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Making CSR Spending Effective and Sustainable

Posted By Guy Pfefferman, Wednesday, March 04, 2015

Next month GBSN, together with IPADE Business School (Mexico) and the University of Miami School of Business, will be hosting a one-day Summit in Tampa, Florida, at which representatives of business schools and corporations will discuss corporate social responsibility. In my years as Chief Economist of the World Bank’s International Finance Corporation, my colleagues and I gave much thought to the very complex question: how does a company go about maximizing the net benefits to itself and to society of their CSR engagements? In my travels in the developing world I have come across many instances of well-intended but ineffective CSR investments such as clinics without doctors and nurses, and schools without teachers. While it is easy for company CEOs to talk about “shared value”, making CSR spending effective and sustainable on the ground is quite another matter. Two examples illustrate that complexity.

Let’s look first at an extreme example: mining companies, which often operate in the “middle of nowhere”. Normally, such companies will supply services, which government is not providing in the area, such as health care, clean water, etc. The question immediately arises of who will receive these services: only permanent employees? Their (often extended) families? Temporary workers and their families? Other members of the surrounding communities? Companies will be under pressure from government and local communities to draw the circle wide, but companies are not in the business of doing the government’s job. One strategy is for a company to decide on a clear amount of CSR spending – for example a percentage of sales - and then set up a local committee of elders or other respected people who will guide the allocation of resources. 

Then there is the question of effectiveness, which often for low-income children down to aligning the nature of CSR with core corporate incentives. The farther from core corporate interests, the higher the risk of misallocated, poorly run and unsustainable CSR spending. For example, if a company wishes to encourage local enterprise, it is probably best to have the procurement department run the program, gradually increasing company purchases of locally-produced goods and services, or, likewise, the HR department be tasked with training local persons toward employment. Such efforts can start on a modest scale. For example a huge metallurgical company in Mozambique began by outsourcing some of their laundry. Such programs also help to meet government local content regulations, where they exist. In contrast, programs run by specialized CSR departments are less likely to coincide with core corporate incentives, much less core competences – as there is no reason why an oil company should be particularly good at running rural clinics or schools for low-income children.

My hope is that the Tampa discussion will eschew abstract concepts such as “responsible management education” and “shared value”, and ask how business schools can help companies to source talent that maximizes the operational benefits of CSR activities to the companies and to external stakeholders. I am looking forward to being part of that discussion.

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Guy Pfeffermann is the Founder and CEO of the Global Business School Network

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