Budgeting for CSR?
This semester my team and I were exposed to an inherent incongruity well established in the CSR space, as evidenced by the activities at our own client and at those of many of our classmates. This pervasive anomaly has, in my opinion, significant unintended consequences for companies attempting to do substantive CSR work. What is this thorn in CSR’s side? The practice of treating most CSR activities as a budget line item.
At first glance this might seem like a silly assertion—of course such activities should be budgeted, because without being tracked (as on a budget) a task will simply not be completed! And how will a company know if it is achieving its CSR goals if it cannot assess the return on these activities (tracked against their budgets)? And what about CSR-related staff resources?
There are many pitfalls to be aware of in approaching CSR activities in this way:
Connecting the dots. It is difficult, if not impossible at this point, to track the influence of CSR-related expenditures on top-line company growth. The methodology for doing so is still elusive, the theory not yet completely fleshed out; there’s no causal “smoking gun” that has yet been found to tell managers definitively that a dollar spent on a certain type of social activity will mushroom into X dollars in revenue. We know there is a positive correlation—that much is certain—but the extent to which the correlation exists depends on a variety of factors, only one of which is spend.
In the ghetto. A separate CSR budget can also ghettoize important corporate social efforts to one department, potentially allowing core business units to miss opportunities to strengthen the corporate brand, deepen relationships with customers, or consider social innovations through new product development. If “those people” handle CSR activities, it is often too easy for other segments within the company to forget about this important part of corporate branding and business development.
Use it or lose it. In order to justify the importance and necessity of a separate CSR line item, the controlling managers will work to ensure that the allocated budget is fully spent by year end. This may result in rushing into certain types of activity based in part on the likelihood of the money being completely distributed in the time allotted. Corporate philanthropy is a common example, in which monies are given to “causes” which are then left to manage the funds without significant oversight or involvement from the corporate partner. The money may be out the door, but corporate influence and participation may have left along with it.
Spend envy. By putting a number on a company’s CSR efforts, automatically they are in the position to be sized up relative to what other companies are spending in similar areas. Internally and externally, it is too easy to get hung up on the amount a company is expending, as opposed to how well the activities align with the core business, how integrated the activities are inside the company, how well partners are being used to amplify the investments, etc.
Sometimes it’s about what you don’t spend. A host of CSR activities revolve around smart consumption, resource reduction, and efficient operations. While these activities may require up-front investments in equipment and processes, on an on-going basis they don’t show up on the expense side of the income statement.
Of course, I’m not arguing that companies refrain from making social investments. These types of activities are becoming more and more a significant part of what consumers expect from the companies they patronize, thereby driving business value. Not to mention that, simply, they are the right thing to do given the current state of the world more broadly and our economy more specifically.
But corporate leaders must be vigilant to ensure that CSR activities, and the underlying ethos that supports them, are spread throughout their organizations. As internal cultures change, ownership must be spread to every internal department and level. Goals for CSR activities should be set in terms of outcomes, not in terms of expenditure. Then the conversation may start to change from the size of the investments to the fit with overall company objectives.