**Making Sense of Corporate Social Responsibility.\
**

**By Audra Jones**

**\
**

**Introduction.**\
In my tenure at the Inter-American Foundation (IAF), I have had the
privilege of working first hand on the issue of Corporate Social
Responsibility (CSR) with companies interested in promoting grassroots
development in the Americas. Regardless of the industry, country, or
level of engagement within the corporation, one lesson stands out in my
mind: for the private sector to develop participatory, sustainable
investments in the community, it must have an enlightened self-interest
in the process. Without a clearly articulated reason for getting
involved in CSR, a company will fail when undertaking socially
responsible programs. This CD-ROM was developed to help companies define
their self-interest in investing in Latin American communities by
looking at innovative examples of partnerships between the IAF and the
private sector.\
\
The CD-ROM highlights cases from different countries and industries as
well as outlines motivations for CSR programs. In the end, they should
provide anyone interested in developing or improving their external CSR
programs in Latin America with real lessons learned from some pioneers
in the field.

I would like to extend my utmost gratitude to Kellee James, IAF Intern,
without whom, this publication would not have been completed. Her
commitment and insights to the project were invaluable. Kellee is
currently interning at the IAF while pursuing her Masters in Business
Administration and Masters in International Development at the American
University in Washington, D.C.

**Overview.**

The term corporate social responsibility (CSR) is broadly used to mean
different things. As the CSR industry evolves and new products or trends
develop there is a tendency to dismiss previous trends as "less
sophisticated" or obsolete and an attempt to redefine the industry
around the newly identified phenomena. The purpose of this article is to
suggest taxonomy of CSR incorporating all of these trends, particularly
those that fall within the external CSR movement more commonly known as
corporate giving.

Today, CSR is a commonly used but sometimes misunderstood term. In an
effort to make some sense of CSR, it is helpful to recognize that the
overall movement has evolved into two perspectives: ***one related to
internal corporate behaviors and the other related to external corporate
behaviors***. Internal behaviors refer to the way a corporation conducts
the day-to-day operations of its core business functions. External
behaviors refer to a corporation's engagement outside of its direct
business interest; this behavior has traditionally been defined as a
corporation's giving program.\
\
By coupling internal and external CSR perspectives, we see that
corporations have not only financial commitments to their shareholders,
employees and consumers, but also social and environmental commitments
to them, as well as the communities affected by their activities. As
stated earlier, the most important thing a company should consider when
undertaking external CSR programs is to identify its enlightened
self-interest. To understand what can be gained from CSR, we must first
consider its evolution. The specific benefits and evolution of CSR in
Latin America can be contextualized by first considering its evolution
in neighboring North America.

**CSR in the United States.**

In the United States, CSR trends evolved in large part by a few
visionary leaders like Rockefeller, Carnegie, Ford, Hewlett and Packard.
The *growth* of CSR, however, is owed to regulation. Beginning in the
late 1960s and early 1970s, the U.S. government established regulatory
agencies that shaped much of the internal CSR benchmarks. OSHA
(Occupational Safety and Health Administration), EEOC (Equal Employment
Opportunity Commission); CPSC (Consumer Product Safety Commission) and
the EPA (Environmental Protection Agency) created standards for
responsible corporate business practices which have become thresholds
for minimal internal CSR behavior. Today, government continues to
regulate corporate behavior. More recent examples of industry specific
and sector wide regulation include the Community Reinvestment Act in the
banking sector, the Clean Air Act and, post-Enron, the Public Company
Accounting Reform and Investor Protection Act.\
\
In response to initial regulation, there was a deliberate move by
corporations to establish government affairs positions to manage their
relationships with Washington. Corporate lobbyists engage policy makers
to define legislation that is beneficial to their business. In turn,
watchdog groups representing the public lobby congress to ensure that
social, environmental and economic development concerns are measured
against corporate concerns. As a result, the internal CSR movement is
well defined, regulated and disseminated in an effort to influence the
public and Congress.

While internal CSR may be more visible in the sense that it is highly
regulated and reported, external CSR has evolved since the beginning of
this century with the activities of great philanthropists like
Rockefeller and Carnegie. In fact, the formalized efforts of
philanthropy in the early part of the 20^th^ century fostered the first
regulatory response to CSR in the form of the tax-break to corporations
making charitable contributions to non-profit organizations. Today,
however, corporate charity is not significant enough to solve the
serious social and economic problems in society. Consider that U.S.
corporate giving as compared to individual giving is less than 10% of
total philanthropy.[^1] Corporations interested in promoting prosperous
societies have to look beyond traditional charity programs towards more
sustainable ones if they intend to affect social and economic change
that will simultaneously support their profit making strategies.

**\
CSR in Latin America.**

In Latin America there is very little regulation of internal CSR
practices, particularly outside of the Mexican and Mercosur markets
where U.S. and European foreign direct investment have influenced some
requirements. There has been little government movement towards
regulating these standards into business when compared to the U.S. In
part, this is a result of weaker formal organizations of workers such as
trade unions, or social groups such as women or ethnic populations that
greatly determined labor and business practices in the U.S. in the
20^th^ century. Without pressure from society, governments are less
likely to create standards that imply a cost to corporations who often
represent more wealth and power than government itself. In those cases
where there are standards in place, like the U.S. Mexican border vís a
vís environmental regulations, the question becomes enforcement. While
NAFTA envisioned creating California-like environmental standards for
the border region, the resources on the Mexican side initially were not
adequate to manage its enforcement.\
\
The other missing factor in promoting a culture of internal CSR
practices in Latin America is consumer or public consciousness. Without
pressure or kudos from society, a traditional corporation, without
idealistic leadership, is unlikely to create internal CSR programs that
imply costs without financial returns.

In terms of external CSR, corporations in Latin American are not well
rewarded through tax-breaks like their North American counterparts.
However, corporations both national and multinational are giving to
their communities in Latin America. Remarkably, without incentives or
requirements, companies in Latin America do attempt to solve social and
economic development issues among the poor. What is their motivation?

Corporate interest in external CSR in the Latin American context can be
attributed, in broad strokes, to the private sector's interest in
fostering stable societies. Without a stable society, business cannot
pursue a profit-making strategy, as they will not be able to produce or
sell their products. Corporations initially may designate a significant
portion of their community giving resources as set asides to respond to
crisis and/or risk management strategies to ensure that they can
\"negotiate\" if they have poor relations with the local community.
While corporations begin with this goal, they soon realize that they
must balance this strategy with one that will limit society's dependency
on them for social welfare where government cannot or does not step in.
Corporations in Latin America must remember that they are often akin, in
societies' eyes, to government in that they represent power, accumulated
wealth and sometimes close association to government. Successful
corporate programs must foster local community participation to limit
dependency and promote the concept of self-help development.

**Taxonomy of External CSR.**

External CSR programs lie on a continuum defined by three distinct
points: traditional philanthropy, social investment and business
integration. Philanthropy is the oldest form of corporate social
responsibility and is really charitable giving where there is a limited
dialogue between donor and recipient. Social investment represents the
evolution of traditional philanthropy from a top-down approach to a more
responsive approach based on needs defined by society. When making a
social investment, corporations consider their CSR activities as an
investment with a social return. Finally and most recently, corporations
are beginning to integrate low-income populations directly into their
regular business practice. This is defined as business integration in
this article.

*Philanthropy:\
*While some would argue that philanthropy is outdated and often takes a
top-down approach, the counter argument is that there are instances
where philanthropy is appropriate and even necessary. In areas such at
the arts where it is important to preserve the creativity of the
beneficiary, philanthropic giving allows for a less involved type of
giving. For corporations that do not have the human resources capacity
to engage in a more involved level of external CSR, philanthropic giving
is a reasonable option. Finally, on the receiving end, not all incipient
and/or grassroots organizations are ready to "partner" with a
corporation. For these organizations philanthropic giving is a necessary
first-step in their evolutionary process.

*Social Investment or Strategic Philanthropy:*\
The second level of external CSR, social investment or strategic
philanthropy, is a phenomenon that appeared mid-way through the 20^th^
century in response to heavy regulation and social lobbying.
Corporations felt they needed to direct charitable giving in response to
social pressures. As a result, external CSR became less top down in many
corporations and more participatory through defining programs via needs
expressed by the community. Many of these early programs were related to
social marketing and public awareness campaigns where corporations would
improve their image by discussing social issues relevant at the time.\
\
In the late 1980s and 1990s, the concept of social investment became
more widely used in discussing external CSR programs. Social investments
funded through the technology boom in particular were analyzed from a
business perspective and the program's "social return" was discussed.
While one could argue that "social investment" is semantics, the results
have been more sustained and integrated levels of involvement from the
corporation that is not limited to the giving of financial resources.
The "investment" approach to giving is now becoming widely used in many
external CSR initiatives.

*Direct Integration.\
*On the forefront of CSR evolution, particularly in lesser-developed
countries, companies are integrating low-income populations into their
business processes through training relationships, supplier
relationships, distribution relationships and even market competitor
relationships. These programs are often hotly debated as external CSR
initiatives given they have a direct tie to the companies' business
interest. However, in the context of the developing world the direct
integration model is even more enticing as many countries rely heavily
on foreign direct investment rather than creating value-added,
second-tier industries. Without value-added industry, the poorest
echelon of a society will never have true economic opportunity because
the necessary enabling environment will not be developed.\
\
Value-added business is often the multiplier to create the necessary
enabling environment for economic development. Examples would include an
educational system capable of training future employees, open financial
markets which allow small and medium sized business to participate in
the supply chain, and a peaceful society which prospers economically and
socially by allowing the poor equal representation. Business integration
seeks to fill the socioeconomic gaps that are a feature in countries
where the economy is dominated by first-tier industry as is most common
in less developed countries.

Multinationals working in developing countries have been motivated to
engage in the business integration model of CSR by regulation, market
opportunities, consumer & employee potential and, some, by a clear
interest to create wealth in poor countries. National companies have
been motivated by concern that the government is not investing in the
local resources required to keep their businesses going.

**Lessons Learned:**\
This CD-ROM attempts to present some of the best cases of external
corporate CSR programs funded by the IAF and the private sector. They
are divergent in their scope, sustainability and levels of development
assistance, but all reflect some basic lessons learned:

-   First and foremost, a company should have an enlightened
    self-interest in its CSR program to ensure its commitment to the
    program and the program's sustainability;

-   Partnerships last when you have both institutional and individual
    relationships throughout the life of the partnership. Partnering for
    the sake of partnering is not enough;

-   Communities must be involved from the onset in defining a project to
    make it successful; corporations cannot assume they understand the
    needs of a community by taking them at face value; communities needs
    must be considered within the local context and culture;

-   All projects must have a well contemplated exit strategy;

-   Financial resources are only part of the equation. Corporations can
    have enormous impacts with limited financing if programs are well
    defined and well accompanied;

-   It is eminently possible to measure the qualitative and quantitative
    results of social investments;

For organizations thinking of partnering with the private sector:

-   Think Globally and Act Locally \-\-- when working with companies, no
    one will ever be "perfect"; when assessing a potential corporate
    partner consider the local reputation over the global one of the
    company;

-   A civil society organization is always a partner at the negotiating
    table. Companies are looking for good ideas and strong partners with
    solid opinions on programs.

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| ***Audra Jones** has over ten years of international business and     |
| community development experience. She is currently a Foundation       |
| Representative at the IAF where she works with corporations,          |
| nonprofits, and governments interested in engaging in sustainable     |
| community development programs. Her previous development experience   |
| includes project management with USAID and the Inter-American         |
| Development Bank. Her corporate experience includes strategic         |
| planning, finance and business development with Lever Brothers,       |
| Citibank, and the General Electric Trading Company. Ms. Jones holds a |
| Masters in Business Administration and a Masters in International     |
| Affairs from Columbia University.*                                    |
|                                                                       |
| *Ms. Jones developed and edited the following cases on the IAF Web    |
| site and CDROM. She is grateful for the efforts of the individual     |
| researchers on each case.*                                            |
+-----------------------------------------------------------------------+

[^1]: Source: Giving USA 1997.