Many world problems are worth solving, but just because a problem is worthy doesn’t mean a company should take up the cause. As NYU Stern School professor and “intangible assets” expert Baruch Lev convincingly argues in the following excerpt from his new book, the decision to pursue a corporate social responsibility (CSR) initiative should be made on the same basis as any other strategic decision. Is your company properly equipped to make a contribution? Can it bring something to that endeavor that no one else can?
In other words, your investments in reputation and responsibility should be made through a capabilities filter. Just as a not-for-profit organization that acts coherently — by applying its core strengths to a selected set of problems — delivers more value to the world than an NGO that chases funding wherever it may lie, a company that aligns its CSR efforts to its distinctive capabilities system is far more likely to win, both in the marketplace and in the world at large. That means taking on only those initiatives that really fit with both your strengths and your identity. Better yet, the initiative should be something that reinforces and helps build the capabilities that define what you do well and what you truly believe in as a company and as leaders. Ignoring this lesson often results in a twofold penalty: the failure of the CSR initiative and the opportunity cost that is incurred because you didn’t put your core capabilities to work.
— Paul Leinwand
An excerpt from Chapter 9 of Winning Investors Over:
Surprising Truths about Honesty, Earnings Guidance, and Other
Ways to Boost Your Stock Price
What’s a CSR initiative that’s worth doing? My succinct answer: that which the company can do substantially better, in benefit-to-cost terms, than its shareholders (“Anything you can do, I [can do better]”). I derive this maxim directly from [economist Milton] Friedman’s rejection of CSR, which rests on two arguments: managers have no special expertise in prioritizing and fixing social, health, or environmental ills, and shareholders should be the arbiters of what to do with their money (corporate profits). It’s obviously very hard to object to Friedman’s logic, except where managers bring unique corporate capabilities to bear on CSR — functions in which they clearly have expertise and supporting assets — and which individual investors, lacking such capabilities, cannot, of course, match.
The main advantage of my CSR maxim is that, in contrast to the oft-suggested innocuous slogans — CSR should be an integral part of the company’s strategy, CSR should be embedded in the corporate genes, doing good while doing well, and the like — my “anything you, the shareholder, can do, I can do better” criterion is operational. It provides managers with a workable decision rule for selecting CSR projects: In essence, follow your unique, specialized capabilities. Consider the following cases:
Michael Porter and Mark Kramer described Cisco’s initiation of the Networking Academy project in 1997. Cisco realized that its initial CSR program for designing and installing computer networks for schools was impeded by the lack of qualified personnel to maintain the networks. Hiring network experts for schools was constrained by the general shortage of these professionals in both the public and private sectors. Using its specialized capabilities as the leading worldwide provider of network equipment, Cisco’s engineers developed Web-based, distance learning curricula to train and certify secondary and postsecondary-school students in networking administration. By 2008, the fast-expanding Network Academy trained six hundred thousand students in a year in more than a hundred sixty countries. As Porter and Kramer note: “Because the social goal of the program was tightly linked to Cisco’s specialized expertise, the company was able to create a high-quality curriculum rapidly and cost-effectively, creating far more social and economic value than if it had merely contributed cash and equipment to a worthy cause.” This laudable program, training a large number of young people all over the world in a highly demanded, high-paying skill, obviously cannot be conducted by Cisco shareholders. Moreover, as is often the case when managers use specialized capabilities in pursuing CSR, the company and its shareholders benefit, too — a win-win situation. Cisco, as the industry leader, has a large number of academy graduates who enable IT users around the world and boost demand for Cisco’s products. This program obviously meets my criterion for worthy CSR.