The Evolution of Corporate Social Responsibility

On March 16, 2011, CSIS hosts Neville Isdell, former chairman and CEO of the Coca-Cola Company, and Stuart Eizenstat, partner and head of international trade and finance at Covington & Burling and former ambassador to the European Union, under secretary of state, and deputy secretary of the treasury. They will discuss the important topic of the role of the private sector in resolving global social issues and how the U.S. government can capitalize on those efforts. The discussion will take place within the larger context of companies’ shifting approaches to corporate social responsibility and the U.S. government’s shifting approach to partnerships with the private sector.

Q1. How has corporate social responsibility evolved and where does Neville Isdell’s idea of “Connected Capitalism” fit into this?

A1. Over the past 20 years, multinational companies (MNCs) have made important changes to their corporate social responsibility (CSR) policy. There has been a marked shift from the past,  when CSR activities were unrelated to the company’s core business  and largely reactive, attempting to stem or prevent criticism rather than promote real development.  Companies have begun approaching CSR in a more strategic way, recognizing that aligning these projects with their business model and goals can effectively improve a company’s competitive advantage.  In doing so, MNCs have increasingly leveraged their core assets including their supply chains, sourcing, human resources, technology and innovation, access to markets, and the global reach of their companies. There has been an accompanying shift in the perception of CSR.  In the past, there were many critics who argued that a company’s sole responsibility was to provide value to its shareholders. They argued that CSR ran contrary to the interest of the company and by extension to the shareholders.   However, there has been a growing consensus, especially among U.S. companies, that CSR is necessary and beneficial—both to the communities it benefits and to the companies.

Although companies have taken on greater responsibility, there is a need for even greater commitment and engagement.  As result of the global financial crisis, the rise of non-state actors in the global economy, and shifting demographics in the form of urbanization and rising inequality, the free market system is in flux.  In this turbulent environment, populist and protectionist pressures are challenging the open market system. The private sector has incredible assets to counter these backward forces and promote an open, global economy.

Neville Isdell, former chairman and CEO of the Coca-Cola Company, has proposed one approach for how companies can connect with society and contribute to the resolution of social problems while at the same time ensuring sustainable and profitable growth in the twenty-first century.  Mr. Isdell’s concept of MNC engagement, what he calls “Connected Capitalism,” goes beyond the new, engaged CSR to a new level of connectedness between the private sector, governments, NGOs, and civil society across three main platforms: communities, institutions, and their core business strategies.

Q2. What is the opportunity for the United States government?

A2. The United States government has an interest in promoting and maintaining a rule-based system and a global economy based on the free market.  However, the government’s ability to promote this end is increasingly constrained.  In the 1960s, U.S. government development assistance accounted for nearly 80 percent of financial flows to the developing world.  Today, this percentage has declined to approximately 15 percent.  U.S. government investments have fallen relative to those of private companies, remittance flows, and the donations of individuals and foundations.

In the world of U.S. development assistance, the U.S. government, and particularly USAID and the U.S. Department of State, has sought to adapt to the changing environment by building partnerships with new actors in international development. The Global Development Alliance, created within USAID in 2001 to establish partnerships with the private sector, is one well-known instance of the U.S. government’s shifting approach.  But while there have been some changes, the policies of USAID and the U.S. government should do more to adapt to the rise of private actors in the developing world.  The government is leaving many of the opportunities with the private sector “on the table.”  It should create innovative mechanisms to leverage these partnerships using private-sector resources and expertise to complement the government’s unique capabilities in the pursuit of development ends.  There is agreement—on the part of both the private sector and the government—that there is a need for further coordinated, joint action to tackle difficult global problems of disease, environmental stewardship, conflict, unemployment, and hunger.

Q3. What are the opportunities and challenges moving forward?

A3. The U.S. government has made some progress in facilitating public-private partnerships through staff training, adjustments in procurement regulation, and revisions to internal incentive structures to build partnerships.  Significant obstacles remain, however. The U.S. government continues to struggle with the challenges of organizing multi-stakeholder arrangements.  For one, the government faces the problem of taking these partnerships to scale.  Where pilot and demonstration programs have succeeded, these partnerships need to go beyond seed funding and pilot projects to make a real and lasting impact. The narrow impact of these programs reflects the limited resources the U.S. government has allocated to pursue these partnerships as well as a failure of imagination on the part of U.S. government practitioners. There is a need for thought leaders within the U.S. government to push this agenda forward.  Second, the U.S. government continues to struggle with the transaction costs from the increased frequency of these partnerships. Such partnerships incur costs to both the private sector and the U.S. government.  The challenge is to make sure that the return on the investment—in terms of not only promoting economic growth but also providing business value to the private-sector actors—outweighs the costs.  Third, there is need to continue to reform the incentive structures within U.S. government.  Barriers to partnerships—bureaucratic and legal—remain.  Fourth, there is a need for continued staff training for both public-sector and private-sector employees to provide the relevant groups with the skills to initiate and manage these alliances while at the same time instilling a culture within that encourages public-private cooperation.  Fifth and finally, there is still a need to find appropriate institutional and governance structures to administer these partnerships.  Private-sector actors are becoming increasingly hands-on, going far beyond donors, and the management structures should reflect this shift.

Dan Runde is the director of the Project on Prosperity and Development and holds the William A. Schreyer Chair in Global Analysis at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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