The High Impact of Collaborative Social Initiatives

In 1999, William Ford Jr. angered Ford Motor Co. executives and investors when he wrote that “there are very real conflicts between Ford’s current business practices, consumer choices and emerging views of (environmental) sustainability.” In his company citizenship report, the grandson of Henry Ford, then the automaker’s nonexecutive chairman, even appeared to endorse a Sierra Club statement declaring that “the gas-guzzling SUV is a rolling monument to environmental destruction.”

Bill Ford has had to moderate his strongest environmental beliefs since assuming the company’s CEO position in October 2001, just after the Firestone tire scandal. Nevertheless, while he has strived to improve Ford’s financial performance and restore trust among its diverse stakeholders, he remains strongly committed to corporate responsibility and environmental protection. In his words, “A good company delivers excellent products and services, and a great company does all that and strives to make the world a better place.”1

Today, Ford is a leader in producing vehicles that run on alternative sources of fuel, and it is performing as well as any of its major North American rivals, all of whom are involved in intense global competition. The new CEO is successfully pursuing a strategy that is producing improved financial performance, increased confidence in the brand and clear evidence that the car company is committed to contributing more broadly to society. Among Ford’s more notable outreach efforts are an innovative HIV/AIDS initiative in South Africa, which is now expanding to India, China and Thailand;2 a partnership with the U.S. National Parks Foundation to provide environmentally friendly transportation for park visitors;3 and significant support for the Clean Air Initiative for Asian Cities.4

Ford’s actions are emblematic of the corporate social responsibility (CSR) initiatives of many leading companies today. Corporate-supported social initiatives are now a given. For some time now, many Fortune 500 corporations have been creating senior management positions dedicated to helping their organizations “give back” more effectively. CSR is now almost universally embraced by top managers as an integral component of their executive roles, whether motivated by self-interest, altruism, strategic advantage or political gain.5 Their outreach is usually plain to see on the companies’ corporate Web sites.

Corporate social responsibility is high on the agenda at major executive gatherings such as the World Economic Forum. It is very much in evidence during times of tragedy — as seen in the corporate responses to the Asian tsunami of last December — and it is the subject of many conferences, workshops and newsletters. “Consultancies have sprung up to advise companies on how to do corporate social responsibility and how to let it be known that they are doing it,” noted The Economist in a survey on corporate social responsibility earlier this year.6

Executives face conflicting pressures to contribute to social responsibility, while honoring their duties to maximize shareholder value. These days they face many belligerent critics who challenge the idea of a single-minded focus on profits — witness the often violent antiglobalization protests in recent years. They also face skeptics who contend that corporate social responsibility initiatives are chiefly a convenient marketing gloss. It is not the intent of this article to question the appropriateness of executives’ CSR activities or to judge their sincerity. Rather, we start from the assumption that many organizations are eager to improve their CSR effectiveness.

The issue is not whether companies will engage in socially responsible activities, but how they should do so. For most companies, the central challenge is how best to achieve the maximum social benefit from a limited amount of resources available for social projects.7

In our studies of dozens of social responsibility initiatives at major corporations, we have found that senior managers struggle to find the right balance between “low engagement” solutions such as charitable gift giving and “high commitment” solutions that run the risk of diverting attention from the company’s core mission. (See “About the Research.”) In this article, we discuss the findings of our research that show how collaborative social initiatives (CSIs) — a form of engagement in which companies provide ongoing and sustained commitments to a social project or issue — provide the best combination of social and strategic impact for companies.

The Core of the Corporate Social Responsibility Debate

The proper role of corporate social responsibility — the actions of a company to benefit society beyond the requirements of the law and the direct interests of shareholders — has generated a century’s worth of philosophically and economically intriguing debates.8 Since steel baron Andrew Carnegie published The Gospel of Wealth in 1889, the argument that businesses are the trustees of societal property that should be managed for the public good has been seen as one end of a continuum, while at the other end is the belief that profit maximization is management’s only legitimate goal. The CSR debate had been largely confined to the background for most of the 20th century, making the news after a major event such as an oil spill, when a consumer product caused harm or when an ethics scandal reopened the question of business’s fundamental purpose.

The debate surfaced in more positive ways in the last 30 years as new businesses set up shop with altruism very much in mind and on display. Firms such as ice-cream maker Ben & Jerry’s Homemade Holdings Inc. argued that CSR and profits do not clash; their stance was that doing good led to making good money too. That line of thinking has gained popularity as more executives have come to understand the value of their companies’ reputations with customers — and with investors and employees. But only recently have business leaders begun to get a clearer understanding of the appropriate role of CSR and its impact on financial performance.

In the past, research on the financial impact of CSR produced inconsistent findings, with some studies reporting a positive relationship, others a negative one, and others no relationship at all.9 Since the mid-1990s, improvements in theory, research design, data and analysis have produced empirical research with more consistent results.10 Importantly, a recent meta-analysis (a methodological technique that aggregates findings of multiple studies) of more than 10 studies found that on balance, positive relationships can be expected from CSR initiatives, but that the primary vehicle for achieving superior financial performance from social responsibility is via reputation effects.11

Businesses have no shortage of options for advancing their CSR goals. The greater challenge is finding the right balance. (See “The Corporate Social Responsibility Continuum.”) Philanthropy without active engagement — cash donations, for instance — has been criticized as narrow, self-serving and often motivated to improve the corporation’s reputation and keep at bay critics of nongovernmental organizations (NGOs) and other naysayers.12 However, redirecting the company toward a socially responsible mission, while seemingly attractive, may have the unintended consequence of diverting both managers and employees from their core mission.13

A model is needed that can guide managers in selecting social initiatives through which they can exploit their companies’ core competencies for the maximum positive impact. As a first step, research confirms, a business must determine the social causes that it will support and why, and then decide how its support should be organized.14 According to one perspective, businesses have three basic support options: donations of cash or material, usually to a nongovernmental or nonprofit agency; creation of a functional operation within the company to assist external charitable efforts; and development of a collaboration approach whereby a company joins with an organization that has particular expertise in managing the way benefits are derived from corporate support.15

Mutual Advantages of Collaborative Social Initiatives

Our studies and those of other researchers suggest that the collaborative approach consistently outperforms others.16 Properly defined, the term “social initiative” describes initiatives that take a collaborative approach. Research on alliances and networks among companies in competitive commercial environments tells us that each partner benefits when the other brings resources, capabilities or other assets that it cannot easily attain on its own. These “combinative capabilities” allow the company to acquire and synthesize resources and build new applications from those resources, generating innovative responses to rapidly evolving environments.17

It is no different in what we term collaborative social initiatives. While neither companies nor nonprofits are well equipped to handle escalating social or environmental problems, each participant has the potential to contribute valuable material resources, services, or individuals’ voluntary time, talents, energies and organizational knowledge. Those cumulative offerings are vastly superior to cash-only donations, which are a minimalist solution to the challenges of social responsibility. Social initiatives involve ongoing information and operational exchanges among participants and are especially attractive because of their potential benefits for both the corporate and not-for-profit partners.

There’s strong evidence to show that CSR activities increasingly confer benefits beyond enhanced reputation.18 For some participants, they can be tools to attract, retain and develop managerial talent. PricewaterhouseCoopers’ Project Ulysses is a leadership development program that sends small teams of PwC partners to developing countries to apply their expertise to complex social and economic challenges. The cross-cultural PwC teams collaborate with NGOs, community-based organizations and intergovernmental agencies, working pro bono in eight-week assignments in communities struggling with the effects of poverty, conflict and environmental degradation.19 The Ulysses program was designed in part to respond to a growing challenge confronting professional services companies: identifying and training up-and-coming leaders who can find nontraditional answers to intractable problems.

All two dozen Ulysses graduates still work at PwC; most say they have a stronger commitment to the firm because of the commitment it made to them and because they now have a different view of PwC’s values. For PwC, the Ulysses program provides a tangible message to its primary stakeholders that the company is committed to making a difference in the world. According to Brian McCann, the first U.S.–based partner to participate in Ulysses, “This is a real differentiator — not just in relation to our competitors, but to all global organizations.”20

Five Principles of Successful Collaborative Social Initiatives

Out of our research we have distilled five principles that are central to successful CSIs. (See “Keys to Successful Collaborative Social Initiatives.”) When CSR initiatives include most or all of these elements, companies can indeed maximize the impacts of their social contributions while advancing broader strategic goals.21 While most CSIs will not achieve complete success with all five elements, some progress with each is requisite for success.

Identify a Stubborn Challenge and Address It for the Long Term

Companies make the greatest social contribution when they identify an important, long-standing policy challenge and participate in its solution over the long term. VeteranWall Street Journal reporter and author Ron Alsop argues that companies that are interested in contributing to corporate responsibility and thus burnishing their reputations should “own the issue.”22 Companies that step up to tackle problems that are clearly important to society’s welfare and that require substantial resources are signaling to internal and external constituencies that the initiative is deserving of the company’s investment.

Among the more obvious examples of social challenges that will demand attention for years to come are hunger, inadequate housing, ill health, substandard education and degradation of the environment. A company’s long-term commitment to any one of those problems embeds that issue in the fabric of the company; the company must then develop competencies that allow it to become adept at its socially responsible activities while investing in those outputs. It is also important to identify limited-scope projects and shorter-term milestones that can be accomplished through direct contributions by the company. Solving global hunger is a worthy goal, but it is too large for any individual company to make much of a dent.

Avon Products Inc., the seller of beauty and related products, offers a fine example of a long-term commitment to a pervasive and long-standing problem. In 1992, the company’s Avon Foundation — a public charity established in 1955 to improve the lives of women and their families — launched its Breast Cancer Crusade in the United Kingdom. The program has since expanded to 50 countries. Funds are raised through a variety of programs, product sales and special events, including the Avon Walk for Breast Cancer series. The company distinguishes itself from other corporations that fund a single institution or scientific investigator because it operates as part of a collaborative, supporting a national network of research, medical, social service and community-based organizations, each of which makes its own unique contribution to helping patients or advancing breast cancer research.23 To date, the crusade has awarded more than $350 million to breast cancer research and care organizations worldwide. In its first 10 years, the Avon Walks program raised more than $250 million for research, awareness, detection and treatment.

Another example of a powerful CSI is found in IBM Corp.’s Reinventing Education initiative. Since 1994, IBM has worked with nonprofit school partners throughout the world to develop and implement innovative technology solutions designed to solve some of education’s toughest problems, from coping with shrinking budgets and increasing parents’ involvement to moving to team teaching and developing new lesson plans. This initiative responds to a nearly universal agreement that education — especially education of young girls and women — provides the essential foundation for addressing a range of social and economic challenges in developing countries. Overcoming the existing educational deficit requires a long-term commitment to school reform, such as creating methods for measuring learning.

The Home Depot Inc. has identified housing as its principal CSI; in 2002 the company set up its Home Depot Foundation with the primary mission of building “affordable, efficient and healthy homes.”24 Thirty million Americans face some sort of challenge in securing dependable housing, including living in substandard or overcrowded housing; lacking hot water, electricity, toilet or bathtub/shower facilities; or simply spending too high a percentage of their income on housing. Hence, Home Depot’s long-term commitment in this area is unassailable. Its foundation works closely with Home Depot suppliers and with a variety of nonprofits to build affordable housing for low-income families, placing a strong emphasis on local volunteer efforts.

Contribute “What We Do”

Companies maximize the benefits of their corporate contributions when they leverage core capabilities and contribute products and services that are based on expertise used in, or generated by, their normal operations. Such contributions create a mutually beneficial relationship between the partners; the social-purpose initiatives receive the maximum gains, while the company minimizes costs and diversions. It is not essential that these services be synonymous with those of the company’s business, but they should build upon some aspect of its strategic competencies.

This issue was aired at the recent World Economic Forum gathering in Davos, Switzerland. “We see corporate social responsibility as part and parcel of doing business, part of our core skills,” said Antony Burgmans, chairman of consumer-products giant Unilever NV. “The major value for Unilever is the corporate reputation it helps create.”25

The thinking is similar to that at IBM, where, as part of its Reinventing Education initiative, the company contributes financial resources, researchers, educational consultants and technology at each site, seeking new ways for technology to spur and support fundamental school restructuring and broad-based systemic change and thereby raise student achievement. In effect, IBM leverages its technological and systems expertise, and its experience providing systems solutions to educational clients, in order to meet a broader educational challenge. Says Stanley Litow, vice president of corporate community relations at IBM: “IBM believes that a strong community is a key to a company’s success. … To this end, a key focus of our work has been on raising the quality of public education and bridging the digital divide.”26 IBM gains significant goodwill and brand identity with important target markets, in some ways repeating Apple Computer Inc.’s successful strategy in the 1980s, under which it donated computers to schools as a way to gain recognition.

There are many comparable initiatives on the procurement side. Retailers such as Starbucks Coffee Co. now source much of their bean supply directly from producers, thereby ensuring that those farmers receive fair compensation without being exploited by powerful middlemen. Many retail supermarkets have followed with their own versions of the “fair trade” model.

Contribute Specialized Services to a Large-Scale Undertaking

Companies have the greatest social impact when they make specialized contributions to large-scale cooperative efforts. Those that contribute to initiatives in which other private, public or nonprofit organizations are also active have an impact that goes beyond their limited contributions. Although it is tempting for a company to identify a specific cause that will be associated only with its own contributions, such a strategy is likely to be viewed as a “pet project” and not as a contribution to a larger problem where a range of players have important interests.

A good example is The AES Corp.’s carbon offset program. AES, headquartered in Arlington, Virginia, is one of the world’s largest independent power producers, with 30,000 employees and generation and distribution businesses in 27 countries. Some years ago, the company recognized that it could contribute to the battle against global warming — a significant environmental threat with serious consequences such as habitat and species depletion, drought and water scarcity. AES developed a program that offsets carbon emissions, creating carbon “sinks,” a practical and effective means of combating this global problem.

Research has concluded that planting and preserving trees (technically, “forest enhancement”) provides the most practical and effective way to address the CO2 emissions problem. Trees absorb CO2 as they grow and convert it to carbon that is locked up (sequestered) in biomass as long as they live. AES leaders believed that if their company could contribute to increasing the standing stock of trees, the additional trees might be able to absorb enough CO2 to offset the emissions from an AES cogeneration plant. This approach became one of the many mitigation measures now accepted in the global climate change treaty — the Kyoto Protocol — as a means of achieving legally binding emissions reduction targets.

For its part, packaged-foods giant ConAgra Foods Inc. helps to fight hunger in partnership with America’s Second Harvest, an organization that leads the food recovery effort in the United States. Set up as the nationwide clearinghouse for handling the donations of prepared and perishable foods, ConAgra’s coordination efforts enable smaller local programs to share resources, making the food donation and distribution process more effective. In October 1999, ConAgra joined with America’s Second Harvest in a specific initiative, the Feeding Children Better program, which funds more than 130 Kids Cafes across the United States and provides more than 12 million free meals to children. ConAgra also assists America’s Second Harvest in distributing food to 50,000 local charitable agencies, which in turn operate over 94,000 food programs.

Weigh Government’s Influence

Government support for corporate participation in CSIs — or at least its willingness to remove barriers — can have an important positive influence. Tax incentives, liability protection, and other forms of direct and indirect support for businesses help to foster business participation and contribute to the success of CSIs.27

For instance, in the United States, ConAgra’s food recovery initiatives can deduct from taxable income the cost (but not the market value) of the donated products plus half of the products’ profit margin; the value of this deduction is capped at twice the cost of the product. To encourage further participation of businesses in such food recovery programs, America’s Second Harvest generated a series of recommendations for the U.S. government.28 The recommendations seek to improve the tax benefits associated with food donation, including a proposal that tax deductions be set at the fair market value of donations. Tax deductions provide economic enticement for companies to consider participation, as Boston Market, KFC and Kraft Foods have publicly acknowledged. Donating food also allows companies to identify the amount of food wasted, because it is tracked for tax purposes.

Similar efforts are being applied to reforms that will ease businesses’ concerns about their liability from contributing to social enterprises. The Bill Emerson Good Samaritan Food Donation Act, enacted by the U.S. Congress in 1996, protects businesses from liability for food donations except in the case of gross negligence. Building on this federal act, all 50 states and the District of Columbia have enacted “good Samaritan” laws to protect donors except in cases evidencing negligence.29 Many companies and nonprofits would like to see more comprehensive tort reform to support their efforts.

Government’s endorsements are invaluable too. The Home Depot’s partnership with Habitat for Humanity International Inc. is actively supported by the U.S. Department of Housing and Urban Development. This support takes the form of formal endorsement, logistical facilitation and implicit acknowledgement that the partnership’s initiatives complement HUD’s own efforts. Home Depot is assured that the agency will not burden the program with red tape. In the case of AES’s efforts in the area of global warming, organizations such as the World Bank, the Global Environment Facility and the U.N. Environment and Development Programmes endorse and encourage offsets via grants, loans, and scientific research.

Assemble and Value the Total Package of Benefits

Companies gain the greatest benefits from their social contributions when they put a price on the total benefit package. The valuation should include both the social contributions delivered and the reputation effects that solidify or enhance the company’s position among its constituencies. Positive reputation — by consumers, suppliers, employees, regulators, interest groups and other stakeholders — is driven by genuine commitment rather than episodic or sporadic interest; consumers and other stakeholders see through nominal commitments designed simply to garner short-term positive goodwill.30 “The public can smell if [a CSR effort] is not legitimate,” said Shelly Lazarus, chairman and CEO of advertising agency Ogilvy & Mather Worldwide at the recent World Economic Forum.31 Hence, social initiatives that reflect the four principles above can generate significant reputation benefits for participating companies.

AES calculated that it has committed more than $12 million to seven different carbon offset projects. The programs are projected to offset a total of about 67 million tons of carbon (or 250 million tons of CO2) over the next 30 to 40 years — the equivalent of the emissions from a typical 1,000 MW coal facility over its lifetime. AES carefully chooses projects that have measurable CO2 offsets and are supported by organizations capable of successfully managing and monitoring emissions reductions (such as CARE or the Nature Conservancy). AES’s commitment to carbon offsets has won it several awards and generates favorable consideration from international financial institutions, such as the World Bank, the International Finance Corp. and the Inter-American Development Bank, as well as from governments, insurers and NGOs.

In the consumer products sector, Avon receives extensive media recognition from the advertising and marketing of cancer walks, nationwide special events including a gala fundraising concert and an awards ceremony. Avon has become so closely associated with the breast cancer cause that many consumers now identify the company’s commitment — and the trademark pink ribbon — as easily as its traditional door-to-door marketing and distribution systems.

While difficult to quantify precisely, the pink ribbon campaign and the brand awareness associated with it generate economic benefits for Avon in the form of goodwill and overall reputation. Avon’s strategy of focusing on a cause that women care about, leveraging its contributions and partnering with respected NGOs has enabled it to gain trust and credibility in the marketplace. “There needs to be a correlation between the cause and the company,” said Susan Heany, director for corporate social responsibility at Avon. “The linkage between corporate giving and the corporate product creates brand recognition. Both buyers and sellers want to achieve the same goal: improving women’s health care worldwide.”32

Assembling the Components

A range of corporate initiatives lend themselves to the CSI model because they share most of the five key attributes we have described here: They have long-term objectives; they are sufficiently large to allow a company to specialize in its contributions; they provide many opportunities for the company to contribute from its current activities or products; they enjoy government support; and they provide a package of benefits that adds value to the company. The most successful initiatives perform well against each of the five principles. (See “Five Successful Collaborative Social Initiatives.”)

Of the five principles, the most important by far is the second one. Companies must apply what they do best in their normal commercial operations to their social responsibility undertakings. This tenet is consistent with research that argues that social activities most closely related to the company’s core mission are most efficiently administered through internalization or collaboration.33 It is applicable far beyond the examples we have shared here, extending to waste-management companies and recycling programs, for instance, publishing companies and after-school educational initiatives, or pharmaceutical companies and local immunization and health education programs.

The Limits to Corporate Social Responsibility Strategies

Some companies such as Ben & Jerry’s have embedded social responsibility and sustainability commitments deeply in their core strategies. Our research suggests that such single-minded devotion to CSR may be unrealistic for larger, more established corporations. For example, some analysts have suggested that the intense focus on social responsibility goals by the management team at Levi Strauss & Co. may have diverted the company from its core operational challenges, accelerating the company’s closure of all of its North American manufacturing operations.34

Larger companies must move beyond the easy options of charitable donations, but also steer clear of overreaching commitments. This is not to suggest that companies should not think big — our research shows that projects can be broad in scale and scope and still succeed. Rather, it suggests that companies need to view their commitments to corporate responsibility as one important part of their overall strategy, but not let the commitment obscure their broad strategic business goals. By starting with a well-defined CSR strategy and developing the collaborative initiatives that support that strategy by meeting the five criteria we have identified, companies and their leaders can make important contributions to the common good while advancing their broader financial and market objectives.

The Procter & Gamble Co. offers a good example of this. P&G’s CSR strategy is based on the strengths of the company in brand management and marketing and on the skills and expertise of its employees, reflecting the notion that CSR initiatives should take advantage of a company’s core competencies. P&G identifies projects that will have long-lasting benefits for all of the participants. “People are beginning to accept that CSR is a two-way relationship in which there are benefits to the community and benefits to the companies involved,” notes community relations manager Tricia Dodds.“It helps to have a well-defined strategy in place from the outset.”35

CSR strategies can also run afoul of the skeptics, and the speed with which information can be disseminated via the Web — and accumulated in Web logs — makes this an issue with serious ramifications for reputation management. Nike Inc. has been a lighting rod for CSR activists for its alleged tolerance of hostile and dangerous working conditions in its many factories and subcontractors around the world. Despite the considerable efforts the company has made to respond to its critics, it has consistently been on the defensive in trying to redeem its reputation.

Touching on this issue at the World Economic Forum, Unilever chief Antony Burgmans noted the importance of “making people who matter in society aware of what you do.”36 His point was amplified by Starbucks CEO Orin Smith, who invited the authors of an NGO report critical of Starbucks’ sourcing strategies to the company’s offices and showed them the books. “In many instances we ended up partnering with them,” he said.37

CSR IS FIRMLY AND irreversibly part of the corporate fabric. Managed properly, CSR programs can confer significant benefits to participants in terms of corporate reputation, hiring, motivation, and retention, and can aid in building and cementing valuable partnerships. And of course the benefits extend well beyond the boundaries of the participating organizations, enriching the lives of many disadvantaged communities and individuals and helping to address problems that threaten future generations, other species and precious natural resources.

That is the positive perspective. The more prickly aspect of CSR is that for all of their resources and capabilities, corporations will face growing demands for social responsibility contributions far beyond simple cash or in-kind donations. Aggressive protesters will keep the issues hot; employees will continue to have their say; and shareholders will pass judgment with their investments — and their votes.

The challenge for management, then, is to know how to meet the company’s obligations to all stakeholders without compromising the basic need to earn a fair return for its owners. As our research has shown, a collaborative approach is the foundation for the most effective CSR initiatives. By adhering to the five key principles we have outlined, business leaders can maintain ongoing commitments to carefully chosen initiatives that can have positive and tangible impacts on social problems while meeting their obligations to shareholders, employees and the broader communities in which they operate.