Tuesday
April 15
2014

Satyam Darmora

India’s New CSR Act: Marking the shift from corporate ‘spending’ to ‘investing’ on social impact

With India’s Corporate Social Responsibilities (CSR) Act now in effect, the Indian Institute of Corporate Affairs estimates that more than 8,000 companies will make up to 20,000 crores (US $3.2 billion) available to the development sector. That shift represents an unprecedented opportunity to drive social progress.

It also raises a big – and much discussed – question for companies tasked with distributing CSR money: “What’s the best way to spend it?”

I’d suggest that’s not the right question to ask.

The Michael & Susan Dell Foundation has been working towards its mission of transforming lives of children living in urban poverty in India since 2006. Although we’ve committed ~700 crores (US $112 million) in that time, we have not spent a single dollar. Rather we have invested in creating world-class organisations and in catalyzing new markets that serve the poor.

The goal of CSR should be to drive similar long-term social impact. The first step toward that goal? Changing our language. Companies must stop asking about CSR spends, and start talking about CSR investments.

This shift has multiple strategic implications:

  1. Spends are short term in nature; investments are long term. The development sector needs permanent solutions and not temporary fixes. Non-profits need to go beyond a project-based approach to develop programs that become scalable and sustainable over time. Companies, meanwhile, need to back non-profits focused on sustainability.

  2. Investments seek to drive outcomes whose performance can be measured. This focus on measurement of outcomes has two implications: It creates a need for evaluation frameworks and it increases accountability.

  3. Social problems are complex; solving them requires the best minds to come together to collaborate. The current practice in the development sector includes almost no collaborative problem solving. However, viewing CSR through an investment lens provides a path toward collaboration. In the for-profit world, companies are well-versed in creating joint-purpose vehicles to work for common cause; similarly, a co-investment approach can bring companies with common CSR missions together to create joint solutions.

Assuming the sector does make the shift from thinking about spending money to investing it, both companies and nonprofits need to focus on a handful of changes that can help them make the most of the new funds at play. I’ll look at the details in a post later in the week.

To make the most of this new opportunity created by the CSR Act, companies and nonprofits alike need to make some adjustments. Here are a handful of key lessons, based on the foundation’s experience in the field, about high-impact philanthropy, and what it means for companies and nonprofits.

Lesson 1: Know your mission

You need to focus what you do. Choose a couple of areas where you want to work and evaluate how to become the best investor or investee you can.

The corporate play: All smart investors have a clear focus. Yes, there will be millions of problems and as many opportunities, but try to solve them one by one. As an investor, you may want to choose investments where you can add value other than money as well as investments which also complement your long-term business objectives. For example, investing in organizations that provide skills training could expand your hiring pool down the road.

The nonprofit play: If you’re a non-profit with substantial resources and a business-like approach, you’re in a good position to attract CSR money. However, there’s a lot of competition out there. Differentiate yourself by honing your expertise in no more than a couple of areas —for instance, education or livelihoods development. Depth of impact on one or two issues will make you stand out far more than shallow impact across many. Dr. Reddy’s Foundation (see video below), a long-time foundation grantee, is a prime example of an organization that does this well. DRF has focused on providing livelihoods training to underprivileged youth in India, maintaining a strict focus on clientele who are among the poorest of the poor.

Lesson 2. Focus on measurable outcomes

You can’t get better results if you don’t know where you started. To ensure you have the ability to generate returns (whether social or financial), you need to establish benchmark measures and metrics for success.

The corporate play: Best business practices shouldn’t fly out the window as soon as a company turns its eyes toward social responsibility. Identifying and evaluating measurements for success is the only way for you to find efficiencies and get a (social) return on your (financial) investment.

At the Michael & Susan Dell Foundation, we have always focused on measurable outcomes. This understanding helps us ensure our investments are on track and helps our grantees/investees achieve greater impact. Here’s one routine set of questions that we ask to evaluate success and improve programs:

  • Are children in the programs we fund learning more than when we started working with the programs?

  • Why or why not?

  • What do we need to tweak to ensure they do?

?The nonprofit play: Be prepared. What you can’t measure doesn’t exist for business people; so get ready. Organisations including Educational Initiatives, nDimensions, Partners in Change and others specialize in scientific assessment and evaluations, and can help nonprofits implement effective and relevant tracking.

Lesson 3. Hire quality

The problems in the social sector are much more complex than the profit equations of the business world. Your best chance of making an impact depends on having the best quality people to work for you.

The corporate play: CSR should not be another activity done by HR. It should be its own business unit, and you should have your smartest people to working for it. Taking the liberty of tweaking Miltion Friedman’s theory, I’d argue that the moral responsibility of business is to run every one of its units like a business. Hence, businesses have an obligation to deploy the best resources, people, and processes against every high-priority initiative.

The nonprofit play: With more money coming into the sector and increased interest in longer term solutions that can demonstrate social ROI, non-profits that want to survive and thrive have to hire high-quality talent. Many young, talented individuals are keen to join the sector. Naandi,Jana Urban Foundation and Kaivalya (all supported by the foundation) are examples of organisations that have made it a point to attract top quality talent in the sector. (Anoop Rao, chief operating officer of Naandi, was recently selected as a Young Global Leader by the World Economic Forum.)

A final note for companies

Starting up an effective business unit capable of treating CSR as an investment demands considerable expertise and focus. To accelerate development of the internal capabilities needed to do that, it makes sense for companies to consider co-investments with serious players – including family foundations – who already have an expertise in doing just that. Such partnerships can help ensure that new business units quickly learn the rules of the game, build internal capabilities over time and find a niche where they can achieve the measurable impact they’re after.

Satyam Darmora manages the Michael & Susan Dell Foundation’s Family Economic Stability portfolio.

Editor’s note: This article originally appeared on the foundation’s blog.

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corporate social responsibility, multinational corporation