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Published: December 2, 2011

 
 

What Can You Do Better?

Another case that meets my CSR maxim is recounted by John Peloza: Home Depot partnered with KaBOOM!, Inc., a nonprofit outfit that builds playgrounds in U.S. inner cities. Home Depot contributes the program cash, products, and employee volunteers, as well as access to the company’s accounting and legal staff. The fact that Home Depot’s operations are spread nationally allows local stores to maintain close relationships with KaBOOM!’s playgrounds and provide specific needs on an ongoing basis. Thus, several of Home Depot’s unique capabilities are central to this CSR. The local reputational benefit to the retailer is a sweetener to the deal.

A questionable case of worthy CSR, from Porter and Kramer, is American Express’s funding of travel and tourism academies in secondary schools aimed at training students for careers in travel agencies, airlines, hotels, and restaurants. The case for this CSR is less straightforward than Cisco’s and Home Depot’s, since unlike networking administration, the tourism, hotel, and restaurant businesses are not emerging, high-growth areas in short supply, and hence the social need for philanthropic support of such training is not self-evident. Nor are American Express’s specialized capabilities in training such personnel obvious. True, the company has widespread travel operations, but its core business is finance and credit cards, not training. Furthermore, tourism and hotel management training and education are widely provided by colleges and trade schools, so the need for another provider isn’t clear. My “I can do better” maxim is less compelling here.

Clearly inconsistent with my worthy CSR maxim are corporate contributions to charities and NGOs, unrelated to their core business and specialized capabilities, such as AT&T’s [US]$100 million gift (in 2008, spread over four years) to address the problem of high school dropouts. “We view it like any other investment we make,” said the president of AT&T Mobility, the company’s wireless operations, according to the New York Times. Really? Are high school dropouts using cell phones less intensely than graduates? Or, consider Freddie Mac, the government-sponsored mortgage company that essentially collapsed in the 2007 to 2008 financial crisis. Freddie contributed in 2006 over $3 million to foster care and adoption agencies, $1.3 million to public awareness/education causes, $6.1 million for stable homes and stable families, and a further $2.3 million for strengthening families (already stable? or still unstable?), as well as $5.3 million for youth development, for a total 2006 contribution of close to $18 million. One wonders whether channeling that $18 million to hire a few top-notch risk analysts to monitor Freddie’s risk which had spiraled out of control would have prevented its financial collapse and megabillion bailout at taxpayers’ expense.

Finally, an intriguing question: should CSR activities always benefit the bottom line in addition to furthering social goals? Porter and Kramer, among others, seem to think so: “The essential test that should guide CSR is not whether a cause is worthy but whether it presents an opportunity to create shared value — that is, a meaningful benefit for society that is also valuable to the business.” It’s undoubtedly laudable to create such “shared value,” such as Walmart’s campaign to slash 5 percent of its packaging materials by 2013, saving trees and energy along with shareholders’ money. I expect that my maxim — conduct those CSR initiatives that are enabled by the company’s specialized capabilities — will in most cases generate a shared benefit, particularly for leading companies, such as Cisco and Home Depot, which can capture much of the social benefit. Yet I don’t believe that a company should rule out occasional CSR initiatives where using its specialized capabilities creates significant social value, even without a direct benefit to earnings and shareholder value, as long as such initiatives will not prevent the company from achieving its strategic targets. For example, TNT NV, a Dutch delivery and logistics company, has a task force of some fifty employees ready to intervene in emergencies around the world, such as the 2004 Asian tsunami or the 2007 Bangladesh floods. Such a CSR initiative, while obviously “doing good,” using TNT’s specialized logistical expertise, isn’t a revenue generator, yet it doesn’t seem to hurt TNT’s financials: from 2004 to 2007, its revenues grew 25 percent and its net income rose 31 percent. Doing good and doing well is great, but occasionally doing good, period, is fine too.

— Baruch Lev

Reprinted by permission of Harvard Business Review Press. Copyright 2012, all rights reserved.

 
 
 
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This Reviewer

  1. Paul Leinwand is a partner in Booz & Company’s global consumer, media, and retail practice, and serves as chair of the firm’s Knowledge and Marketing Advisory Council. He is the author of two books, The Essential Advantage: How to Win with a Capabilities-Driven Strategy (with Cesare Mainardi, Harvard Business Review Press, 2011) and Cut Costs & Grow Stronger (with Shumeet Banerji and Cesare Mainardi, Harvard Business Review Press, 2009), as well as several articles in Harvard Business Review and strategy+business.

This Excerpt

  1. Winning Investors Over: Surprising Truths about Honesty, Earnings Guidance, and Other Ways to Boost Your Stock Price (Harvard Business Review Press, 2012), by Baruch Lev.
  2. Baruch Lev is the director of the Vincent C. Ross Institute of Accounting Research and the Philip Bardes Professor of Accounting and Finance at New York University Stern School of Business. He has written and edited five books, including Intangible Assets: Values, Measures and Risks (coedited with John Hand, Oxford University Press, 2003) and Intangibles: Management, Measurement, and Reporting (Brookings Institution Press, 2001).

 

 
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