Does the ‘CSR state of mind’ hold organisations back from greater purpose and prosperity?

Many organisations see their relationship with the wider world through the lens of ‘corporate social responsibility’ – does this hold them back? Not only from the positive impact that they could have, but from becoming better organisations? As the August 2019 statement on corporate purpose of the American Business Roundtable indicates, the tide may be turning towards a new understanding of why businesses exist: one based on purpose.

At Impactical, we believe that a broader sense of purpose, not solely responsibility, is the starting point for creating more resilient, more prosperous organisations and greater positive impacts on people and planet. We think of ‘purpose’ as an organisation’s ‘why and how’: why they exist, why their employees come to work in the morning, why customers or partners choose them. And after finding the ‘why’, purpose needs to clarify the ‘how’. As described by the British Academy’s Principles for Purposeful Business, this means ‘how companies assist people, organisations, societies and nations to address the challenges they face, while at the same time helping companies to avoid or minimise the problems they might cause.’ Both are required: anchoring the ‘how’ to the ‘why’ means that an organisation’s purpose shapes how they define challenges and solve problems.

There are three principal reasons why an organisation that starts from purpose, rather than sticking to the ‘CSR state of mind’, can achieve greater prosperity and impact; which we will outline below.

1. CSR starts from the wrong place

Looking at the definition given in a major textbook on CSR, we can see how CSR starts off on the wrong foot:

‘[…] Corporate social responsibility (CSR), McWilliams and Siegel (2001) define broadly as “actions that appear to further some social good, beyond the interests of the firm and that which is required by law”’ (from Crane, Matten and Spence (2014) 2nd ed.)

Within this, we can see the key flaws taught to business school students about CSR: ‘actions that appear’ and ‘going beyond the interests of the firm’. Why should appearances matter above all else? Why are the CSR actions ‘beyond’ the firm’s interests, and not aligned to it?

Although some have defended better, more aligned CSR as ‘strategic CSR’ – like proponents of strategic CSR did when responding to Michael Porter’s ‘creating shared value’ approach – the extra word does not fundamentally tackle the limitations of CSR. As soon as it is an ‘add-on’, the interests of communities, society or the planet now exist outside the boundaries of ‘the interest of the firm’. Therefore, the impact of these activities on the world, and on making the organisations themselves better, will always be limited. Genuinely transformative activities must start from purpose: a fundamental alignment of the organisation’s ‘why and how’ with solving the problems of people and planet.

2. CSR does not shape decision-making

From the boardroom down, CSR is unlikely to fundamentally change decision-making

At the very least, we can say that CSR does not move decision-makers beyond a ‘defensive’ mindset, or a ‘promotional’ one, when it comes to their wider impact. CSR does not start from ‘creating shared value’: delivering a product or service that matters, making the world a better place, looking after an organisation’s people, or strengthening the communities in which it operates. CSR aims to supplement or protect what already exists. Even moving to consolidate CSR initiatives does not overcome this limitation. CSR does not affect the big decisions leadership has to make, nor can it influence what an organisation does on a day-to-day basis – the biggest source of positive (and negative) impact an organisation has.

This will always limit an organisation’s positive impact – both its wider impact on the world, and impact on making the organisation itself better. CSR fundamentally does not shift the dial on what ‘value’ is or how the organisation creates it.

The changes in decision-making from aligning to purpose creates fundamentally more resilient organisations. For example, starting from purpose can be the first step in a post-pandemic recovery that delivers long-term value. As Peter Harmer, CEO of IAG, recently told McKinsey Quarterly, “[…] our resilience didn’t start with COVID-19. It started years earlier, when we realized what it takes to be a purpose-led organization and just how deeply that needs to be embedded in the decision-making processes of the organization.”

3. CSR is not relevant to all types of organisations

NGOs need to find clarity of purpose too, to better align their activities to the purpose intrinsic to why they exist, to motivate their workers, to understand the wider impact that their work has, and to build greater resilience to external shocks.

Even with the public sector, the ‘purpose’ that brings policymakers and civil servants to work every day may be implicit, or obvious, but that makes it no less important. Any big organisation can get overwhelmed with complexity and lose its focus on why it exists. For example, mission-led innovation policies, legislation that considers the impact of policy on future generations, and people-centred healthcare services are all recent examples of how government bodies can realign activities to focus on their purpose. CSR is not relevant to all types of organisations, purpose always is. 

Final thoughts

Finding, embedding and scaling purpose is hard. But purpose-driven businesses are more resilient to shocks of all kinds, including the Covid-19 pandemic. And resilience will be the key quality of businesses in the post-Covid-19 world. Resilience to social, environmental and economic factors, but also a commitment to building that resilience with others – those that work with the business, those that the business works for, and those who feel the impact of what the business does.

Recommendations

• Start from purpose, a unique ‘why’ that has a consistent alignment with ‘how’, with a commitment to defining and embedding purpose from leadership.

• Understand how a commitment to prosperity through purpose, not the primacy of profits, will affect decision-making horizons (and thus the decisions that get made).

• Throughout the process of finding or uncovering purpose, engage broadly and deeply across the whole organisation (and outside it as well), engaging stakeholders to unlock a purpose that is authentic, unique and transformative.