Real and relevant CSR (Corporate Social Responsibility) creates value

I was recently among the audience of a CII event, where Mr. Salman Khurshid (Minster of Corporate Affairs) was one of the speakers. While he spoke about corporate governance at length, three points from his address especially made sense to me. Firstly the need for corporate governance to be adopted voluntarily and allow regulation be only a support mechanism. Secondly the importance of a progressive mindset and an active civic responsibility for corporate governance to create value. And thirdly that Corporate Governance and Corporate Social Responsibility are not really two separate things.

Allow me to illustrate the workings of the three points above through the Pepsi example. Pepsi was recently in the news following the company's promise to wean itself off sugar, salt and fat. Ms Indra Nooyi wants Pepsi 'to be seen as one of the defining companies of the first half of the 21st century and a model of how to conduct business in the modern world'. She says that Pepsi should be part of the solution to one of the world's biggest public-health challenges (obesity) and not part of the cause, as it is has been copping a fair share of global blame.

Not leaving it as a mere statement Ms. Nooyi throws in a few targets, such as; reducing salt by 25% by 2015 in some of its biggest brands, reducing added sugar in its drinks by 25% by 2020 and reducing saturated snacks by 15% in certain snacks. That Pepsi has been voluntarily removing trans fats long before it was required to do so, points to the significance attached to social responsibility, governance and business sense.

Ms. Nooyi points at the motto 'performance with purpose' hinting that she is not trading profits for virtues. That this lady is making sound business sense lies in the fact that Pepsi's growing portfolio of 'good for you' products is estimated to touch $30 billion in revenues within ten years, from its current $10 billion, which is nearly a fifth of the total. Even though the firm's performance was flat in 2009, investment analysts seem to be taking seriously Ms. Nooyi's claim that Pepsi's future is bright.

It is interesting to note that the initiatives taken can and will be measured by clear performance metrics and timelines as stated in the targets. Thus the initiative will not only be driven with purpose but also be measured against the performance it delivers.

While I am confident that Ms. Nooyi's commitments are not a result of Mr. Khurshid's speech or of the latter outlining his speech points from the Pepsi story, the two perfectly complement each other in theory and application.

In my corporate experience I have come across several entrepreneurs and CEO's getting enamored by the concept of corporate social responsibility for all the wrong or farfetched reasons. It would perhaps make good business sense to look inward and start making those changes for both current and long term impact. It is not always necessary to look outward for a cause and / or adopt one just because that is what everybody seems to be doing to make their brand look good!

While CSR might be more ambiguous by nature it certainly does contribute to the value of the company. Intangible asset value is significant to the total enterprise value for almost all brands of repute. Understanding the key drivers of brand value and how brands influence enterprise value can and should inform all management decisions. It is therefore important to diagnose the relevance of CSR initiatives to the core business and its core stakeholders and the subsequent impact on reputation and performance. A sustained CSR programme that reflects brand's core values and delivers its key promise will ultimately enhance brand perception and thus increase and protect brand’s value. But put the measurement metrics in place.

A few weeks ago (long before I got to listen to Mr. Khurshid and read about Ms. Nooyi's corporate commitments) I had lunch with Trade Commissioner of a Nordic country and the topic veered towards CSR. She happened to mention that a lot of companies from her country are looking at India with renewed interest and they want to make the right investments to demonstrate their social responsibility quotient. Therefore what kind of causes to adopt?

In response I told her that there are no quick answers to plug and play, stating the complex nature of CSR initiatives and expectations. However I recollect summing up our conversation by adding that to make CSR an opportunity to create value for all stakeholders, needs the heart of an angel and the mind of a devil. Therein to me lie the machinations of a successful programme.

Antony Rajkumar

(the views expressed above are personal and not representative of my official capacity)