By Marcus Coetzee, February 2008.
Corporate social investment is entering a new era in South Africa as companies comply with legislation and respond to the expectations of society. The central question for many companies is whether their corporate social investments are simply a mandatory expense or a strategic opportunity.
We believe that companies can gain a strategic advantage through their social investments, provided they integrate their social-investment strategies with their business strategies. In other words, it is possible for companies to adapt to trends, comply with laws and win at the same time.
In this article, we examine the different types of corporate social investment and discuss what companies need to do to get the most out of their social investments.
1. What is Corporate Social Investment?
Corporate social investment (CSI) is the investment of corporate funds, or other assets, for the primary purpose of achieving social outcomes because there is a business case for the investment.
The primary intention of this investment is to achieve social outcomes. The expectation is of a “social return on investment”, which may not always be measurable in economic terms.
While focused on a social return on investment, CSI is intended to enhance a company’s reputation, its strategy and possibly lead to preservation or an increase in long-term shareholder value.
2. Is Corporate Social Investment a Passing Fad or Here to Stay?
We believe that corporate social investment is becoming part of doing business in this new era. It is here to stay and is driven by a number of trends, such as:
- the demand for companies to become good corporate citizens
- the growth of ethical consumers and investors
- the increase in prescriptive legislation (e.g. Black Economic Empowerment codes) and industry charters
- the development of “technology” to measure a company’s impact on its environment
- the need for companies to attract and retain their talented people.
3. What is Good Corporate Social Investment?
Many companies are wondering what they should do in order to gain the most out of their social investments. The answer is to design a CSI programme centered on a sound business case – a strategic CSI programme. This should not be confused with social responsibility, being a good corporate citizen, philanthropy or the funding of social programmes merely for the publicity they will attract.
a. Corporate philanthropy
Corporate philanthropy is an act of genuine benevolence. It involves companies funding social causes that have touched their hearts (e.g. AIDS orphanages or flood victims). These companies receive no real strategic benefit although they may receive favourable publicity.
b. Marketing-driven CSI
Marketing-driven CSI involves companies funding causes that will create good publicity, even if there is no or minimal strategic benefit. These companies will tend to let their marketing or corporate affairs departments drive these publicity-seeking programmes. Although these programmes may have some social benefit, any strategic benefit they attract is likely to be minor and publicity-related.
c. Strategic corporate social investment
In contrast, strategic CSI involves companies investing in social causes that will enhance their strategic position over the long-term. These companies will have also designed their CSI programmes so that they will realise these strategic benefits even if these programmes are not publicised.
4. How do Companies Set Up an Effective Corporate Social Investment Programme?
Here are our top six pointers for companies wanting to setup an effective and strategic CSI programme.
a. Treat your CSI programme as an important part of your business
We recommend that companies treat their CSI programmes as an important part of their business. This means giving these programmes the resources (people, time, money, attention, expertise, etc.) that they need in order to deliver the desired outcomes.
We also recommend that companies involve their executives when designing their CSI strategies and setting the desired outcomes. These executives must ensure that their CSI strategies fit with and enhance their business strategy; it should address their strategic context and social/environmental concerns.
Unfortunately, there is a tendency amongst South Africa’s companies to treat their CSI programmes as simply a compliance issue. Such companies tend to give the design and running of their CSI programmes to an administrator or existing, already-busy line manager.
b. Investigate your strategic context for CSI opportunities.
We recommend that companies investigate their strategic context (demand, supply, business environment and related industries) so that their CSI programmes benefit them and deal with their social and environmental issues.
For example, South African Breweries has found good opportunities to work with:
- demand (It helps to set up and formalize shebeens/taverns.)
- supply (It helps farmers to set up hops farms.)
- related industries (It helps drivers to set up trucking businesses.)
- business environment (It promotes responsible drinking (e.g. Arrive Alive) and helps shebeens become legal establishments.)
- social consequences (It supports organizations such as FAS Facts that works to alleviate and deal with Foetal Alcohol Syndrome.)
Companies that are aware of their strategic context and responsibilities are also more likely to cooperate with other companies, including their competitors. For example, Tetra Pak and Nam Pak have begun to work together to find ways to recycle their post-consumer packaging waste.
c. Invest in the capabilities of nonprofit organizations with whom you work.
Many companies work closely with nonprofit organizations on their CSI programmes; this is to be encouraged since working for social benefit is their business. They provide nonprofit organizations with funding to act on their behalf.
We recommend that companies select well-run, effective nonprofit organizations that specialize in the area in which the company wishes to ensure social progress.
We also recommend that companies develop an active hands-on relationship with these organizations to assist them to achieve their social outcomes. It is shortsighted that so many companies hesitate to invest in the capabilities of nonprofit organizations, especially when considering the long-term benefits.
d. Do not limit yourself to one form of social investment
We recommend that companies do not use donations as their only form of social investment.
Companies can also invest through providing their personnel, products, services or facilities. Some companies allow their staff to volunteer a part of their in-work time to a nonprofit organization. There are even companies that prefer to invest in social-purpose businesses using equity or discounted loans.
The Shell Foundation recently commissioned a study that highlights the successes of companies using debt or equity as social investments. For example, the Acumen Fund has helped to set up a business in Tanzania that now provides millions of families with affordable and specially treated mosquito nets – and this fund recovered its investment.
e. Measure the outcomes (not activities or outputs) of your CSI programme.
We have noticed that many companies are preoccupied with the activities and outputs, rather than the outcomes, of their social investments. (This is also an affliction of many nonprofit organizations and government departments).
Companies that focus on activities and outputs will measure their success by things such as how many workshops they have run, how many people they have trained, and how many clinics they have financed.
In contrast, companies that focus on social outcomes will measure their success by what that these outputs have achieved: a measurable “change of state”. In crime prevention, for example, an activity could be the installation of monitoring cameras, an output could be the number of crimes caught on camera, while an outcome would be the reduction of crime. A responsible initiative would then investigate if the crime has merely shifted to another area if there has been a more pervasive reduction in crime.
The good news is that in sound social programmes, it is possible to attain impressive outcomes with minimal resources.
f. Engage with stakeholders when designing, running and evaluating your CSI programme.
We recommend that companies properly engage with their stakeholders when designing, running and evaluating their CSI programmes. We believe that this is one of the best ways for companies to build their brands as responsible organizations and communicate the achievements of their social investments.
Remember that an effective CSI programme will provide a company with strategic benefits even if these programmes are not publicised. The publicity is an additional benefit. This is contrary to a marketing-driven CSI programme where this is the primary goal.
5. Final Word
South African companies are entering a new era in which they will need to both become good corporate citizens and have good CSI programmes. The former is obligatory, the latter optional. Companies that have setup strategic CSI programmes will have converted a responsibility into an opportunity, and made good use of company funds.
Marcus Coetzee is a business strategist who helps leaders to think clearly about the future. To find out more about how he can help you, call 0828799131 or visit Marcus Coetzee.co.za.