oil and gas.

 

The transformation of our business models is an issue for society as a whole. Is it possible to stop saying that GDP growth creates better living conditions? It is true that our business model has improved living conditions in one part of the world - the industrialised world - but generally speaking, the quality of life of future generations has been jeopardised and the majority of poor people are marginalised. Therefore, if we want to change, perhaps it is time to look at how our economic models contribute to the problems of our time and reflect on the fact that prosperity is achievable by focusing on other aspects such as lower consumption, sobriety and modesty in our approach to growth and profit.

 

It is not only the multinational giants that are concerned. Small businesses too: not only because of the domino effect that the giants have on the chain with SMEs, but because many small businesses are motivated, more agile and more flexible to get things done quickly. Pocheco, France's leading envelope manufacturer, is an excellent example of a small company that has shown itself able to overcome its difficulties while committing itself to CSR: a shared vision for ethical employee relations and salary ratios, and a strategy focused on quality natural products with a positive environmental impact. The company is profitable, while respecting the rules and other stakeholders. This gives hope.

In line with this political responsibility, companies must also work with legislators to ensure that the transformation of business models is carried out at the same speed for all at the global level. Collaboration with national and international institutions is essential to ensure far-reaching change. A company - using its power and influence while being supported by law and regulation - can indeed have a great impact on the future. Leadership is naturally made up of those who want to move forward, those who are cynical, and those who stay in the in-between, perhaps out of fear, perhaps out of doubt about the role CSR should play in business and the modern economy. It is in this context that effective, courageous and ethical leadership within a company can make all the difference. Those who are afraid, or doubtful, will follow courageous and creative leaders who have a positive vision of the future.

 

Cécile RenouardDirector of the research program "Business and Development in Emerging Countries", Director of the research program "Business and Development in Emerging Countries", Director of the research program "Business and Development in Emerging Countries". (CoDEV) withinESSEC IRENE