by Dr. Thomas Deigendesch
Long before the recent Lehman Brothers and Hypo Real Estate fiascos, corporate social responsibility and stewardship were hot topics. Progressive globalization, cuts in government-funded social security, corporate scandals, environmental issues, and resource shortages have put the ethical and political roles of businesses on everyone’s agenda. Discussions have focused on the relationships between companies and their various stakeholder groups, as well as on the apparent polarity between profits and ethics.
Profits and ethics are not contradictions
We must be clear on this. Entrepreneurial responsibility cannot be construed as opposing the principles of competition and profitability, nor can it be reduced to Milton Friedman’s popular adage that “The social responsibility of business is to increase its profits.” On the one hand, companies must be aware of their responsibilities within the economic arena and fulfill the expectations of their customers (deliverables), their investors (ROI), and their employees (job security). On the other hand, they must align their actions with the fabric of society and a sustainable future. Otherwise, as was the case with Shell and Brent Spar, they run the risk of losing their license to operate through boycotts. Starting in the 1970s, corporations have been viewed as open social systems that are closely interwoven with the societies in which they operate. Today, successful entrepreneurial action cannot hinge solely on the principle of profit maximization; it must also take political, ecological, social, and ethical aspects into consideration, or otherwise risk survival. A definition of corporate responsibility is summed up best in K. Davis’ seminal essay, “The case for and against business assumption of social responsibility,” which appeared in the Academy of Management Journal in 1973: it is “…the firm’s consideration of, and response to, issues beyond the narrow economic, technical, and legal requirements of the firm to accomplish social and environmental benefits along with the traditional economic gains which the firm seeks.”
Numerous examples corroborate that this definition of corporate responsibility does not run against the grain of a company’s economic success. American Apparel differentiates itself from low-cost competition with socially acceptable and sustainable production (e.g., domestic production, higher average wages, and compliance with environmental interests). Nonetheless, it has become the largest maker of T-shirts in the U.S. and posts continuously growing sales. The German chocolate brand RITTER SPORT stands for fair treatment of employees, sustainable and ecological production, and a social commitment in developing countries. RITTER does not lay off people for operational reasons. Its packaging concept saves 1,000 tons of material every year. It pays Fair Trade prices for organically grown cacao. Today, RITTER exports its chocolate products to more than 60 countries and has been reporting continued growth.
By abandoning Barbie as the ideal in its definition of beauty for the new Dove brand campaign, Unilever boosted sales by over 15 percent in Germany alone. With its advocacy against eating disorders in more than 20 countries, Unilever has demonstrated that this is a basic attitude firmly anchored in the brand, and not just a clever advertising approach. In Great Britain, Unilever is working with the national Eating Disorders Association, and in the U.S., the brand established a foundation for the promotion of self-esteem.
As Michael Porter and Mark Kramer set forth in their award-winning paper, “Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility,” successful companies do not view economic success and social responsibility as a dilemma. Instead, they integrate social responsibility as a source of innovation and lasting competitiveness. Essentially, they do exactly what successful companies do: They get better and more competitive every day to fulfill the expectations of their shareholders and stakeholders.
How does brand leadership differ from greenwashing?
In the meantime, corporate social responsibility has become almost a commodity. CSR seals of quality, ISO standards, rankings, and indices such as the Dow Jones Sustainability Indexes make it virtually impossible for companies to be in the market without credibly demonstrating or communicating their ethics in some fashion. The extent to which a company’s responsible actions contribute to its sustainable success will be pivotal in the competitive arena.
If corporate social responsibility is understood to be core competencies, which strengthen intangible and temporarily inimitable assets such as integrity, credibility, reputation, and human or social capital, it enables companies to create innovation, develop new markets, clearly differentiate themselves from competitors, or influence the competitive environment to their benefit. Merely showing off charitable gestures, sponsoring, or taking on pro-bono projects, without having such activities anchored in the business philosophy, cannot generate sustainability. Such short-lived spin doctoring will be quickly debunked by NGOs and consumer organizations as “greenwashing” or “whitewashing.” For example, Enron was involved in various “charitable” ventures but obviously acted with little responsibility, which eventually resulted in the Sarbanes-Oxley Act. In brief, corporate social responsibility contributes to entrepreneurial success when it becomes an integral element of a company’s strategy and creates change in conduct and business processes. In this light, CSR must be viewed from the perspective of successful brands.
Strong brands are precious, intangible assets because, for their target groups, they translate corporate strategies into an unambiguous and competitive identification offer. Inside corporations, brands provide a mutual understanding of the strategy and its implementation because all activities are focused on a common goal with the intention of creating an unambiguous and differentiating identity. On the outside, brands differentiate deliverables, provide guidance, create awareness, confidence, loyalty, influence buying behavior, and thus boost demand. In other words, brands reduce the risk of future earnings for their business, strengthen economic success, and clearly contribute to shareholder value.
Top brands such as GE have turned responsible conduct into a holistically differentiating component of their identification matrix. GE’s ecomagination initiative, launched in early 2005, reflects GE’s investment in creating innovative solutions to environmental challenges and delivering valuable products and services to customers while generating profitable growth for the company. The initiative boosted revenue on such products from US$ 6.2 billion in 2004, before the initiative began, to US$ 10.1 billion in 2005, over halfway to the goal of US$ 20 billion by 2010. The initiative was tied to GE’s business strategy, products, services, effective communication, and employee engagement. GE is also partnering with Abu Dhabi to build Masdar City, the world’s first carbon-neutral, zero-waste city completely powered by renewable energy. With this latest deal, GE has smartly positioned itself as the first to provide alternatives when the Middle East runs out of oil. Because it pervades and is tangible on every level, ecomagination has propelled GE’s 25 percent rise in brand value.
This example illustrates that it is not enough to merely anchor corporate social responsibility in the brand promise or in communication. It requires adjustments in the total value chain, in organization, and in reporting relationships. It also requires incentives for generating a consistent and sustainable brand experience. A first step in developing a “sustainable” strategy is to identify the relevance of the issue for the industry and how differentiated the brand is regarding sustainability issues. A second step is to define a differentiating brand positioning and transfer it into products and services and a vivid and consistent brand experience.
Summarized neatly in the saying “branding follows strategy follows branding,” brands and corporate social responsibility are two sides of the same coin of entrepreneurial success. On the one hand, strategically integrated corporate social responsibility drives brand awareness, brand image, brand credibility, and brand equity. On the other hand, the brand is both the message and the medium needed to change a company, to sustainably position it in the competitive environment, and to generate value for the company and society.
Coming back to Milton Friedman: ”... make as much money as possible while conforming to the basic rules of society, both those embodied in the law and those embodied in the ethical customs“ (Friedman, 1962). Everything else, such as pure philanthropy, would constitute abuse of the owners’ resources.
Dr. Thomas Deigendesch is Consulting Director for Interbrand Central and Eastern Europe in Zurich. His experience has provided him the opportunity to work with clients across multiple sectors, like BASF, Credit Suisse, and Deutsche Telekom. Besides general brand consulting he is also expert in brand valuation and worked for clients in London and Zurich. Before joining Interbrand, he worked as a strategy consultant on international strategic marketing and change management projects for a management consulting company in Zurich. He was an associate lecturer and scientific assistant at the University of Zurich and graduated with a PhD in Business Administration.