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All things Pharma

“On a clear day you can see the money” Corporate Social Responsibility and ROI

Corporate social responsibility (CSR) has become a central component of corporate branding strategy. But does it have moral or economic objectives at its heart? Does it even have a heart? Dr Andree Bates looks at the rise of CSR and why it is considered so important.

Pharmaceutical companies used to be perceived as providing life-saving and life-enhancing products that helped society. Corporate Social Responsibility programs (CSR) and other such activities have always been a part of the pharmaceutical company environment on top of manufacturing and marketing the medicines they create. However, despite all the charitable work and CSR activity, a recent US poll showed that pharmaceutical companies are now seen by the public on a level equal or lower than tobacco companies. Can CSR programs re-varnish pharma company image and lead to improved reputation? Can this then lead to increased sales and profit? One study found that, despite around 50% of respondents with CSR reporting cited that they undertook CSR programs on moral grounds, around 75% of respondents also found that CSR made sound economic sense for the bottom line also!

The Corporation has had a long and colourful evolution, with early incarnations dating back to at least Roman times. However, the modern concept of ‘the company’ is based on legislation based in the mid-19th Century that effectively gave the Corporation, as a body of shareholders investing in a business entity, certain legal rights and responsibilities that in many ways elevated the company to the same level as a human being, at least in a legalistic sense. However, since that time, it is fair to opine that companies have not always behaved with the best moral intentions, with abasement of worker rights, environmental degradation and general skullduggery more than apparent with the rise of the great companies through the later 19th Century and on to much of the 20th. Well known stereotypes exist of the white-whiskered barons of industry in charge of behemoth companies that straddle the globe, with fortunes to match, along with the ethical depth of a coat of varnish. Although many industrialised nations now have sturdy laws to protect employees, the environment and competitors, multinational companies are still regularly accused of exploiting developing nations, from charges of running sweatshops to offering unfair returns to providers of raw materials.

What does a ‘company’ represent?

Indeed, a critic of the way companies have acted upon human society might easily conclude that if a company does, in fact, represent a ‘person’, that ‘person’ probably most resembles a three-year-old child in a sweet shop, exhibiting similar levels of greed, selfishness and lack of consideration for the future impacts of their actions. Companies, of course, tend to see themselves somewhat differently, defining as their sole purpose to distribute maximum profits to their shareholders. In this way, unpopular activities are justified for the greater good of the shareholders. However, a perhaps more enlightened view has emerged by which customers are recognised as an important part of the equation. While shareholders have supplied the capital for a company to exist, for a company to turn a profit and grow, it needs customers. In highly competitive environments, customers can be a scarce resource, such that companies are becoming increasingly aware that they are accountable, not only to shareholders, but also to the communities in which they engage. Despite the old adage, bad publicity is a very real thing and some companies have learned to their cost that it is better to avoid the wrath of consumers enraged by morally suspect business practices.

According to a survey conducted in 2005 of 250 top global companies, just over half the respondents had listed CSR activities as part of their annual reporting and, of those, half of the companies stated that they had engaged in CSR programs to reflect ethical considerations or company values

What does CSR provide?

However, the reverse is true in that ethically sound business practices might be rewarded with good publicity and public support; hence, the rise of Corporate Social Responsibility (CSR) strategies by which companies focus on forms of social, environmental or developmental good as part of a company’s business function. CSR has various definitions, ranging from broad descriptions as key indicators of non-financial performance to more specific examples as provision of social benefits not immediately tied to the product or service being offered by the company. According to a survey conducted in 2005 of 250 top global companies, just over half the respondents had listed CSR activities as part of their annual reporting and, of those, half stated that they had engaged in CSR programs to reflect ethical considerations or company values. Yet, there is more to CSR than merely allowing companies to feel good about themselves and a number of benefits have been associated with CSR:

Positive brand image

Customers, particularly in developed nations, are becoming more market savvy and more aware of their power as consumers. Companies can use CSR programs to generate goodwill that raises the company profile in the minds of customers. In highly competitive markets with limited scope for price discounting, intangible advantages around aligning corporate values with the values of their customer-base can provide an important edge to maintain or increase market share.

Positive corporate image

One of the benefits attributed to CSR programs is the goodwill generated within a company. Employees that see their company involved in good work can be more motivated, show more loyalty to the company and be less likely to want to move to a competitor. Prospective employees might be more likely to be attracted to a company with a good CSR track record, thereby improving the quality of the job candidates.

Positive spin-offs

Involvement in CSR can also lead to tangible benefits for the company. For instance, focus on the local community might result in benefits such as reduced crime or improved community assets, which might then be reflected as reduced losses to vandalism, reduced compliance costs or even more constructive relationships with local authorities. Likewise, focus on development-type programs (for instance, programs involving suppliers of raw materials in Third-World countries) may lead to improved efficiency and reduced costs or enhanced security of supply. Access to innovative solutions is another common benefit associated with CSR programs.

Positive economic benefits

It is telling that in the 2005 survey mentioned above, around 50% of respondents with CSR reporting cited that they undertook CSR programs on moral grounds whereas around 75% of respondents found that CSR also made sound economic sense. For instance, environmental issues, such as global warming, have been used to promote energy savings programs that staff are happy to participate in and which can make significant savings to the company in terms of lower energy costs. Likewise, themes of reducing waste can lead to the introduction of recycling initiatives that can reduce waste management costs and/or resource usage. These lead to ‘win-win’ situations where environmental benefits can lead to both improved corporate profits and enhanced employee morale.

Critics of CSR

Of note is that there are critics of the CSR concept. The idea of ‘winwin’ scenarios can lead to claims that companies will indulge in CSR only if there is money to be made, such that social benefits are still entirely secondary to the absolute drive to improve profits. Thus, the only difference between a CSR program and any other strategic decision to enhance shareholder returns is the type of spin that can be attached to it – that is, CSR is just business-as-usual with better PR. Such cynicism might be supported by the claims that companies, in many cases, define for themselves what is meant by concepts such as ‘environmentally sustainable’ or ‘community development’. Thus, while the results of CSR programs may be announced with great fanfare, there is often no independent means to judge whether the programs were, in fact, successful in terms of delivered benefits or, indeed, if the benefits were worth having in the first place.

Such issues are exacerbated where CSR programs are conducted in developing countries, well away from First-World customers. Also worth considering is the fact that CSR programs can fail, and that this failure can seriously harm the reputation and, therefore, the bottom-line of the company. A well known example is that of the ‘Smallholder Program’ run by the biotech company, Monsanto, originally designed to support Third-World agriculture. According to one account, while Monsanto’s original initiative may have reflected altruistic motives from within the company as well as potentially providing benefits to the business over the long term, commercial imperatives began to predominate and the program collapsed amidst significant adverse publicity. Also to be avoided are attempts at CSR being considered as mere tokenism or ‘window-dressing’. For instance, a manufacturing plant might make a great show of preserving the ‘spotted-this’ or ‘horned-that’ but, at the same time, be responsible for large scale pollution of the local environment, and such ironies tend not to be lost upon the local community or any passing environmental activists.

Successful CSR programmes

There appear to be several characteristics of successful CSR programs, the principal being that CSR should become part of the company culture and its overall strategy and not just the responsibility of a luckless HR Department. For CSR to be taken seriously, it should refl ect the intentions and practices of the company board down. In this way, CSR becomes part of the way a company does business, gaining the buy-in and support of the entire staff. Another desirable trait is to associate a CSR program with an external standard or even an audit by organisations that specialise in Social Responsibility or environmental sustainable programs. Various standards exist by which CSR efforts can be assessed and CSR reporting, either as part of the annual report or as a stand-alone report, are becoming increasingly common and allow the public scrutiny of company CSR activities. In addition, in many cases, government agencies, aid organisations or charities that fully support the ideals of CSR willingly provide support and advice to ensure that any CSR program can actually achieve its goals. CSR programs can be analysed in analytics. Analytics have been shown to tease out how much impact the CSR program is having on the company’s overall market share and, in many cases, this can be seen to be impressive. Although they should be undertaken for ethical reasons, it is nice to see the knock-on effect of this being measured in these terms as you can measure both the ethical and financial gains.

Summary

To return to the metaphor of ‘the company’ approaching the legal entity of a person, perhaps CSR is a sign that the ‘three year old in the sweet shop’ has started to grow up. Although CSR has its pitfalls and is not without risk, its growing popularity in companies both large and small, and reports of its benefits – both ethical and financial, attest to the value of fully engaging in CSR.

Dr. Andree K. Bates is President of Eularis. She has gained wide recognition within the international healthcare industry in the area of ROI measurement in pharmaceuticals and has lectured on the pharmaceutical MBA program at INSEAD Business School in France, and at Erivan K. Haub School of Business in Philadelphia in their Executive Pharmaceutical Marketing MBA program. Eularis (www.eularis.com) develops sophisticated analytics that provide data-driven insight into the financial impact of current corporate and marketing decisions. The Company’s innovative 94.8 Analytics Process offers clients highly accurate financial measurement of activities, as well as insight to barriers to brand and company growth.
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