From Corporate Social Responsibility to Corporate Sustainability

CSR as Philanthropy

Corporate Social Responsibility (CSR), like many business jargons, means different things to different organisations.  For some companies, CSR is almost synonymous with philanthropy. From charity donations, planting trees to corporate volunteering, these companies pursue CSR activities as a means to build a good brand image. With rising public rampage against the evils of capitalism, the ‘need’ to adopt CSR as a reputation (or risk) management tool has become more real than ever. Other companies take a more integrated approach. They will consider the social and environmental consequences of their business activities.  CSR is not an after thought but aligned with their operation and stakeholder management processes to minimize the negative impact on the society.  Yet a 2001 Harvard Study by Mohr, Webb, and Harris showed that although these CSR activities inspire a positive image of a company, it is far from certain that customers will change their purchase behavior as a result.

CSR as a Value Creation Tool

Truly successful companies integrate CSR as part of the overall corporate strategy to enhance their competitive advantage. CSR becomes a proactive value creation tool to innovate the business, develop human capital, enhance energy efficiency and develop shared values with customers and the society at large.  Below are three examples:

• P&G and Unilever deliver micro versions of their products to the bottom of the pyramid in developing countries.
• Patagonia has launched an advertising campaign with the headline of "Reduce What You Buy”, appealing to the green conscious customers who are at the same time prepared to pay more for quality products.
• Standard Chartered ’s partnerships with local blindness charities around the world has led the bank to introduce “speaking” ATMs with Braille keys and recruit the blind from the school for its call-centres. 

Proactive Corporate Sustainability

Some people consider the above as examples of Strategic CSR but I believe Corporate Sustainability is a more appropriate description. Corporate Social Responsibility, as suggested in its name, implies a reactive approach i.e. the company is obliged to giving back to the society (to ease its conscience) for all the money it makes. Corporate Sustainability in contrast is a proactive strategy to ensure an organisation’s long-term growth, taking a balanced development approach to profit, people and planet. It is a business approach that creates long-term shareholder value by embracing sustainability opportunities while at the same time successfully reducing and avoiding sustainability costs and risks.

Purpose-Driven Business

Central to the sustainability policy is the definition of the ‘core purpose’ of an organization.   Like a compass, the purpose governs the vision, the values, the brand promise, the strategic and operational priorities and the behavior of senior management. Organizations that put purpose at the heart of what they do give meaning to and establish strong emotional connections with their employees and customers alike.  It is a potent source of employee engagement and brand building, differentiating the winners from the losers in a commoditized and crowded marketplace.  A 2010 IMD/Burson Marsteller Corporate Purpose Impact Study showed that a strong, strategically coherent and well-communicated corporate purpose is associated with up to 17% better financial performance.

Developing Corporate Sustainability in Asia

Asia, probably with the exception of Japan, has traditionally been lagging behind Western Europe and North America in CSR practices. In recent years, we have witnessed more and more companies adopting CSR practices albeit a majority is still at the image building or reputation management level. Of the 2012 Global 100 Most Sustainable Corporations, 16 are from Asia - 11 from Japan, 2 each from Singapore and South Korea and 1 from India.  A recent study by EIRIS, a responsible investment research specialist, shows that only 1 percent of Asian companies made to the top grade based on environmental, social and governance (ESG) issues, compared to 20% in the UK. 

What are the key drivers for driving sustainable businesses in Asia? Companies in Asia obviously have to realise the case for sustainable business, that “doing good” is not just philanthropy but strategically linked to “doing well”. They have to take a long term and holistic approach to business growth and be prepared to sacrifice short-term gains.   It requires considerable mindset changes as well as capacity building work.

Role of Stock Exchanges

According to Richard Welford, Chairman of CSR Asia, governments and quasi-public bodies—particularly stock exchanges – are some of the most important drivers. In Hong Kong, Malaysia, the Chinese Mainland, and more recently Singapore and Thailand, stock exchanges are playing an increasing role in encouraging reporting on sustainability. Quality and transparent ESG disclosure is crucial for investors to start demanding sustainable business practices in lieu of short-term financial gains. The growing sustainable investment market also presents new opportunities for stock exchanges in the form of new products and services for responsible investors. These include specialized indices such as the Johannesburg Stock Exchange Socially Responsible Investment Index.

Consumer Education

Consumers and the civil society also play a vital role in demanding more sustainable businesses. Unlike those in North America and Western Europe, consumers in Asia fall largely in the price sensitive or brand conscious groups. What a brand stands for, in terms of its core purpose and values, is relatively unimportant for most Asian consumers. However, this is changing as more and more Asian societies become more affluent – especially amongst the young generations.  As more Asian consumers start to move up the Maslow’s Hierarchy of Needs in search for meaning and self-actualisation, companies will be obliged to change their brand strategy.

Role of the Civil Society

The civil society can be a catalyst in consumer education, as well as in delivering sustainable solutions together with corporations.  NIKE, for example, has transformed its corporate responsibility function into Sustainable Business and Innovation to integrate sustainability into its business model. One of the key pillars of its sustainability strategy is to mobilize the civil society in scaling solutions. It has been working with Creative Commons and other brands to build a digital platform (the GreenXchange) to enable the sharing of sustainability innovations on a global scale.

In Hong Kong, we have recently launched Let’s Make a Difference – a network of like-minded philanthropists and corporations - to promote the development of innovative and sustainable businesses. It grows out from the Make a Difference initiative that was introduced in 2012 to inspire and empower young people to create positive economic, social and environmental changes for Asia. We are recruiting members to Let’s Make a Difference and look forward to partnering with organisations that want to leverage the creativity, knowhow and network of young people in making a difference.

Innovating Capitalism: Making Money with a Difference

Does capitalism in its current form still serve the common good of society?  The global financial crisis has triggered intense debate, most recently in the Financial Times, about the future of capitalism, and whether capitalism -the driver of innovation - is overdue for innovation itself.

The answer to the call for “better capitalism” lies, in part, in a critical rethink of the role of business in society. Maximizing shareholder value is no longer the Holy Grail. Companies that perform best over time are purpose-led organisations that seek to build sustainable businesses in the interests of all stakeholders.  

These companies make money but purpose, not profit, is their raison d'être. They advance productivity, improve the lives of people, address environmental issues, boost job satisfaction, manage a socially-responsible supply chain and so on.

Such companies do not necessarily have to be big. We see that at the Make a Difference forum held each January in Hong Kong.  MaD runs an award scheme to identify and champion young change-makers who can bring about economic, social and environmental benefits to Asia an innovative and sustainable manner. Winners of the 2012 MaD Award amply demonstrate how small enterprises can change the world in a big way.

Take Marina Gana Vida (MGV), a company which runs a fish farming business in Mindanao, an area of the Philippines that has been plagued by widespread poverty and civil unrest caused by religious differences. By introducing an eco-friendly supply chain, from fish breeding, to making nets, storage, processing to distribution and marketing, MGV contributes to conserving marine resources and improving the livelihood of 2,500 Muslim households.

Founder Jonah Nobleza established MGV as a social enterprise unit of Strategic Development Corporation Asia in 2007 at the age of 30.  "MGV is governed by three maxims," he said. "We believe in healthy food for consumers, vibrant and resilient coastal households as well as a happy earth." Armed with compassion, courage and business acumen, Jonah and his team aspire to develop MGV as the leading supplier of all natural marine products in the Philippines in the next ten years.  As the Grand Award Winner of the 2012 Make a Difference Award, MGV will use its US$20,000 cash prize to set up a community feed mill to facilitate its shift to full organic fish farming.

Doing good and doing well is not confined to social enterprises. Arthur Huang, a university professor, engineer and architect, founded MINIWIZ S.E.D., LTD in 2006 at the age of 28.

“Producing less and buying less are the only solutions to sustainability. But how can we achieve this when business demands growth and consumers desire more?”  Arthur saw this as the challenge and opportunity for Miniwiz. Synergizing expertise in design, engineering and manufacturing, his company delivers innovative, cost competitive and attractive solutions and products under its 3Rs mantra – Reduce, Reuse and Recycle.

Miniwiz’s most prominent project “EcoARK” was built for the 2010 Taipei International Expo using 1.5 million PET (plastic) bottles that were 100 per cent upcycled.  It has also developed ground-breaking waste composites called POLLI-BER, made with recycled thermoplastics and agricultural waste. Miniwiz is now working with the Harvard Graduate School of Design to research into sustainable construction and materials with a specific focus on Asia.

Small organisations can also make a big impact by influencing large companies and leveraging their resources. Beijing-based Horizon Corporate Volunteer Consultancy, founded by Wang Zhong Ping in 2005, has assisted over 100 enterprises in China – including Fortune 500 companies - to run corporate volunteerism programmes by pairing charity organisations with corporate resources. The consultancy has worked with over 100,000 volunteers and 600 charitable organisations, benefiting more than 100,000 children, the elderly and the disabled.

Productivity growth backed by decades of conventional capitalism has resulted in cheaper consumer goods becoming more available while basic needs such as food, housing, healthcare, energy and education are becoming less affordable. Governments all over the world are facing the dual challenges of meeting these needs without landing themselves deeper in debt.

I believe today’s opportunities lie not so much in producing more, better and cheaper consumer goods, on the old capitalist model, but in businesses providing innovative and profitable solutions to meet the social and environmental needs in both developed and developing economies. As each year’s crop of MaD Award winners demonstrate, such businesses can succeed on their own or in partnership with governments and NGOs.

Myth about 'social enterprises'

The controversies surrounding social enterprises in Hong Kong stem from three fundamental reasons.  First, the definition of a social enterprise is contextual. It is difficult to come to a universal consensus on what a social enterprise is. Creating job opportunities in rural India is certainly a social enterprise, but it may not be the case in Hong Kong. The government advisory committee for social enterprise funding discussed a definition for months, but unable to reach a consensus, decided to put it aside.

Second, the Government puts policy responsibility for social enterprises under the Home Affairs Bureau. But as rightly pointed out by Raymond Yim of the Social Enterprise Incubation Centre, social enterprises should not be the monopoly of NGOs and should definitely not be run as charities. Making profit should not be perceived as something evil. Indeed I would argue that we should encourage more for-profit companies to run social businesses. This is the only way to ensure that people with business skills can build and grow the enterprises on a sustainable basis.

Third, most people assume that enterprises can only do good by benefiting the ‘bottom of the pyramid’ - the disadvantaged, the disenfranchised and the disabled. But the reality is that challenges in health care, environment, education and many other social issues are as relevant to other segments of the society as to the underprivileged. An enterprise can still be ‘social’ if it is addressing the obesity issue of middle class kids.

The November issue of the Harvard Business Review carried a special feature on good companies that ‘create value for society, solve the world’s problems, and still make money’.  This is a new generation of companies that are doing good and doing well in a variety of ways. They improve the lives of people, provide jobs, address environmental issues, enhance employees’ job satisfaction and quality of life, develop a responsible network of suppliers and partners, and last but not the least operate on a financially viable basis to provide resources for the attraction/ retentions of talent and continuous innovation.  They can be big multinational companies as well as small and medium sized enterprises.  Whether they are social enterprises or not are irrelevant. My favourite example is Google. Is Google a social enterprise? Probably not. But has it created enormous value for the world? A resounding yes.

Policy priority (and resources) should therefore be directed at encouraging and supporting the development of ‘good companies’ that can create economic, social and/or environmental value in a profitable (and thus sustainable) manner. Government policies and regulations should encourage responsible investment taking into account Environment, Social and Corporate Governance (ESG) issues.  Government funding support should favour entrepreneurs who aspire to do good and do well.  The annual Make a Difference Award, which champions young and innovative change makers, is a case in point. We have selected 3 finalists for the 2012 Make a Difference Award, and not all of them are the classic ‘social enterprises’. But they are definitely doing good and doing well. You can check them out from www.MaD.asia and cast your vote on the Grand Award winner.

 

Why Cubans are happy?

I was in Havana last week. With the mix of European and African culture, it is a very interesting and 'colorful' city with so much to do. In fact, it doesn't feel like a 'socialist' country. Yes, most of the buildings are old and run-down. People are poor, earning from around 300 Euros (most workers) to 1000 Euros (those higher up in the Police/Military). You see entrepreneurial activities everywhere to supplement the family income, from the elderly women selling peanuts to the security guards charging an 'admission fee' for entry to museums beyond the official opening hours. But there is a lively rhythm in the air everywhere. Cubans have music and dance in their blood. They feel happy and content. Why?

First of all, very simple,  I think it is the weather. It is rather difficult to be melancholic if you have the sun shining on you. I bet there are more happy people in Cuba than in Finland for this simple reason. Second, Cubans and music (and together with it Salsa) are inseparable, and they take great pride in their cultural traditions and influence in the world. We enjoyed so much the cabaret show (the least you will expect from a 'socialist' country) and the Buena Vista Social Club. I even stumbled on the grave of the iconic Ibrahim Ferrer who died in 2005. Havana is a perfect example of how art improves the quality of life and make people truly happy. (And the cigars may also help!) The Cubans also have a good aesthetic sense. Contrary to my perceptions, there are not too many political slogans in the street. Fidel's photo is almost absent. Even if there is political propaganda, it is done in a very artistic way. The Communist Chinese certainly have a lot to learn from the Cubans. Hamel is a must go, with its street art, sculptures, murals and graffiti.  The UNESCO preserved old town along the Calle Obispo is an architecture gem. We went to an arts and craft market and happily found some nice paintings.

Third, it is the Government. Yes - I am not kidding. Most Cubans have high respect for Fidel Castro, as he has ended the inequality and corruption of the Batista regime. The Cuban government provides free and good standard education and health care to its citizens. Many university students study science and medicine. One of its major exports is medical doctors to Venezuela - in exchange for oil. Housing is on a 'communal' basis, as people live together in big families across generations. Although Cuba is very poor by Western standard, compared to most Latin American countries, Cubans think they lead a much better life. It is certainly a very different story to the one portrayed by the Americans.

Apart from Fidel, Jose Marti (like Sun Yet Sen of Republic China), Che Guevara and Camilo Cienfuegos are greatly admired. To some people, they are terrorists but to most Cubans, they are like saints. Indeed there is no absolute truth in history. And Fidel is a great orator. He is known for his long speeches but they are so emotionally uplifting for the Cubans. For example, when the Batista Government was overthrown, he said 'for the first time in history, the government will side not with the rich but the very poor.' I still don't have the answer whether bloodshed is essential in a revolution.  Similarly when one introduce change in a corporate setting, sacrifice for the greater good is probably inevitable. (To share with you a little secret, the name InnoFoco is inspired by Che's foco theory - fast moving guerillas attacking the establishment from the fringes.)

I love Havana and would like to go back again.

Let us give innovation a new meaning

The recent report by the Chinese Academy of Social Sciences has raised an alarm bell on Hong Kong’s losing competitiveness and its sliding ‘happiness’ index. There was a timely article in the Financial Times last week written by Richard Florida (an expert in the creative economy) on how America can fix its broken jobs machine. Florida’s piece may be able to shed some light on Hong Kong’s current predicament.

Florida posited that neither job creation, nor educating more people for higher paying jobs will solve the problem of “the bifurcation of the job market and an increasingly unequal and polarized society,” an unsettling phenomenon that we are all very familiar with in Hong Kong. A successful job strategy must focus on upgrading the entire low wage service job category through service innovation.

Using the example of Zappos (a successful online retailer), Florida showed how companies should value their employees, view them as a source of innovation, help them move through an internal career ladder and most importantly, build a culture and community that delivers better services (aka happiness) to customers.

Florida’s piece is a potent reminder that innovation is not just about product and technology.  It is equally, if not more important, to create value through service innovation. Companies and organisations need a more creative and holistic approach to differentiate themselves and enhance productivity. Service innovation entails customer experience innovation (e.g. Starbucks), business model innovation (e.g. IKEA), process innovation (e.g. Li & Fung’s supply chain management) and/or management innovation as in the case of Zappos.  It also includes social service innovation as the public /NGO sector is arguably the largest employer. The ‘application’ of technology is crucial in service innovation, but not necessarily the need for technological ‘innovation’ as such.

Florida pointed out the need for a national initiative to promote and nurture ‘service innovators’. And because many service companies are ‘small’, the government can take the lead to foster partnership with universities, professional and industry associations.

The introduction of the minimum wage marks a new chapter in Hong Kong’s job market. However, it is questionable whether ‘money’ alone can solve the problem. According to the 2010 Towers Watson Global Workforce Study, Hong Kong’s employee engagement level is substantially lower than the global and even regional levels. Equally important is the need for employers to come up with innovative approaches to enhance productivity gains to offset the higher operating costs on all fronts.

The Chinese Academy of Social Sciences argued that Hong Kong was under threat because of the city's under investment in high-tech research and development and the creation of new industries. These are probably true, but more importantly; I think Hong Kong has misunderstood what ‘innovation’ should really mean for this city.  If we continue to think ‘innovation’ as an industry, a product or a technology, as implied in the Government’s six new pillars of industry, there is no way that Hong Kong can reap the real benefits of innovation across all sectors of the economy and the society.

Meaning of the Arts and Arts Education: Need for an Ecosystem Approach

Arts education is a rather nebulous concept in Hong Kong. Some see it as an entrance ticket to a good school. Many posit that Hong Kong should do more arts education because we need more arts talents and a bigger audience for the West Kowloon Cultural District.

The arts should bring about personal, economic and social benefits, in addition to the obvious cultural values. Quality arts education is conducive to the nurturing of creative and critical thinking, and communication skills. There is thus a strong linkage between arts education and the development of a knowledge economy that thrives on creativity and innovation. The arts also serve a tremendous social value, building social cohesion and identity. They are also powerful social inclusion tools, through empowering deprived communities. Policy makers should take an eco-system approach to arts education and audience development. 

By international standards, Hong Kong has one of the highest percentages of children learning arts. However, Hong Kong has yet to reap the multiple benefits of the arts because there is limited understanding in different quarters of the society about the real value of the arts and what constitutes a ‘quality’ arts education. Despite the huge number of children doing arts classes, not all of them become ‘consumers’ of the arts. 

Arts education is like foreign language learning.  It does not necessarily take place in a classroom setting. If Hong Kong aspires to build a more arts literate society, we need to make the arts part of the everyday life of the populace. We are not only talking about out door or community arts but also our living environment – from the design of our city and buildings to the posters that adorn our streets and the media we consume every day.

In addition to a more arts rich environment, the arts groups also have a role to play in arts education - so long as they receive public funding.  Indeed audience development should not be just about promotion. We need a holistic and integrated approach to reduce the entry barriers to the arts - from programming, pricing, venue to the audience experience. We should develop peoples’ interest in different arts forms – from the more popular arts to the classical arts. Policy makers and arts providers have to take a more audience-centric approach – to understand what make or break an enjoyable audience/visitor experience.

The West Kowloon Cultural District is not just an iconic landmark.  It will serve as a powerful catalyst in propelling Hong Kong to become a creative metropolis. It will bring a better quality of life to Hong Kong people. The hardware aside, we should take a critical look into how arts education and audience development should be done in Hong Kong. It is not so much about the number of people taking arts classes or the number of arts and cultural performances. What is more important is the quality of our arts education and offerings. We also need a sustained communications campaign to promote the values of the arts and the real meaning of arts education, without which arts will continue to be perceived as something marginal.

Is user-centric innovation dead?

User-centric innovation has attracted a fair share of cynicisms and criticisms lately. Quoting the examples of Apple and IKEA, this recent piece argued that companies should lead their users, not the other way round. (http://www.fastcodesign.com/1663220/why-user-led-design-is-a-failure?partner=homepage_newsletter)

I recall we had a similar debate at a marketing class back in the b-school days. As what we have learnt from our business education, the short answer is really 'it depends'. Which side you take hinges on how one defines user-centric innovation. If we simply see this as asking people whether they like a certain new product concept, then user-centric innovation probably has limited value. But if we take a broader view of what user-centric innovation should be, I think there is still considerable value in listening to your customers.

I have just come across a good example today. Ashley Madison is a dating website for aspiring adulterers. The founder obviously did not ask people whether they fancied such a website. He realised that 30% of users of Internet dating services were pretending to be single when they weren't. So he discovered that there should be a market for a website for cheaters.

This is precisely user-centric innovation. Observing and listening to customers will not tell you what kind of products they need, but it will give you insights on their latent needs and wants, values and aspirations. This is by no means a straight forward process, but is definitely necessary.

By the way, if Apple would listen to me, I will tell them that they need to design a new Mac book with a screen that can be adjusted to the eye level of the user. It's a pain in the neck, spending too much time looking down on the laptop.