There’s a saying that rules make the game. Take one day cricket. We’ve seen the game move from 60 overs to 50 overs, from one set of power play overs to three sets of power play overs.
Every change in the rules changes the game. The ICC knows this and probably so does the Ministry for Corporate Affairs (MCA). In sport, smart players analyse the rules to see how to adapt their game to win. In business, it should be no different.
After much debate and not much thought, in 2012, the Companies Act was amended to make CSR mandatory in India. It was time for action.
A change in the rules should have led to some strategic questions on CSR in companies. However going by the websites of various corporates, it appears that a lot of key questions are not being asked. What should be the strategic direction of our CSR? From our area of competence, what’s the best we can do for society?
The choice of CSR should ideally be aligned with the business. This means using ingenuity to serve both society and business needs at the same time. After all, it is shareholder funds that are being used mandatorily and not voluntarily. It’s the same as being smart in your investments so as to reduce your mandatory tax burden.
This leads to another set of even more strategically important questions that definitely aren’t being asked by most corporates. Questions such as: how do we make our CSR deliver powerfully for the business? What impact can we have on society and business? How would we measure our impact on society and the business?
The ingenuity to address two contrasting requirements at the same time is not new. After all, doesn’t HR balance the needs of employees and management and doesn’t QC balance the needs of accuracy with efficiency? Why should CSR be exempt from balancing two contrasting legitimate needs for social benefit while helping the business?
If companies want to look at how to get good value from investing in CSR they should look at aligning it with their brand. A strong brand offers many different business benefits ranging from the ease of acquiring good talent at reasonable costs to customer loyalty to better terms of trade and so on. All these various benefits translate into profitability and better valuation. This makes it a better choice than investing in uni- dimensional areas that may not have such a powerful impact on the business.
Brand valuation experts reckon that a company’s most valuable asset is its brand. Apple’s brand is valued at $118 billion and while it doesn’t feature on their balance sheet, no one can dispute its immense value. Brand valuation expert Jan Lindemann states that 30 per cent of the stock price of companies (in The Economy of Brands) comes from their brand thus furthering the argument to strengthen the brand.
Companies that do CSR are seen as having character and strong values. Multiple research studies indicate that consumers trust brands that do CSR more than brands that don’t. Building and retaining trust is one of the foremost aspects of branding for a brand is nothing if it cannot be trusted. CSR influences perceptions and makes consumers feel good about the brand and good branding too is about making consumers feel good about the brand.
Some view branding and advertising as similar but nothing is farther from the truth. The Mahindra Group have aligned their CSR with their brand philosophy of ‘Rise’. As their website says ‘We are many companies united by a common purpose – to enable people to rise.’
Accordingly Mahindra’s CSR initiatives include building schools, supporting education programs for children of all ages, providing medical facilities – whatever it takes for people to rise. Their CSR philosophy is consistent with their brand and provides clarity to their stakeholders whether it is advertised or not.
And clarity amongst stakeholders is important. Brandwise, it’s pretty pointless for a two wheeler company to be running a school and hospitals unless you can provide a clear connection between what your brand is all about and what you are doing.
Horlicks’ ‘Ahaar Abhiyaan’ is a good example of CSR being a logical extension of the brand. The brand is about nutrition and their CSR is about fighting malnutrition. Lifebuoy’s CSR is around preventing infections through appropriate hand hygiene.
It is not that one form of CSR is superior to another. It’s purely a question of what is your brand about and therefore what do you need to do. After all, with so many brands and so many causes, there’s a brand for every cause and a cause for every brand.
Aligning your CSR with the brand can be powerful because it engages consumers on values. While consumers can view ads with scepticism, they are more likely to accept communication and in some cases even seek out or subscribe to updates so that they can stay in touch with the brand. Some very strong brands like Ben & Jerry’s, The Body Shop & Patagonia were built on largely on supporting causes.
These brands enjoyed great levels of preference, loyalty, word of mouth recommendations and enhanced marketing effectiveness leading to higher profitability and stock prices due to consumers’ willingness to engage with them.
There is an urgent need for companies to look at aligning their CSR with their brand before they commit to programmes that preclude them from doing so in the future. It would be unfortunate if poorly conceived CSR programmes end up blocking more effective CSR programmes.
Probably it’s the ‘forced’ nature of this amendment has made corporates look at it as a tax that is unavoidable and prevented them from looking at ways in which it can be optimised.
Admittedly the definitions laid out in the Companies Act as to what constitutes CSR may be restrictive. With ambiguity over what qualifies as CSR, the conditions for strategic thinking are far from ideal. For example, would building awareness of road safety by a tyre company be seen as CSR or is it the sole prerogative of the respective cities’ traffic police?
For all the thousands of CSR consultants/facilitators who have sprung up with the creation of this Rs 10,000 crore ‘social responsibility industry’ there are very few who understand how to align CSR with the brand. At a superficial level anyone can do this though the benefits may be limited. In the absence of experts to evangelize this concept, growth of this approach would be restricted.
There is no doubt that the most of the money that has to be spent on CSR will be spent on CSR and that society will benefit. Whether it will be at the cost of investors or not is the question.
Companies should look at moving from ad hoc philanthropy to strategically powerful brand oriented CSR. If companies don’t make the new rules of the game work for them, it will be a case of Rs 10,000 crores of wasted opportunity.
This article was taken from here.