03 April 2014 | Opinion
Companies are primarily motivated by their values and culture to engage in corporate social responsibility (CSR).
Tracey Henry speaks at the Social Investment Conference
So said Tshikululu Social Investments CEO Tracey Henry this morning at the 5th Annual Social Investment Conference, in presenting the results of research undertaken by Tshikululu into what motivates companies to undertake corporate social investment.
Tshikululu is a sponsor of the Social Investment Conference, which is taking place on 2-3 April 2014 at the Gordon Institute of Business Science campus in Johannesburg.
In presenting the research results, which were derived from interviews with 41 senior executives at 39 major corporate entities, Henry began with a statement in 1970 by economist Milton Friedman, in Time magazine: that businesses are solely in business to generate profits for shareholders, and that “responsible” attitudes would saddle them with binding constraints that made them less competitive.
“In hindsight, it seems ludicrous that a leading economist would make such a sweeping statement. Especially at a time when many leading companies locally and abroad were actively engaged in social investment programmes and promoting the principles of corporate social responsibility long before our country’s transition to democracy in 1994,” said Henry.
“A lot of progress has been achieved since then, by government, business and civil society and while we have many gaps to fill and areas that require urgent improvement we cannot deny that access to education has improved, access to basic facilities such as water and electricity has increased, the provision of primary health care has improved, the number of black graduates has increased and social support to the most vulnerable communities has had a far reaching impact.
“Notwithstanding we remain plagued with the triple dilemma of poverty, unemployment and inequality,” Henry continued.
She said that according to research done by Trialogue, South African corporates have increased their annual Social Investment spend from approximately R2-billion in 2003 to almost R8-billion in 2013.
“This amounts to about 1.4% of total net profit after tax – which is much higher than what is expected. The rapid growth of corporate social investment – and the huge amounts being invested – suggests that there is more to the story than companies simply trying to meet or manage regulatory obligations,” she said.
In its research, Tshikululu set out to find out: what really drives CSR in South Africa?
Reflecting on the drivers of CSR, Henry said that “there are a number of reasons, and not all of them are inherently value-adding. Their value proposition, to the business, is highly variable depending on what the company sets out to achieve in the first place.”
“Tick-box” regulatory compliance does little for viability, sustainability, or reputational equity in an enterprise; by contrast, purely philanthropic CSR may derive little business value. Likewise, strategic corporate responsibility efforts “might be hugely valuable from a business standpoint, but contribute little in terms of social dividends”.
“The concept of ‘shared value’ introduced by Professor Michael Porter and Mark Kramer in 2006 describes circumstances in which the interests of a business and society intersect, mutually reinforce one another, and create value for both. In short, shared value occurs when both the company and society derive clear benefits from their interaction,” said Henry.
Turning to the factors that motivate social responsibility initiatives, she said the results showed:
- Values-driven factors dominated: “Social responsibility programmes are seen as an extension of a company’s values and culture, and a means of demonstrating their commitment to the development of South Africa,” said Henry. But while many companies undertook CSR projects long before government or industry regulations demanded them, these projects were often intangible in terms of results
- Market and brand positioning factors were also strong, with 60% of respondents saying they had felt consumer pressure to undertake CSR. “Responses suggest that there is growing awareness of, and demand for, socially responsible companies in the marketplace – although a few interviewees characterised this as more of a consumer ‘expectation’ than as a potential opportunity or key brand differentiator,” said Henry
- Nearly two-thirds of respondents felt shareholder pressure to support CSR initiatives. “These findings indicate that South African shareholders do not believe that social responsibility initiatives diminish value, and in fact suggest that they may actually add value,” Henry noted
- Tshikululu asked survey respondents about the role of broad-based black economic empowerment B-BBEE in motivating their CSR activities, as well as the benefits their businesses derived from these activities. “Interestingly, and perhaps contrary to popular perceptions, while respondents indicate that they feel significant pressure from government to invest in social responsibility programmes, regulatory compliance is not, in and of itself, cited as a primary motivating factor,” said Henry, adding that this rated only seventh on the list of motivations for CSR
However, while survey respondents were able to clearly identify many important general benefits their businesses derived from engaging in CSR activities, and that corporate reputations were seen to be improved significantly by CSR activities, “fewer than 40% of respondents could claim that their companies’ reputational benefits were reflected in a ‘large amount’ or a ‘very large amount’ of financial value”.
“Importantly, to a few respondents the discussion of financial value was entirely beside the point. As one senior executive explained, ‘We shouldn’t get involved in CSR because we want direct financial benefit,’” said Henry.
The survey results, therefore, showed that top South African companies are firmly situated in the “shared value” space, and understand that their success and vitality is linked to the success and vitality of society.
“While this sentiment is laudable, it is also deeply intangible, and one that is fundamentally and firmly rooted in the values and culture of the company … Respondent companies are motivated primarily by their values,” said Henry, however.
“While some were motivated more by the potential equity to their brands or reputations, and some were motivated more by their values or the needs of society, almost all responses exhibited some combination of both.”
But most respondents see short-term benefits as well, and report increasingly market-based pressures and incentives to be seen as socially responsible – from consumers, employees and shareholders.
“Being seen as a positive and proactive contributor to society appears to be becoming the de facto standard in South Africa, particularly in consumer-facing sectors. Thus, companies are recognising that their social responsibility efforts strengthen their brand and reputations, and earn them favour with sought-after young employees,” said Henry.
Returning to Friedman’s 1970 statement in her conclusion, Henry declared: “I would respond by saying that whilst the regulatory environment has increased the cost of doing business and in some instances does renders some companies to be less profitably in the short term, there is compelling evidence that social responsibility is not only good for business, but also for the country in the long term.”
Click here to view Henry’s PowerPoint presentation to the Social Investment Conference.