Assistant Professor of Management and Director of Global Development, Peking University
Social Progress Index could be a good reference for CSR measurement
It may not be politically correct to say so, but according to a neo-liberal thinker, profit alone is the best metric for determining the success of an organisation’s corporate social responsibility (CSR) programme. The rationale for this view is that profit is an aggregated measure covering all the constituent parts of the company’s activities – including CSR. A commercial organisation’s purpose is to provide returns for the owners. In the long term, returns can only come from adherence to government laws and regulations. Therefore, this particular theory holds that if managers of a corporation decide to be more socially responsible – at the cost of profit – they are violating their fiduciary duty, and this should be corrected.
However, it is hard not to recognise that a good CSR programme is rapidly becoming a source of competitive advantage and thus a means to increase profits. In more mature economies, consumers are demanding more attention to CSR and seem more willing to pay a premium for it in their purchases. So, it is worth remembering the “non-PC” view about profits being the best metric for measuring the impact of a CSR programme. Consider how much of a premium a company with a reputation for CSR can obtain when selling a product also available from a competitor not known for its socially responsible policies.
More specifically, how much additional net margin does CSR-friendly Whole Foods, a grocer in the United States, earn over and above a rival without such a programme? This could be considered a brand differentiation strategy, but that takes us back to profits again.
If this profit-focused argument sounds familiar, it is because I am simply reiterating the view of renowned economist Milton Friedman as outlined in a September 1970 article in the New York Times. It comes down to the idea that CSR can be strategic, but it should not be driven by altruism.
There is also the statement that “if you cannot measure it, you cannot manage it”. CSR certainly needs to be managed, especially since such programmes are include principles which guide the day-to-day work of an organisation. Simply counting the number of times those principles are violated is an effective place to start. For an oil company, that could be the number of spills each year – hopefully zero. For a chemical company, it could be how many incidents leading to the levy of a fine for poor environmental practices. For a management consultancy, the initial measure could be the number of client complaints and why they occurred. These are simple metrics and each is easy to quantify, although the numbers don’t necessarily reveal the seriousness of each case.
Fortunately, there is a global initiative underway to promote a metric called the Social Progress Index (SPI). Professor Michael E. Porter of Harvard Business School has supported this metric, which at present works at country, not corporate, level. However, it does provide some bearing on how to start measuring CSR programmes at corporate level. SPI has numerous metrics dealing with what are considered desirable sub-goals of social progress, even if that is a subjective matter.
In short, though, any corporate CSR programme would do well to study and follow the SPI approach.