Businesses often view corporate social responsibility as a cost they have to bear in order to maximize profits. The assumption is that company’s core business, especially profits, and CSR projects are not directly related.

Kang Joo-hyun, founder and executive president of Global Competitiveness Empowerment Forum (www.g-cef.org), thinks otherwise.

“Korean companies are yet to fully embrace the idea that CSR should be upgraded to a business strategy that integrates their core business with societal needs,” Kang said in an interview with The Korea Herald.

In fact, not only Korean firms but also many enterprises elsewhere appear confused about what they should do to turn their CSR projects into a driver that can spur corporate innovation and bring real benefits to communities.

Kang, a leading expert on CSR who studied the subject at Harvard Kennedy School, said the history of capitalism has to do with the stubbornly persistent view that societal needs and corporate aims always clash with each other. 

“In the narrow definition of capitalism, businesses were required to take responsibility for their balance sheets only. By doing so, the theory goes, companies generate new jobs and pay taxes, leading to benefits for society,” Kang said.

The notion, elaborated persuasively by American economist Milton Friedman, has been challenged in the aftermath of dramatic corporate scandals that disrupted not only business sectors but also communities in recent decades. A fierce call for ethical management ensued in the post-Enron scandal period.

On the other hand, corporate philanthropy won some converts during the Reagan administration, a period when a smaller government warranted bigger support from corporations. Sustainability was also floated as a key idea to deal with a growing number of environmental problems linked to surging corporate investments.

Enter TBL (triple bottom line) that encompasses economic, social and environmental aspects. Unlike previous management ideas measuring corporate success in only economic terms, TBL claims that a company’s responsibility lies with stakeholders rather than shareholders. Employees, business partners, NGOs, governments, local communities and anyone affected by a company’s action are stakeholders, a group that companies should strive to serve.

TBL, also known as “people, planet, profit,” is an expanded set of values and criteria that should be noted and adopted by more Korean firms, Kang said.

“The key is that non-financial aspects are as important as, or perhaps more important than, financial aspects in determining a company’s success,” she said.

Currently, corporate citizenship, CSR and sustainability are used together as keywords that stress the importance of non-financial aspects in the operations of a company.

Global industrial sectors are also moving in that direction. For instance, in November last year, the International Organization for Standardization launched an international standard providing guidelines for social responsibility, ISO 26000.

Korea is also trying to catch up, though much is yet to be done.

“About 10 years ago, corporate philanthropy gained traction among Korean firms, followed by a rise of ethical management movement. In recent years, green growth and environment-friendly management have been added to the trends,” Kang said.

Kang predicted that Korean companies would be under growing pressure to come up with effective CSR initiatives in the coming years.

“Many Korean firms are still stuck with philanthropy activities, as if charity projects are sufficient,” Kang said. “A more systematic approach is needed to upgrade CSR to CSI (corporate social innovation) and engagement with the local communities.”

Corporate responsibility involves mostly a reactive approach, resulting in contingency plans and risk management to appease the disgruntled communities. Another problem is that charity and CSR projects have long been handled by peripheral business divisions, not core units that can set up an overall business strategy.

“Because of the yawning gap between CSR initiatives and corporations’ key business strategy, Western companies are now struggling with social responsibility fatigue,” Kang said.

This type of decoupling threatens to wipe out motivation on the part of companies faced with greater uncertainties in the global economy.

“Innovation is what matters most,” Kang said. “Redesigned products and innovated services could and should help resolve societal problems, which in turn lead to bigger profits and benefits for all.”

Previously, it was believed that businesses could achieve growth and secure profits at the expense of societal needs. By adopting CSI, in contrast, the two sides can go together toward shared benefits.

Is this a socialist ideal? Kang said it’s far from a socialist agenda as global companies have already undertaken innovations that also meet societal needs, proving that they can create economic value by creating societal value.

GE’s Ecomagination is a widely known example of such innovation and its sales surged to $18 billion in 2009, and the revenues from those items are projected to grow at twice the rate of total company revenues.

Coca-Cola also nurtured a successful case of tapping into innovation by serving communities. When it entered the African market, it confronted a rugged and unfriendly terrain whose access was fairly limited for the company’s large trucks. The company set up a distribution center in which local people were hired to deliver bottles of Coca-Cola on bicycles. Its strategy, based on a mix of business innovation and social needs, led to the company’s dominance in the region’s beverage market while creating jobs for local people.

“What’s notable in this famous success case is that solving social issues such as poverty and unemployment actually helped Coca-Cola’s core business and boost its profit,” Kang said.

Kang, whose English name is Angela, is now working with major firms both at home and abroad to incorporate such innovation into their business strategy through GCEF, drawing on years of her own experiences in the corporate sector.

From the early 1990s through 2002, Kang had worked in the areas of PR, marketing and sales at firms including Clarins Korea and Namo Interactive Inc. In 2003, she decided to shift her focus toward a non-profit sector and began to work for a Korean partner of International Youth Foundation, which implemented the corporate philanthropic programs for Nokia and Lucent Technologies.

A turning point came when she flew to Boston and received a Mid-Career Master’s degree in Public Administration (MC-MPA) at Harvard Kennedy School in 2006.

Her initially disparate career paths that had crisscrossed from corporate to non-profit to academic converged nicely into her current job.

“I know exactly why Korean firms are passive in terms of CSR and what hinders their efforts since I was right in the middle of the tough battlefield,” Kang said. “But it’s time for Korean companies to take the initiative and turn CSR into part of their core business strategy.”

By Yang Sung-jin (insight@heraldcorp.com)