Mandatory CSR may not create impact: Michael E. Porter
3 min read
. Updated: 12 Oct 2013, 12:16 AM IST
The Harvard Business School professor says businesses should address social problems through profitable business models
New Delhi: Businesses should address social problems through profitable business models rather than through mandatory corporate social responsibility (CSR) activities, said Michael E. Porter, professor at Harvard Business School and a leading expert on competitiveness strategy.
Porter also said businesses, through their strategic thinking and value creation, will be critical to India’s economic progress in the coming years. He was speaking via video conference at the second Porter Prize awards on Friday organized by the Institute for Competitiveness (IFC), an affiliate of the Institute of Strategy and Competitiveness at Harvard Business School. Mint is a partner of the awards.
Mandatory CSR activities may not create an impact as businesses may just look at allocating money for such activities rather than seeking optimal ways for addressing social issues, Porter said.
The most powerful way a business can have an impact on society is with a business model in which social issues like nutrition and poverty can be addressed and societal needs met while creating profit, he said. “That’s the only way to create impact. Meeting the needs and meeting those needs at a profit is crucial", he said.
Businesses are facing increasing pressure to play a role in solving India’s societal problems. Companies are being made to donate for social causes, but there is no evidence that it is creating any difference, he said.
India’s new company law asks companies with a net worth of more than ₹ 500 crore or revenue of more than ₹ 1,000 crore or net profit of more than ₹ 5 crore to spend 2% of their average net profit over the three preceding years on CSR activities. “Organizations just sprinkle money around, but there is no social impact and no solution arises from this approach," Porter said.
Businesses will have to actively involve themselves in addressing the country’s social and environmental problems, he said, adding, “Businesses are being seen as not necessarily contributing to society but instead causing social problems by actions like laying off people". The Mint-IFC award winners were Yes Bank Ltd, Nestle India, Mahindra Logistics Ltd, Sobha Developers Ltd, Maveric Systems Ltd and Siemens Technology and Services Pvt. Ltd.
Panellists at the event said companies constantly face a trade-off while making choices and will need to look at what not to do in order to be successful in their ventures. “We are constantly faced with trade-offs and these are the things that have pretty big impact on organizations. You need to have guiding principles to go through these trade-offs," said B.K. Sethuram, vice- president, Dow Coatings and Construction, Dow India. “Having clear values, clear strategy and set of goals and clear view of current reality is important to make trade-offs and choices."
“You need to have constant eyes on what’s happening around you, out there, because strategy is based on assumptions," he added. While agreeing to look at meeting social needs with new business models, panellists at the event also said technology and digitalization are key drivers for determining strategies and bringing architectural shifts in organizations.
“Changes in recent times have been more profound. World today has become an open architecture. Changing consumer behaviour based on digitalization determines the behaviour of organizations," said Vinod Sawhny, former member of Airtel Management Board. “Recently there was an opening in a telecom company for youth proposition manager. It shows the shift that is happening and businesses are being conducted in a different manner."
“Digitalization and technology are the factors that are going to determine how organizations are going to behave," he added. Other panellists at the event were Devi Shetty, managing director, Narayana Health; Gerd Hoefner, managing director and chief executive officer, Siemens Technology and Services; and Ravi Varanasi, chief, business development, National Stock Exchange.