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This post partakes from the article ‘When CSR is Mostly for Show’ by Xiaowei Rose Luo, INSEAD Professor of Entrepreneurship and Family Enterprise, and Danqing Wang, HKUST Business School Assistant Professor of Management. The article was published on August 24, 2020.
Xiaowei Rose Luo holds a Ph.D. in sociology with a focus on organisational studies from Stanford University. Professor Luo’s research focuses on how the unique conditions in emerging economies affect corporate strategies and performance, particularly in family firms.[Quote]
Under pressure to be good corporate citizens, politically endorsed firms in emerging markets often prefer to cut a cheque for a cause than adopt greener practices.
In developed economies, consumers have been saying it loud and clear: Corporate social responsibility (CSR) is a must, not a nice-to-have. As far back as 2010, more than 88 percent of consumers thought firms should improve society and the environment. The trend has hardly abated. A 2018 survey conducted in the United Kingdom and the United States revealed that the overwhelming majority of consumers now count on brands to help them be more environment-friendly in their own daily lives.
Meanwhile, in emerging markets, governments often play a larger role than consumers in pushing companies to be good corporate citizens. In China for instance, the state is using CSR as a means to address rising social problems, such as environmental pollution. One important lever at the state’s disposal is political endorsement. Firms often seek such endorsement as it grants them legitimacy and better access to important state-controlled resources.
The ‘downside’ for firms is that government officials who endorse them do expect these companies to be exemplary corporate citizens. In other words, there is no such thing as a free lunch – or is there? In our paper, “Are Politically Endorsed Firms More Socially Responsible? Selective Engagement in Corporate Social Responsibility”, we showed that politically endorsed firms engaged more in corporate philanthropy, and less in environmentally friendly practices, than their non-endorsed counterparts. In this way, they maintained good CSR optics while mostly avoiding the heavier costs and constraints associated with the more practical forms of green CSR. [Unquote]
Professor Luo’s research looked at more 1,000 SMEs operating in China, private manufacturing firms with annual sales of 5 million yuan (US$ 150,000).[Quote] We found that politically endorsed firms try to meet government’s CSR demands while retaining maximum discretion in how they run their business. For them, engaging in philanthropy – cutting a cheque – is a convenient one-time deal. It creates no need to change production processes, nor to buy new (greener) equipment or retrain staff. In addition, as philanthropy is easy to measure, SME owners may simply feel that writing a cheque is easier to display than more environment-friendly practices, which may be hidden as internal processes.[Unquote]
The situation in Pakistan is the same; only the route is different. Being faithful, we believe in philanthropy and charity more than others, though we may not actually do more.
On individual level, most amount of charity comes from black money. The motivation for donating more is obvious. Allah knows what comes of it.
Corporates are quite fond of establishing schools for children in underprivileged areas and running free dispensaries that provide basic health facility at outpatient level. Some go further and upgrade dispensaries to basic level hospitals. Philanthropy/ charity brings good name among general public, saves income tax and may come in handy in case the owner decides to contest general elections.
What is the true CSR that is being sacrificed in the guise of philanthropy?
Environment – is the first victim. Most companies do not install water treatment plants and gas emission control units. The excuse is high cost, though a water treatment would still cost less than a Land Cruiser which is now priced at close to 50 million rupees. This obstinacy is criminal because the business owners know fully well that the water going out of plant and getting into water reservoirs contains many harmful chemicals. If the EPA regulators really insist, a semblance of control may be installed to satisfy them. It will not be serviced, and its function will not be monitored; it will be a mere showpiece. Emission control is even worse. Unlike polluted water which can be traced, the gases disappear without trace; so why bother?
Energy – is another victim area. Green energy is rarely seen. Main source of energy is electricity supplied by government. Due to unreliability of electric supply, companies tend to use generators running on diesel. sometimes, auto-generation becomes the main source. Solar energy is now seen here and there, but it is used only for lighting office and running computers in the event of electric supply interruptions. The companies using green energy to any sizeable extent are hardly seen.
Social Development – there is no activity for uplift of communities from where human resource is coming. Even schools for low income groups are not opened in their areas. While the adults from the community toil their prime years for various organizations, their families remain mired in the unending cycle of poverty. Skill development centers are not established to train own staff and their next generation. If skill development activity is done, it will ensure constant supply of skilled labor for the industry and uplift the economic condition of the communities at large.
The summary is that the CSR in Pakistan is not even for the show; it is non-existent. The alternative form, philanthropy is seen around which does not serve the purpose. Rather than giving the fish, if people are taught how to catch fish, it will bring long term betterment.