Guest editor Nazareth Seferian looks at a hypothetical example of a business in Armenia to understand the full potential of corporate social responsibility and how it can contribute to success.
Text : Nazareth Seferian
As the history outlined in the article Corporate Social Responsibility: A Story of Evolution suggests, CSR was born through the public relations’ crises faced by multinational corporations, and the idea of “responsibility” was directly linked to their reputation. As the famous quote says, “Your brand is what they say about you when you’re not in the room,” and, during the crises faced by Nike, Shell, and others in the 1990s, any mention of these companies was followed by a discussion of their irresponsible practices. The introduction of corporate social responsibility practices and, later, a strategic focus on sustainability, allowed companies to counter this crisis and to reestablish themselves as stakeholders that should be seen as a force for good, not greed. But is this all there is to CSR, is it just one component of brand management, a tool meant for the hands of a public relations professional?
One of the first people to suggest a clear answer were the strategy gurus Michael Porter and Mark Kramer. In the 2000s, their seminal articles in Harvard Business Review suggested that there was a strategic approach that business should use to think about its role in society, and that this could have many benefits for companies. In Strategy and Society, they argued that thinking only about reputation or even moral obligation meant a “focus on the tension between business and society, rather than on their interdependence.” They then suggested laying out the “points of intersection” of the two, which involves an analysis of the value chain of the given company (inside-out factors) and the competitive context in which it operates (outside-in factors). Through this analysis, the true power of CSR can be unleashed as a force for change.
Let’s understand this better by looking at the hypothetical example of a supermarket operating in Yerevan. The inside-out factors, or its value chain, includes a consideration for things like its infrastructure (how are the stores designed? Are they energy friendly? Are they accessible to people with different abilities?), inbound and outbound logistics (how are products transported? What kind of packaging is used? How is waste managed?) and more. For example, the use of plastic bags is a major issue of relevance to supermarkets when it comes to corporate responsibility. By the very fact of its existence and operations, a supermarket in Yerevan directly contributes to the additional circulation of several hundreds or thousands of plastic bags a day.
This was an unregulated topic in Armenia for many years, and then plastic bags became a paid item for customers a few years ago and were expectedly to be completely eliminated through legislation in 2022. The law has not been effective in eliminating plastic from the scene, but more attempts at regulation can be expected in the future. This suggests that, besides the moral obligation of supporting the planet by reducing plastic, there is a strategic business argument as to why supermarkets should make this the focus of their plans. With government continuously trying to control this topic, there is a clear business risk that changes in plastic regulation will mean constant adjustments by supermarkets that will cost time and money.
One way to manage this risk through CSR is to not just offer customers choices that seem to be environmentally more friendly, like paper, but to actively educate and “nudge” them in this direction. If, for example, cashiers are given texts to encourage customers to choose paper, or if customers are given extra points on their loyalty cards, or some other tangible benefit to make this choice, any government regulations on plastic will end up being less painful to the company, because one could assume that the transition to other options will be complete or near completion by that time.
But there are even bigger and better solutions out there. There are many small producers of reusable cloth bags in Armenia, but their usage does not seem to be very popular yet. What if a supermarket launched a competition for business ideas on how to make them more universally used? What if a supermarket invested a seed amount in a startup idea to centralize the distribution of cloth bags to supermarkets and their collection from customers later? Imagine yourself as the customer. It’s probably easier to consider using a cloth bag instead of plastic if – 1) you don’t have to constantly remember to carry one with you and it’s readily available at the cashier’s, and 2) you don’t have to pay several thousand drams for a cloth bag, you can simply “rent” it for a monthly subscription fee and then the startup will have a convenient solution to collect it from you later. This kind of corporate social investment, when a large company actively financially supports the creation of new solutions in its surroundings, can be both a wonderful example of social impact (drastic reduction in plastic bags) as well as a new source of financial gain (returns from investee).
And so, thinking of CSR as something beyond simply a PR tool has great benefits. Instead of simply having a TV report on how our supermarket now offers paper to customers as an alternative to plastic, we can help create new solutions that have a bigger social impact, generate new financial returns and provide a good story for a TV report, if we want to get PR mileage as well.
What would the outside-in factors include for a supermarket in Yerevan? One of the categories for such factors outlined by Porter and Kramer focuses on the “input” shortcomings, i.e., lack of quality supplies, raw materials, etc. For our example of a supermarket, one of the problems is that many items on the shelves are imported because of lack of good quality local alternatives. But importing items comes with a few inherent risks because there may be logistical issues (the Lars Crossing is often not the most reliable transit route) or financial concerns such as currency fluctuations.
Why shouldn’t supermarkets be more actively engaged in helping their local suppliers develop quality alternatives to their most popular imported products? Like in the previous example, supermarkets can take a relatively passive approach to this, by perhaps highlighting local products in their stores or using messaging that encourages customers to try new items by local producers. Or they can choose to actively invest in the growth of the local manufacturing by organizing and sponsoring incubators or competitions that develop the relevant products. Having a bigger stake in this process might translate to being able to demand bigger margins or to co-create products that will enjoy bigger sales than the current imported items. And so, once again, CSR can impact the company’s financial bottom line more directly than any PR mileage.
Another important area where CSR benefits companies is employee retention and dedication. Try a simple Google search about millennials’ beliefs about work and you will find a range of recent surveys suggesting that two-thirds of this generation, if not more, value employers that focus on more than just the financial bottom line. Employee churn is a major cost for companies. A coherent, consistent, and well-communicated CSR strategy is a very good way to keep this risk low. Additionally, CSR provides great opportunities for employee engagement, allowing companies to use their team members as volunteers in various projects and really give them a sense of purpose when it comes to their jobs. It is no secret that some companies in Armenia, like the IT sector, are actually in fierce competition with each other for quality personnel. And given that some opportunities in this sector can be quite similar in terms of the actual job descriptions or even salaries, potential applicants might make a choice based on the company’s social standing and impact. Thus, CSR is not just a PR tool, but also an HR tool, if used right.
In addition to all this, CSR helps businesses improve their chances when it comes to accessing funds. Investors are increasingly looking at a company’s impact before they decide on whether or not to commit any money to it. The ISO 26000 standard on social responsibility focuses on seven key principles – accountability, transparency, ethical behavior, respect for stakeholder interests, respect for the rule of law, respect for international norms of behavior, and respect for human rights. Any investor would prefer a company that has evidence to back its observance of these seven principles, rather than one that cannot claim to fulfill any one of these. The key factor of any business transaction, trust, is at a different level when you see that the company with whom you are working has a truly positive social and environmental impact in its community.
In sum, there is no doubt that corporate social responsibility is an excellent tool that PR professionals can use. CSR initiatives provide great stories that allow customers to think of businesses not just as profit-seeking entities, but as corporate citizens that are making society better in some way. But if the company’s leaders limit their vision on CSR to this, they are missing out on its full potential. And a broader, more strategic approach to CSR does not diminish the value it has for PR mileage. On the contrary, it unleashes opportunities that make for longer-term, more impactful stories that have a stronger positive effect on the brand. The Chartered Institute for Public Relations says that PR “is about reputation – the result of what you do, what you say and what others say about you.” In their view, PR is a “planned and sustained effort to establish and maintain goodwill and mutual understanding” between the business and the public. So, CSR has a role to play here for sure and, in fact, perhaps real public relations – where there is a sincere effort toward goodwill – is actually impossible without responsible practices. In any case, CSR has the power to change the story of a company, ensuring that many more people will recall its name and mention it even when that company is “not in the room”.
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