Tommy Stadlen: Traditional CSR Is Dead

Tommy Stadlen is a technology entrepreneur and author. He is a former McKinsey consultant and previously worked for President Obama. Stadlen is the co-author of the international bestseller ‘Connect: How Companies Succeed by Engaging Radically With Society’, written with former BP CEO Lord Browne and Robin Nuttall, and an advisor to NYU Stern School of Business. In this exclusive interview with Nidhi Singh, Executive Editor, CSRlive.in, Tommy explains the concept of engaging radically, 'Connected Leadership' and also shares his view on India's 2 year old CSR mandate.

If you were to offer one key takeaway from your book ‘Connect: How Companies Succeed by Engaging Radically with Society’ - for CSR & Sustainability professionals, what would that be?

This may not be the most popular thing to say to a CSR audience but the reality is that CSR is dead – at least in its traditional form! Old-style CSR is dead because it is fundamentally disconnected from the core of the business. Cycles of anti-business sentiment extend back 2,000 years and to change that we need a fundamentally new model.

At its worst, CSR has acted as a fig leaf to obscure bad behaviour elsewhere.

Enron won endless CSR awards the same year its fraud triggered the biggest bankruptcy in American history. That is an extreme example and CSR has since evolved. It has also rebranded as ‘Sustainability’. But the recent Volkswagen scandal should serve as a warning that this activity often remains disconnected from commercial realities. VW was ranked as the most sustainable car company in the world by the Dow Jones Sustainability Index shortly before news broke of its emissions control issue.

Instead companies must integrate societal and environmental issues deeply into their everyday strategy and operations. This is what we define as ‘Connected Leadership’ in the book. CSR professionals can play a vital role here, but it requires commitment from the board and CEO to be effective. There is a huge prize for those who succeed. The shares of companies which connect effectively outperform those of their competitors by 20 per cent over a ten year period. Connecting with society is the new frontier of competitive advantage.

Recently, at the Ogilvy-Good Scout partner event focused on best practices in corporate social responsibility, you commented, “When it comes to engaging radically, if you’re not uncomfortable, you’re not doing it right." Could you please elaborate?

This is about a fundamental mindset shift. To win back trust, companies must engage with outsiders on their terms, not those of the company. This requires leadership because large organizations are so often shackled by conservatism and a tendency toward secrecy.

Companies can either embrace the era of transparency or fight a doomed battle, ordering back the waves like King Cnut.

One of the best examples I have seen came from the pharmaceutical giant AstraZeneca. They decided to publish raw clinical-trial data online when the US Food and Drug Administration’s director questioned the side effects of its cholesterol drug Crestor. It is always possible to draw different inferences from the same data, but AstraZeneca saw that trust could only be regained if independent researchers were allowed to decide for themselves. It took the risk and was rewarded with renewed trust and restored market share for Crestor. That cannot have been a comfortable decision to make, though.

As a former McKinsey consultant with global experience advising companies and governments what would you say are the key challenges for emerging market companies at home and overseas with respect to the fast evolving CSR landscape?

The imperative to connect with society is even greater for emerging market companies because of the distinct challenges they face. At home, the temptation is to adopt a defensive position given the complexity of bureaucracy and the fear of corruption scandals. But in this environment firms that engage radically can open up large gaps between themselves and their competitors.

A great example was the rise of Infosys and the Indian software industry. Infosys’ co-founder Narayana Murthy described how the industry overcame mind-boggling bureaucracy to transform the government into a “catalyst rather than an obstructionist.” Overseas, emerging market companies face a major trust deficit. According to Edelman, firms with headquarters in emerging nations suffer far lower trust ratings than their developed world counterparts, largely driven by suspicion in the West. Indian and Chinese-headquartered firms are trusted on average by 34 and 36 per cent of people around the world, compared to 75 per cent for German-headquartered companies. So Indian companies must engage radically at home and overseas.

India is the first country in the world to introduce a legislation 2 years ago whereby a certain bracket of companies (with a turnover of about $160 million) need to spend 2% of their average profit in the past three years on social development-related activities. How do you see this mandate from the perspective of global trends in CSR?

It is crucial that the private sector contributes to society. Business is perhaps the most powerful engine of human progress. Today, if you look at the most costly man-made social burdens, from climate change to obesity and tobacco, none of them can be solved without business. Historically, India’s iconic companies have played a vital role in the country’s advancement. Think of Jamsetji Tata, who created a dynasty by focusing on India’s development.

Ideally, though, government should not have to mandate this contribution. We demonstrated in ‘Connect’ that connecting with society is an opportunity for companies to generate a lasting source of distinctiveness. On average, 30% of corporate earnings are at stake here. That includes vast upside potential as well as downside risk.