Tomorrow’s CSR

What is CSR? Corporate Social Responsibility (CSR). Maybe you are still wondering, “Great, but what is CSR?” If so, you and I have something in common.

Professor Waheed Hussain of Wharton says “CSR involves initiatives and programs that are designed to fulfill an ethical obligation to some party, such as the local community or the environment, rather than simply to increase profits.” Some argue with the principles of CSR. Is corporate philanthropy just the “right thing to do” or do these activities detract from businesses doing business?

Turner White was an instructor of mine. I appreciated his more straight-forward Adam Smith approach to CSR.

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

Corporations exist to make money. It’s America. We live in a capitalist society. So how does corporate philanthropy and CSR fit into making money? I bet Adam Smith’s butcher, baker and candlestick maker would respond, “Do socially responsible things, but do them strategically to build brand value to maximize wealth for owners and return value to stakeholders.”

If doing socially responsible things has the potential to actually build brand value and make money, why isn’t every CEO shoveling cash into the philanthropic coffers? Here’s some insights from two executives, one running a shoe company and the other social media for a popular restaurant chain.

Let’s start with Blake Mycoskie.

Blake is the chief shoe giver at TOMS Shoes. When you buy a pair of “alpargatas” shoes, Blake and company will give one away to needy children across the world. I was lucky enough to hear Blake speak at SXSW last week in Austin, Texas. If you were there, you were probably as moved and inspired as I was after hearing his story. Is TOMS a philanthropy built on capitalism or a creative way to tap into the money making brand value of giving?

Blake was inspired to create the company out of concern for kids outgrowing donated shoes. TOMS Shoes emerged from his “Shoes for Tomorrow” project. Tomorrow didn’t fit nicely on the back of a shoe. TOMS did. Blake has more ideas for “Tomorrow” including plans to transform TOMS Shoes by selling new products under a new “One-for-One” company brand beginning June 7, 2011.

Blake’s story is so unique that he was featured in the Wall Street Journal article Charity Gives Shoe Brand Extra Shine. In the article, Blake was quoted, “I wasn’t out to do good. I’m an entrepreneur.” But he is doing good. Customers want to evangelize his story. Employees want to be part of his company. Partners want to work with him. Newspapers and magazines jump to give TOMS all the free publicity they want. While TOMS benefit from its philanthropic contributions is housed in its private company coffers, I have an estimate (with the help of the Wall Street Journal). The company has given away 1,000,000 pairs of shoes to date. They sell their counterpart shoes at roughly $55 each. That’s around $55 million worth of cloth shoes sales.

Next , let’s check out Applebee’s.

In early November at a Social Media Club of Kansas City (SMCKC) event, I got to hear Scott Gulbransen, director of social media for Applebee’s. He spoke about “cause marketing”. Just a fancy word for talking about the good things you are doing. For the last few years, Applebee’s has given away free meals to Veterans on Memorial Day. In 2009, they gave 1 million free meals away. What was the “economic gain” for their CSR effort? Vets brought paying friends with them. There was a 40% growth in Facebook likes. 4,800 customer calls were placed to praise the effort. Plus the company received tons of free PR and connected with a younger restaurateur they were targeting.

At SXSW, it wasn’t Blake’s story or his lessons learned from corporate philanthropy that got me thinking. It was what TOMS shoes and Applebee’s weren’t telling us. In life, great magicians don’t share their secrets. So I formed an hypothesis upon which to build a blog post. If CSR is so impactful, wouldn’t we expect to see companies giving away more and more year after year? And if not, what does that mean for Tomorrow’s CSR?

Here is my analysis of data from the Committee Encouraging Corporate Philanthropy (CECP). Each year, they produce a Giving in Numbers report providing philanthropic data from a subset of leading US companies, including the Fortune 100.

Point #1. Total giving (cash, non-cash and foundation-based) looks to be trending down. Maybe the recession was to blame?

Point #2. I dug deeper and looked at two standard philanthropic measures. Although total giving is going down, there looks to be a fairly consistent trend in how much companies give away as a percentage of both revenue and pre-tax profit. Maybe the recession wasn’t as impactful? However, donating only 1% of your pre-tax profit can’t be that advantageous. Ben and Jerry’s donates 7.5%. Tom’s of Maine donates 10%.

Point #3. So I took a look at small companies. Those that make 1 billion or less in corporate profit. These companies year over year far outpace all other corporate giving. Why are smaller companies donating more; but more importantly, why is there still not a strong upward trend?

More interesting was why TOMS has no public information on their % pre-tax profit donation. They are a small company, right? They have a wonderful looking Giving Report on their website, but it does not include a number detailing their cash or non-cash donation as a percentage of pre-tax profit. How much of that donated shoe do they pay for and how much does the customer pay for? Why not publish the number if your business model is based on giving?

So what aren’t they telling us?

Adam Smith and I agree. CSR seems to be able to turn a profit, but it does not seem to be about how much you actually give. Here are three secrets of CSR that TOMS, Applebee’s and the CECP never told us.

It’s about the perceived value of giving, not actual giving.
You don’t have to give away more money to build up the “giving” in your brand. You just need to make it look that way. Keep your giving idea simple, recognizable and unique. Perception is reality.

It’s about authentic & organic marketing.
In today’s world of social media, it has never been cheaper to get the word out. Rely on influencers to spread the message about your extra value to society. People trust friends and there is no better voice to keep your message authentic and real. At all costs, protect your authenticity.

It’s the ultimate trojan horse for smaller companies.
Do you have a problem getting into an industry? A “One-for-One” CSR-stamped company can more easily enter a market with philanthropic brand value and free publicity. Use it as a competitive advantage to differentiate your product and company from competitors.

What do you think about CSR? Are we in a new world of capitalist philanthropy or philanthropic capitalism? Check out Blake’s blog or just go buy a pair of shoes from TOMS Shoes and help a kid in need. I just bought a pair of pink butterfly shoes for my daughter.