The Corporate Social Responsibility Debate

Milton Friedman, the American statistician and Nobel memorial prize winner in economics, plainly stated in The New York Times Magazine in 1970, that ‘the social responsibility of business is to increase profits’ and believed that the notion of corporate social responsibility is a distraction from the economic fundamentals of business,(Todd, 2009, p.22).

Forty years later, corporate social responsibility (CSR) is still a controversial topic, where, as Luo and Bhattacharya state in their 2009 study, “according to the Friedman-esque view, shareholders entrust managers with their investment solely to maximise long-term returns, not so that managers can use the proceeds to underwrite their urge for a better world,” (p.198). Yet, fortunately, there is a growing body of evidence, through academic research, to suggest that organisations can have both.

CSR focuses on four key domains of business – economics, legal, ethical and philanthropic (humanitarian); where economics has achieved the most attention in the deliverance of profits. Yet for many the world has changed in forty years. At the macro level we are now much more aware of our planets limited resources and the need to find alternatives to sustain ‘us’ into the future. At the micro level research has shown that CSR can, in fact, offer the benefits that Friedman advocates, through increased customer satisfaction, increased customer loyalty, increased brand image and an overall improvement in organisational performance, giving it a direct competitive advantage in today’s global economy.

In an excerpt from the Harvard Business Review, September 2009, Nidumolu, Prahalad and Rangaswami equate sustainability to a key driver of innovation. Their research of 30 large corporations found that “smart companies now treat sustainability as innovations new frontier. By treating sustainability as a goal today, early movers will develop competencies that rivals will be hard placed to match. The competitive advantage will stand them in good stead, because sustainability will always be an integral part of development,” (p.10).

There is a need for more organisations to actively incorporate CSR into their corporate strategies, making it an integral part of their future development. Where some organisations give CSR nothing more than lip service, incorporating ‘flowery’ narratives into their websites, hoping that just the very mention of a CSR conscious company, will ‘fool’ the consumer, leading to misplaced loyalty - where they believe that ‘words’ speak louder than ‘action’.

History has taught us that industry and business can go through monumental shifts in the course of economic and consumer development, changing the very foundation of how business is conducted. The industrial revolution is a case in point, where some adapted and some died. Organisations need to accept that the world is changing and they should change with it. There is a growing trend around the world, where consumers are ‘demanding’ organisations to be more socially and environmentally aware and are voting with their purchases. Lee, Fairhurst and Wesley (2009) mention that “the basic idea of CSR is that business and society are interwoven rather than distinct entities; therefore, society has certain expectations for appropriate business behaviour and outcomes,” (p.142).

Even if Freidman is right and the sole responsibility of business is to increase profits, isn’t it also the responsibility of business to be sure where their long term profits are going to come from. If their consumers are demanding a CSR approach to business, then even Freidman would have to advocate a change in strategic direction to meet the needs and expectations of their consumers. We need to remember consumers are now much more aware of the ‘negative’ impact some organisations have on their communities and their lives, and are taking this into consideration as part of their purchasing decisions.

Maybe, we should consider the possibility that we are moving from the industrial revolution to the consumer revolution.

References

Lee, M-Y., Fairhurst, A. and Wesley, S. (2009). Corporate Social Responsibility: A Review of the Top 100 US Retailers. Corporate Reputation Review, Vol. 12, Issue 2, p.140-158.

Luo, X. and Bhattacharya, C.B. (2009). The Debate over Doing Good: Corporate Social Performance, Strategic Marketing Levers, and Firm-Idiosyncratic Risk. Journal of Marketing, Vol. 73, Issue 6, p.198-213.

Nidumolu, R., Prahalad, C.K. and Ranagswami, M.R. (2009). Why Sustainability is now the Key Driver of Innovation. Excerpt from the Harvard Business Review, September, 2009. International Trade Forum, Issue 4, p.10.

Todd, K. (2009). Corporate Social Responsibility. Baylor Business Review, Vol. 27, Issue 2, p.20-23.

Effective Leadership Requires Effective Communication

Leaders whose organisations have an exciting and meaningful vision, as well as a clearly defined direction, engage their employees hearts as well as their minds, (Joan Lloyd, 2008).

In her article, Lloyd (2008) mentions that, “great communicators tend to be excellent leaders. They are easier to follow – people know where they are going, why they want to get there and what they have to do to move toward the goal” (p.8)

Unfortunately communication is a gift that we often waste in business. Excuses are made that either there isn’t enough time to explain things properly or to check that we have been understood; or we simply assume that since the message we’re giving is clear enough to us, it should be clear enough to everyone else.

Many people exasperate the communication problem by using electronic communication to replace face-to-face discussions, often in the belief that it avoids conflict and gets things done quicker – it’s preferred, as it takes the emotion out of the process.

Leaders will always prefer face-to-face communication and will always check that the intended message has been received. They constantly encourage two-way communication and are excellent attentive listeners.

Lloyd’ article highlights four tips that today’s leaders should follow to improve their communication, company culture and organisational performance;

1. Have a meaningful vision and mission and reinforce it in everything you do. This means ensuring your vision is shared and owned by the organisation. A test of true strategic ownership is when each employee can explain the corporate strategy and how they influence the outcome through what they do on a daily basis. Unfortunately it’s rare to find employees who know the answers to both questions, (see the article, ‘How good is your strategy for 2010?’ dated 4th March 2010).

2. Keep priorities clear. Keep the organisation updated as priorities change and the reasons behind it. The organisation will react and support changing priorities if they understand why the changes are taking place.

3. Explain your intentions. Don’t assume that everyone understands your actions and why you say and do the things you do. Often it is these assumptions that cause demotivation within an organisation. Explain why you do the things you do and this will transfer into understanding, trust and improved performance.

4. Mean what you say and say what you mean. Don’t say things you don’t mean; don’t create false expectations and always give honest feedback.

Effective communication is one of the key characteristics that distinguish good leaders from the thousands of ‘wannabe’ leaders in today’s business world. If you’re unsure how effective your communication skills are, Debbe Kennedy highlights three common mistakes leaders make when communicating;

1. Poor leaders often talk at people instead of with them;
2. Poor leaders say what they want without considering what employees want to hear;
3. Poor leaders use too much head-talk and not enough heart-talk (2007,19).

It’s important for effective leaders to want to know if they are good communicators, and therefore it isn’t surprising that they take the opportunity to ask their peers and subordinates on a regular basis; and listen and learn from their responses,.

References

Greene, C., Cortes, M.A., Cheung, C. and Kennedy, D. (2007). What are some communication mistakes that leaders make? Communication World. Vol. 24, Issue 5, p.19.

Lloyd, J. (2008). Good Leaders Focus on Clarity in Communication. The Receivables Report, Vol. 23, Issue 2, p.8-10.

Leadership Styles: Learning from Military and Business Leadership

What can we learn from comparing military and business leadership models that will help us become better leaders ourselves? In their article on leadership styles and leader performance, in the Royal Navy, Young and Dulewicz (2006) highlight that “a review of the leadership literature establishes that effective leadership behaviour will vary with circumstances. Within this paradigm, recent authors have moved on from focusing on the leader/follower variables to examining the efficacy of different leadership behaviours in different contexts of change, (p.384).”

In their analysis Young and Dulewicz categorise leadership behaviour into three macro leadership ‘styles’;

1) Goal-orientated: Where the leader sets the direction and plays a significant role in directing others (though this does not imply an authoritarian approach, but a leader-centric approach).

2) Involving: Where the leader provides a strong sense of direction, but with more focus on involving others. Not only in setting the direction, but also in deciding how the goals and objectives will be achieved.

3) Engaging: Where the leader is focused on facilitating others in, firstly, deciding the future goals and direction, and secondly, the approach to be used for achieving these desired goals.

From a military perspective the goal-orientated style, in the majority of situations, has proven to be the most effective, assuming that the leader is ‘accepted’ by the group; yet in business, research has shown the contrary, where the leader centric behaviours of this goal-orientated style often impairs the successful implementation of organisational change, (Young and Dulewicz, 2006). What is particularly interesting in their research is that they found “the significant preference for goal-orientated leadership among officers, is very much in line with the findings that the military reporting system rewards task achievement over leadership,” (p.394). Yet how many organisations reward leadership? Although there might be more recognition and ‘movement’ towards transformational or situational styles of leadership – ‘business leaders’ are still rewarded for goal achievement over leadership style.

In the context of the ‘variable’ approach to leadership, van Eeden, Cilliers and Deventer (2008), while discussing the ‘full range model of leadership’ (that embraces both the transactional and transformational styles of leadership), mention that “the transactional-transformational distinction views leadership as either a matter of contingent reinforcement of followers by a transactional leader or the moving of followers beyond their self-interests for the good of the group, organisation, or society by a transformational leader,” (p.253-254).

In analysing the appropriate leadership style, leaders must look beyond the specific business activity and focus on all the key influencing factors to find the optimum style, and the best fit solution. Hence the leader will not only look at the task at hand, but will consider their team (the ‘followers’ and their behavioural traits), as well as both the organisational and national culture (since most organisations today are multicultural - and most leadership models and theories are based on a Western business model and culture).

To conclude, van Eeden, Cilliers and Deventer remind us that “resilience in terms of self-confidence, self-determination, a lack of internal conflicts, and the ability to handle pressure underlie the idealised influence practiced by the transformational leader. The effective leader (who primarily relies on transformational behaviour and only uses the other styles when appropriate) is furthermore focused on achievement and dedication, inner direction, and a high activity and energy level that contribute to the leader’s function as a role model. Enthusiasm and optimism are also required to create a vision of the future and effective problem solving requires self-confidence,” (p.261).

References

van Eeden, R., Cilliers, F. and van Deventer, V. (2008). Leadership styles and associated behavioural traits: Support for the conceptualisation of transactional and transformational leadership. South African Journal of Psychology, Vol. 38, Issue 2, p.253-267.

Young, M. and Dulewicz, V. (2006). Leadership styles, change context and leader performance in the Royal Navy. Journal of Change Management, Vol. 6, No. 4, p.383-396.

7 Tips to Improve Your Brand Strategy

In a brilliant 2009 article by John Gerzema, he sites that “today, the 250 most valuable global brands are worth 2.197 trillion US dollars, which is larger than the GDP of France”, (p.8).

Gerzema’s study of brands found that while ‘brand valuations’ have risen, customer perceptions, over the same period, had declined. They found, for example, that “brand awareness was down 20 percent, perceptions of brand quality had declined 24 percent, and trust in brands had eroded by almost 50 percent,” (p.8). Gerzema’s research used data collected through BrandAsset Valuator, (the world’s largest and most recognised database on brands) and included interviews with 500,000 customers, from 44 countries, across 40,000 brands.

The clear message is that branding as a concept is changing and that many organisations may not be recognising and adapting to the changes taking place. The customer is more aware and knowledgeable than ever before, mainly due to the access and the transparency of ‘brand’ information, including service delivery, product/service quality and cost benefit comparisons.

Branding, as a business principle, creates a visual perception of excellence (in the customers mind), and then the organisation must constantly deliver the ‘brand promise’ to the customer, time and time again - in the process, creating brand loyalty.

In the past, as Tosti and Stotz (2001) mention, “organisations had time to figure out how to constantly deliver on their brand promise, adjust to changes in the marketplace, or correct errors;” but the global market place has evolved and constant change is now the rule, rather than the exception.

In today’s global economy, organisations must take the following steps to ensure the sustainability of their brand;

1) Ensure that the ‘brand’ and its ‘promise’ are an integral part of the company culture, owned and understood by the total organisation, (your employees are also your potential customers. If you can’t sell the ‘brand promise’ to them, how do you expect to sell the brand to the external customer);

2) Constantly review your ‘brand promise’ and the brands image in the market place – don’t promise what you can’t deliver;

3) Ensure that all your ‘accountable’ personnel (at all levels) fully understand your customer’s perceptions, expectations and requirements through transparent ‘customer engagement’ on a regular basis;

4) Regularly review competitor and non-competitor ‘brands’; identifying potential threats to your brand, as well as potential opportunities;

5) Constantly review your marketing channels, identifying the most effective ways to ‘engage’ with your existing and potential customer, (too many organisations are ‘blindly’ following marketing channels that may be totally inappropriate for their specific ‘brand’ and ‘customer’);

6) Be unique – a successful ‘brand’ has unique qualities that are attractive to your customers compared to all the competitor offerings – (make sure you know what your unique qualities are through the development of customer value propositions);

7) Never become complacent – with brands, you can be successful today and gone tomorrow – (if you don’t follow the basic guidelines above).

Gerzema’s study found that “consumers now trust each other more than they trust brands. Media Edge/CIA found that 76 percent of people rely on what others say verses 15 percent on advertising,” and a Universal McCann study in 2007, found that “92 percent of customers now cite word of mouth as the best source of product and brand information,” which is up a staggering 67 percent from comparable figures in 1977, (Gerzema, 2009, p.9).

The customer is no longer fooled by fancy brand promises that don’t deliver – if you want to develop and sustain the successful brand of tomorrow, you must continually engage with your customers – giving them the ‘unique’ brand qualities that they are looking for. As these change and develop over time, so must your brand promise.

References

Gerzema, J. (2009). The Brand BUBBLE. Marketing Research, Vol 21, Issue 1, p.6-11.

Tosti, D.T. and Stotz, R.D. (2001). Building Your Brand from the Inside Out. Marketing Management, Vol. 10, Issue 2, p.27-33.