CSR: Spend or Investment?

Broad-based black economic empowerment (B-BBEE) legislation has demanded that companies invest in Socio-Economic Development (SED) initiatives and Enterprise Development (ED) programmes.

Regulation such as King II, followed more recently by King III, has also raised the importance of making public the contribution of companies to the communities and broader society in which they operate.

It is generally accepted that a degree of visible corporate social responsibility (CSR ), particularly in the social environment, positively impacts the overall reputation of a company in the minds of its stakeholders. However, very few organisations see their CSR programmes as fundamentally strategic i.e. a critical focus area for achieving their long-term objectives.

Before one can start discussing if and how CSI can be seen as strategic within the business context, some time should be spent exploring the value that CSI brings to organisations. These benefits can be grouped under five broad areas:

• To provide a platform for driving broader socio-economic transformation in line with B-BBEE requirements. It is a source of B-BBEE points for corporate scorecards and is also a tool that can drive some level of redistribution of wealth in previously disadvantaged communities.

• To support the development and enhancement of a corporate brand with all stakeholders including investors, customers and employees.

• To provide a platform for employees to actively engage in initiatives that are for the ‘greater good’. This can build employee loyalty to and pride in the organisation, stimulate team functioning and provide employees with a greater sense of purpose.

• To enhance the reputation of the organisation in such a way that it strengthens or provides a social licence to operate.

• To enable the creation of sustainable markets that support and strengthen a business’ ability to operate. This can include developing sources of input materials, talent pools, strategic suppliers, distribution partners, consumer markets… The list is endless.

Some may argue that organisations should not be selfish and should not drive for any form of direct tangible business benefit as a result of their CSI programmes. However, while the concept of CSI is based on the ‘for the greater good’ premise, one should always be mindful that companies are first and foremost in business to make money for their key stakeholders (shareholders, staff, suppliers, government etc.).

When organisations are under financial pressure, which is happening more and more in today’s volatile economy, one of the first things they do is to look for opportunities to cut costs.

Anything that is considered ‘non-core’ or is not fundamental to the future (short or long term) success of the business is where the cost-cutting exercises will hit first. Therefore, those areas of spend that are related to ‘for the greater good’ will almost certainly be targeted for reductions. This automatically calls into question the sustainability of the relationship between the company and the beneficiary, particularly over the medium to long term. This is not a good position for either the beneficiary or the organisation.

However, should a company’s spend be focused on projects and initiatives that are very closely linked to the delivery of their business strategy, it is much less likely that cost-cutting exercises will result in a company withdrawing from such relationships. The company will also have a far greater vested interest in the success of these initiatives and will therefore be more likely to ensure that there is real positive impact as a result of the initiatives.

Social spend as a true investment

The term ‘corporate social investment’ is often somewhat of a misnomer in South African terms. Very few organisations treat their social spend as an investment but see it rather as an expense. Issues such as return on investment and risk analysis are seldom discussed when taking decisions around social commitments.

Once the leadership of a company recognises that there is an opportunity to leverage their spend in the social arena to achieve tangible benefits for their business, they shift from the mindset of ‘expense’ to ‘investment’.

This shift should immediately result in leadership demanding the development of a robust investment strategy that is supported by a business case. The potential risks and rewards, both to the company and the beneficiaries, need to be very clearly articulated.

It should be noted that the parameters against which such a strategy and business case will be measured may be different to those of a traditional capital investment (CAPEX) case. It is therefore critical that the leadership carefully considers what they want to achieve in the social space and how they will measure success.

This is where the importance of connecting the social environment to business strategy becomes crucial.

Building a really robust understanding of the broader ‘system’ in which the organisation operates is the starting point for such an exercise. This understanding will result in a clear insight into the social drivers and issues that impact the business and its future success. The social strategy of the company should be crafted around those insights.

By definition, if a company’s social strategy is aimed at addressing issues that impact their business, the level of commitment and the actual positive social impact of the investment will be far greater than if the social spend is simply viewed as a cost by the company.

A comprehensive programme should be developed in support of this strategy. Initiatives should be identified, reviewed and selected based on the parameters identified in the strategy.

Robust monitoring and evaluation systems should always be established at the outset of the programme in order to provide ongoing insight into the performance of the investment relative to these parameters. This will enable more informed decision-making, better risk management and ultimately, greater returns for the company and the beneficiary.

The strategic continuum

At The Moss Group, we have developed a so-called ‘strategic continuum’ for corporate social investment, based on the level of connection to business strategy and the level of social impact. While the figure below is an illustrative one, it is clear that the higher the connection of social strategy to business strategy, the greater the level of positive social impact.

Figure 1: CSI strategic continuum

Many South African organisations tend to focus their corporate social responsibility initiatives in areas that build their corporate brand, deliver B-BBEE points and engage employees. While these initiatives tend to be relatively easy to implement, their positive social impact is often very limited and is in many instances unsustainable.

Social spend simply for the sake of attaining a certain rating for a B-BBEE scorecard is very seldom a strategically justifiable approach. If the spend is being used effectively, it certainly will have a social impact. However, the company’s commitment and real interest in the underlying beneficiaries is often negligible and therefore unsustainable.

Unfortunately, using CSR to build a corporate brand tends to result in significant advertising and PR resources being put towards communicating the initiatives to stakeholders. A degree of scepticism then creeps in with questions such as “did they spend more on that billboard / TV ad than the project itself?” being raised.

Also, the actual return on such initiatives is extremely difficult to measure.

There appears to have been a shift towards the concept of ‘employee volunteerism’. In many instances this has been driven by an increased demand by employees for companies to play a bigger role in the community, coupled with a desire by management to conduct effective teambuilding initiatives.

While these initiatives also certainly have their place and can benefit some communities, the ongoing tangible social impact of such initiatives is often minimal, particularly when they are based around team-building exercises.

Some industries, particularly those that are associated with causing social harm (mining and resources, liquor, tobacco) often have programmes that are aimed at protecting their social licence to operate (LTO). Many of these programmes are far reaching and do have a strong social impact.

However, they are challenging to implement and require significant and sustained commitment from the organisation.

While such programmes are very valuable, the clear link to the ongoing success of the business is not always obvious to people beyond the leadership teams i.e. who are not regularly impacted by either LTO issues or the initiatives themselves.

It is a regrettable fact that very few South African companies have gone down the road of trying to build sustainable markets through their social programmes. The concept of considering social systems and impact as a fundamental strategic lever in business planning and decision-making is still foreign to many.

However, by taking the time to develop a rigorous social strategy that actively supports the business strategy, companies can transform their CSI spend from a cost to a real investment that has powerful benefits to both the investor and the investee.