justifiable pride from their company’s positive involvement
in the community.
The best corporate citizenship initiatives involve far
more than writing a check: They specify clear, measurable
goals and track results over time. A good example is GE’s
program to adopt underperforming public high schools
near several of its major U.S. facilities. The company contributes
between $250,000 and $1 million over a five-year
period to each school and makes in-kind donations as
well. GE managers and employees take an active role by
working with school administrators to assess needs and
mentor or tutor students. In an independent study of ten
schools in the program between 1989 and 1999, nearly all
showed significant improvement, while the graduation
rate in four of the five worst-performing schools doubled
from an average of 30% to 60%.
Effective corporate citizenship initiatives such as this
one create goodwill and improve relations with local governments
and other important constituencies. What’s
more,GE’s employees feel great pride in their participation.
Their effect is inherently limited, however. No matter
how beneficial the program is, it remains incidental to the
company’s business, and the direct effect on GE’s recruiting
and retention is modest.
The second part of responsive CSR – mitigating the
harm arising from a firm’s value chain activities–is essentially
an operational challenge. Because there are a myriad
of possible value chain impacts for each business unit,
many companies have adopted a checklist approach to
CSR, using standardized sets of social and environmental
risks. The Global Reporting Initiative, which is rapidly becoming
a standard for CSR reporting, has enumerated a
list of 141 CSR issues, supplemented by auxiliary lists for
different industries.
These lists make for an excellent starting point, but
companies need a more proactive and tailored internal
process. Managers at each business unit can use the value
chain as a tool to identify systematically the social impacts
of the unit’s activities in each location. Here operating
management, which is closest to the work actually
being done, is particularly helpful. Most challenging is to
anticipate impacts that are not yet well recognized. Consider
B&Q, an international chain of home supply centers
based in England. The company has begun to analyze
systematically tens of thousands of products in its
hundreds of stores against a list of a dozen social issues–
from climate change to working conditions at its suppliers’
factories – to determine which products pose potential
social responsibility risks and how the company
might take action before any external pressure is brought
to bear.
For most value chain impacts, there is no need to reinvent
the wheel. The company should identify best practices
for dealing with each one, with an eye toward how
those practices are changing. Some companies will be
more proactive and effective in mitigating the wide
array of social problems that the value chain can create.
These companies will gain an edge, but – just as for procurement
and other operational improvements – any advantage
is likely to be temporary.
Strategic CSR. For any company, strategy must go beyond
best practices. It is about choosing a unique position
– doing things differently from competitors in
a way that lowers costs or better serves a particular set of
customer needs. These principles apply to a company’s
relationship to society as readily as to its relationship to
its customers and rivals.
Strategic CSR moves beyond good corporate citizenship
and mitigating harmful value chain impacts to
mount a small number of initiatives whose social and
business benefits are large and distinctive. Strategic CSR
involves both inside-out and outside-in dimensions
working in tandem. It is here that the opportunities for
shared value truly lie.
Many opportunities to pioneer innovations to benefit
both society and a company’s own competitiveness can
arise in the product offering and the value chain. Toyota’s
response to concerns over automobile emissions is an example.
Toyota’s Prius, the hybrid electric/gasoline vehicle,
is the first in a series of innovative car models that
have produced competitive advantage and environmental
benefits. Hybrid engines emit as little as 10% of the
harmful pollutants conventional vehicles produce while
consuming only half as much gas. Voted 2004 Car of the
Year by Motor Trend magazine, Prius has given Toyota a
lead so substantial that Ford and other car companies are