The Sower by Jean-François Millet, circa 1865, Walters Art Museum, Baltimore
Ideas for Leaders #374

How Well Is CSR Embedded in Business Strategy?

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Key Concept

CSR and sustainable development are now widely seen as core parts of business. This does not, however, mean they’re always treated as core parts of business strategy. The management control systems big companies use to design, implement and monitor CSR sometimes suggest a ‘reactive’ rather than a ‘proactive’ approach from leaders.

Idea Summary

Corporate social responsibility and sustainable development are increasingly linked to competitive advantage and innovation. Harvard’s Michael E. Porter and Mark R. Kramer have, in recent years, ‘reframed’ CSR as ‘shared value’, pointing to the business opportunities in ‘unmet social needs’. Meanwhile, the external pressures for responsible business — from governments and regulators and from shareholders and stakeholders — are growing.

It follows that CSR and sustainability are included in companies’ management control systems (MCS), the formal structures and processes that monitor performance and manage risks and gather the ‘intelligence’ that ‘feeds into’ decision-making. The precise role of MCS in CSR, however, is not fully understood. The systems for designing, implementing and monitoring CSR strategy have not been identified in detail in research.

A recent study of the CAC 40, the biggest publicly listed companies in France, helps fill the gaps. Drawing on primary data collected by a questionnaire and on secondary data provided by annual CSR reports, it takes a ‘levers of control’ perspective, looking at systems that manage the risks and ‘enable’ the opportunities of CSR and sustainability.

It finds evidence for four established levers of control – belief systems (corporate values), boundary systems (internal and external rules and compliance and ‘enforcement’ procedures), diagnostic processes (‘top-down’ monitoring and measurement) and interactive processes (communication with internal and external stakeholders to develop and ‘renew’ CSR strategy).

A large proportion of the companies in the study:

  • have CSR mission statements and communicate them widely internally;
  • use ethical codes and whistle-blowing procedures to deter errant employees;
  • carry out ‘systematic’ checks to monitor the social, ethical and environmental activities of their suppliers;
  • have formal, group-wide, processes for exchanging ‘good practices’ and standardizing CSR activities;
  • use consultations between senior managers and/or the CSR department and operational departments to identify strategic uncertainties and opportunities;
  • have a separate reporting system for CSR indicators;
  • incorporate into their plans advice from specialized external stakeholders such as non-governmental organizations.

Further, one third of the companies reward managers for their CSR performance.

The results confirm that CSR is now ‘embedded’ and ‘legitimized’ in big organizations. 34 of the 36 companies studied have a dedicated CSR department (CSRD) and all have implemented a CSR strategy.

The job of CSR and sustainability campaigners is not done yet, though. The study suggests that CSR and sustainability have yet to achieve ‘parity’ with other elements of business strategy. It finds that:

  • A surprisingly large proportion of companies (29%) do not integrate CSR indicators into other reporting processes and admit that CSR reporting has no formal follow-up procedure.
  • A relatively low proportion of companies have operational-level budgets for CSR.
  • The integration of CSR and the tools used to manage it are uneven (differing, for example, by location) and incomplete.

Importantly, there’s also evidence of a continuing ‘reactive’ approach. Many companies in the study understood CSR and sustainable development first as risks or costs and constraints to be managed — and all were concerned with promoting the ‘visibility’ of their CSR behaviour to external stakeholders. Only some made explicit connections between CSR and competitive advantage and few reported large-scale profitable innovations as a result of CSR management.

All this raises concerns about companies’ long-term commitments to CSR activities — and about their ability to contribute to society’s wider sustainability agenda.

Business Application

The participation of business is essential for the acceptance of sustainability in society and for its further development. What can be done to take it to the ‘next level’? Large publicly listed companies are often too hidebound by the short-term interests of investors to undertake long-term projects — and often too heavily dependent on long-standing clients and suppliers to adopt radically different business models.

The idea of shared value could yet, however, prove transformative. As more organizations make money from projects that are in the long-term interests of communities, the financial benefits of — and the business case for — CSR and sustainability become easier to demonstrate.

In the meantime, companies can take steps to ensure a more ‘consolidated’ and consistent approach to the use of MCS in the management of CSR. These might include applying the ‘lever’ of interaction more fully — so CSR and operational managers co-ordinate more closely.

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Authors

Institutions

Source

Idea conceived

  • December 2013

Idea posted

  • May 2014

DOI number

10.13007/374

Subject

Real Time Analytics