Financial Times: Good works in a corporate ghetto: “Christian Aid, in a report published earlier this year (Behind the Mask: The Real Face of Corporate Social Responsibility), describes Shell as being is at the "forefront of CSR" and yet its case studies on Shell and others lead it to conclude that "the corporate world's commitments to responsible behaviour are not borne out by the experience of many who are supposed to benefit from them" (ShellNews.net) 8 Dec 04

By Craig Cohon and Craig Smith

Published: December 8 2004

Corporate social responsibility has never been more prominent on the corporate agenda. It is the subject of hundreds of articles in the business press and a favourite topic for discussion at meetings of the World Economic Forum. Yet the broad view from civil society is that business's performance with regard to CSR - which is fundamentally about the obligations of a company to society, and the many ways in which it can affect society and the environment for good or ill - has never been worse.

Businesses that have expressed a strong commitment to CSR have become the target of more attacks, not fewer. Christian Aid, in a report published earlier this year (Behind the Mask: The Real Face of Corporate Social Responsibility), describes Shell as being is at the "forefront of CSR" and yet its case studies on Shell and others lead it to conclude that "the corporate world's commitments to responsible behaviour are not borne out by the experience of many who are supposed to benefit from them".

For all the attention to CSR, with few exceptions the only group that has seen any substantial benefit appears to be the "CSR alchemists", the industry of consultants who promise CSR to all comers. Even tobacco companies, whose addictive products are a leading cause of preventable death in many countries, make prominent references to CSR in their corporate literature.

CSR in most companies is in a ghetto: it is a marginalised and marginal activity, often left to a dedicated department with the task of getting the message out about a company's good works. The amount spent on CSR initiatives generally pales in comparison with marketing budgets; in some cases, more is spent on touting the good works than on doing them.

One of the main aims is to build goodwill as a sort of insurance policy to be redeemed in case something goes badly wrong in the main part of the business. But the social effects of these core business operations are left largely unexamined.

One reason for ineffectual responses to the pressures for CSR is that companies misunderstand society's expectations and how they change relative to the scale of individual companies and to that of business as a whole. Consider the challenges faced by Wal-Mart, not least in opening new stores, as it has grown to become America's leading retailer and largest employer. While attention to the basics - providing products and services that people need, creating employment and contributing more generally to the economy - has remained a necessary condition for public approbation, it is no longer sufficient.

The scope of demands is ever-increasing, reflecting the diminished role - and the public's declining expectations - of government, as well as the increased power of business. Take the pharmaceutical industry. Its philanthropic donation of drugs to the needy is no longer enough. Pharmaceutical companies are under pressure to slash prices on drugs for developing countries, which poses a severe challenge to the industry's business model.

How are companies to respond? If they are not to be overwhelmed by the rising tide of expectations, they will have to move CSR out of the ghetto and make it mainstream. No company has currently got it right, but some are coming close. In October, Oxfam UK announced its first collaboration with a multinational company, with Starbucks contributing £100,000 and consulting advice to Oxfam's rural development programme in an extremely poor region of Ethiopia that produces high-quality coffee. There is risk for both parties, but also significant potential benefits for Ethiopia's long-suffering coffee farmers, as well as Oxfam and Starbucks. If the initiative can be scaled up, it could have real impact.

Other examples include Hindustan Lever's efforts to reach rural populations in India, Toyota's hybrid car project and Rio Tinto's adoption of the precautionary principle in environmental risk management. Root-and-branch change has yet to come, but what is different is that these businesses see identifying and fulfilling societal expectations as crucial to their business model. They are not pursuing business as usual, with some CSR initiative clumsily bolted on.

In many cases, this means rediscovering the deep sense of purpose that the founders of these companies had. Indeed, companies such as Coca-Cola and McDonald's, which are among the many that have come in for criticism by CSR campaigners, might have a very different social impact today if their founders were still at the helm.

There is no easy way for companies to meet society's expectations. But they will get nowhere as long as they think of CSR as something separate from their core business activities. In that sense, closing down the CSR department would be a good first step towards true social responsibility.

Craig Smith is associate dean of the full-time MBA programme at London Business School. Craig Cohon is chief executive of Globalegacy