Analyzing the two popular approaches to CSR in multinational companies and understanding how to determine the right CSR strategy for your organization.
The most common contemporary definition is that ‘Corporate social responsibility (CSR) is a business approach that contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders.’ (Financial Times, 2018 ). This definition is vast, all-encompassing, comprehensive, and can be extended to all aspects of running a business responsibly. The major drawback is that there are too many variables to consider which make it too ambitious. A study of all the factors and sub-factors listed in this definition would be tedious even for the most experienced researchers; hence, the lack of literature regarding the subject.
The intent of CSR as mentioned in the definition of the term we have adopted is to contribute to sustainable development by delivering economic, social and environmental benefits for all stakeholders; the approaches mentioned in the subsequent section elucidate suitable mechanism to achieve intent of CSR.
Different approaches to CSR
The advent of globalization has given rise to multi-national companies with their operations across several countries. This meant that the companies would have different policies and strategies which may, or may not, change with countries of its operation. While all business policies and strategies of the multinational firms are designed to benefit the firm in the short term, or the long term, the CSR strategy, however, is required to be viewed differently.
The question of whether subsidiaries would adopt the practices of their parent firm or tailor their CSR strategy in relation to the demands and the needs of the host country is something that firms have tried to address in different ways. While there are different approaches, one widely-adopted option is a cogent path; wherein there is a common strategic direction for all regional firms on CSR (generally directed by the headquarters). This makes the CSR function and activities more synchronous across different geographies. The other popular approach is a dispersed path, wherein each local unit has its vision, strategy, and implementation mechanism.
These two approaches to CSR policy and strategy in multinational companies come with their own set of opportunities and drawbacks. Husted and Allen , through their 2006 research delineate these two approaches from a policy and strategy level:
* Cogent Path: A cogent global CSR policy is considered with the intent of creating synergistic interventions and outcomes through CSR activities internationally. A globally standardized and integrated strategy; wherein the policies, processes, and structures are consistent and unchanging across geographic regions and cultures. However, the drawbacks of a unified global policy are the insensitivity to local needs, increasingly reduced ownership and legitimacy, compliance-based strategies, and approaches that serve the minimum host requirements.
* Dispersed Path: On the other hand, a dispersed and localized CSR strategy is nationally responsive and adaptive to the local context, as well as tailored to the local cultural preferences and differences. The major drawback of this type of localized policy are fragmented, inconsistent and reactive strategies, a lack of clear responsibility for the decision-making process which may lead to whimsical decisions, and approaches that aspire to live up to only the minimum global standards. Most importantly, a dispersed approach does not allow the company to add together its impact at a global level.
While CSR activities are undertaken with an honest purpose of creating a positive impact on society, the most successful CSR programs are the ones that have strategic alignment with the core business (and strategy) of the firm. This way, the CSR program could leverage the firm’s expertise and knowledge, thereby allowing employees to offer their skills meaningfully.
How to determine the right CSR approach for you?
Approach to CSR may vary based on the geographies that an organization is operating in, the industry, the scale of its operations, and the belief of the key stakeholders of the organization. Also, the CSR strategy may, and should, change its course as the company grows and implements different business strategies in different regions.
To design a comprehensive CSR strategy and determine the most suitable approach, organizations must ask themselves the following three questions:
What form of CSR would your company like to practice?
Mintzberg identified various types of CSR an organization may pursue. Organizations practicing CSR primarily out of their conviction or organizations conducting activities to address local external stakeholder (local population, authorities, customers, etc.) through CSR initiatives are better off conducting localized CSR/dispersed strategy. Whereas, organizations conducting CSR for an expected payoff (in any shape or form), or as an investment for longer-term gains are better disposed towards a cogent CSR strategy to synergize the expected benefits.
What are your reasons for undertaking CSR activities?
Organizations inclined to conduct CSR activities from a philanthropic viewpoint or creating means for involving the employees in CSR activities find a dispersed CSR strategy more suitable. Whereas organizations undertaking CSR for improving environmental sustainability, health and safety, fair labor practices, diversity, etc. may benefit from adopting a cogent CSR strategy.
What is the geography of your company?
If the company views the geography of operations as an important market, or as a region whose natural resources are being used by the firm, a dispersed strategy addressing the geography in a relevant manner through CSR may be beneficial. The demography of the geographical regions in which the company is present may also play a role in determining the strategy; if the company is operating in physically contiguous regions with similar socio-economic conditions, a cogent strategy may be effective and efficient while extremely diverse areas may require a dispersed approach by the firm.
While dispersed and cogent strategies are two theoretical approaches, they are not particularly divergent. One of the largest energy companies, operating in over 100 countries worldwide, that the authors work closely with, has developed a broad cogent strategic direction for CSR while allowing the regional offices to implement unique and relevant programs. While another major FMCG global allows each vast region to develop a cogent strategy instead of one strategy at the global level.
From our experience of working with firms across six continents, we often see that large multinational firms adopt a mix of the two approaches defined above. Thus, there is no right or wrong approach for firms to adapt their CSR strategy. Nonetheless, firms should consider the various variables to identify the most appropriate CSR strategy for themselves. At the end of the day, the most successful CSR programs are those where a business-like approach towards strategizing, planning, and implementation is undertaken as it helps in delivering not just outputs, but a long-term high impact.
Article Credit: peoplematters