Building Responsive Companies: The Tokyo Foundation’s CSR White Paper 2015
June 2, 2016
The Tokyo Foundation launched the CSR Research Project in 2013 and began publishing the CSR White Paper the following year. We are often asked why a think tank devoted to public-policy research and recommendations would undertake a long-term project on corporate social responsibility. Our answer is simple: The job of building a sustainable society is too big for government alone.
Sustainable Business, Sustainable Society
With government’s policy options increasingly hemmed in by fiscal realities and other harsh constraints, people have begun looking elsewhere for answers to society’s problems, and corporations—transnational entities whose basic job is responding to society’s varied needs—have a particularly important role to play. From the corporation’s perspective, moreover, the ability to respond to society’s diverse and changing needs is a necessary condition for a sustainable business. In this sense, sustainable businesses and a sustainable society go hand in hand.
In Japan, the term CSR entered into common usage more than a decade ago, and in recent years it has become commonplace to talk about integrating social initiatives into core business activities. Yet we see more and more Japanese companies revising their CSR policies in ways that suggest a flagging commitment. Many business leaders appear unsure as to why their companies should pursue CSR initiatives, particularly activities that do not lead directly to corporate profits. They sometimes seem unclear as to the precise meaning of corporate social responsibility.
A company’s CSR is integral to its raison d’être and is manifested in the value it adds to society. By “value” we mean the net contribution a company makes through its business activities—as judged by society, not by the company. CSR initiatives are policies and activities designed to maximize the positive “social value added” generated by the company along each step of the value chain while minimizing any negative value added. Value chain analyses suggest that positive value added is more easily generated through downstream activities, such as sales, which involve the delivery of products and services. Upstream activities, such as procurement and production, are more likely to have a negative impact in the form of environmental degradation, human rights violations, and so forth.
Of course, the perceptions and expectations of stakeholders change as society changes. This means that society’s assessment of a business’s social value added is also subject to change. That is why each company needs to keep up with changes in the social climate while continuously analyzing and assessing the value it generates.
With these challenges in mind, the Tokyo Foundation conducted its first CSR survey of Japanese corporations during the summer and fall of 2013. After analyzing the quantitative data acquired through this survey, along with information from multiple interviews of corporate officers, we compiled our observations and conclusions in the 2014 CSR White Paper in order to provide an overview of the current state of Japanese CSR and highlight key issues going forward. The report led to three basic conclusions. First, to develop sustainable businesses in a sustainable society, companies need to integrate social initiatives seamlessly into their business activities in such a way that what benefits the corporation also benefits society, and vice versa. Second, in order to achieve such integration, we must find new ways of linking the long-term interests of society to business activity. And finally, while many Japanese companies affirm the importance of integration, very few have made significant progress in achieving it.
Being Responsive to Change
In the summer and fall of 2014, the Tokyo Foundation conducted its second CSR survey, and once again we were gratified by the large number of companies that returned completed questionnaires. We also continued our practice of interviewing officers of companies actively involved in CSR. In the essay “How Japanese Businesses Practice Social Sustainability: A Profile,” we outline the next steps for Japanese CSR based on these survey results and interviews.
Like each individual, each business exists in relation to the rest of society. Contributing to a sustainable society entails clarifying one’s own role and raison d’être in it. But society is continuously changing. New social issues emerge, and with them, new expectations of the corporate sector. Our latest CSR survey reveals that most Japanese companies base their grasp of current social issues almost solely on the perceptions of people inside the company, sometimes supplemented by input from a handful of clients and business partners. They create few opportunities for feedback from the wider community and are anything but open to outside opinions. They have made little or no progress in developing mechanisms for monitoring early signs of change, translating their observations into new tasks and goals, and sharing those goals internally in such a way as to mobilize the organization as a whole. Instead of seeking out challenges no one has successfully tackled, most seem content to maintain existing programs and policies.
On the other hand, those companies that can overcome this tendency toward insularity, rigidity, and conservatism have a good chance of becoming industry leaders, blazing a path toward sustainability at the corporate and social level.
There is a word that aptly describes companies that are open to all stakeholders, that listen to a wide range of opinions and accept differing viewpoints, that strive to see things that were previously invisible and make them clear to all, that have the courage to take on new challenges and launch new platforms for action when they see that the old frameworks are keeping them from reaching their potential and addressing emerging issues. That word is responsive .
The figure below sums up the conclusions of our survey and case studies in schematic form. It begins with a breakdown of CSR into its basic processes, from identifying social issues to resolving them. Within this framework, it sums up the challenges facing Japanese companies and the strengths exemplified by the responsive companies highlighted in our case studies.
Dialogue and Internalization
CSR is a process requiring a company to first identify social issues to address, then to internalize those issues in such a way as to mobilize the company’s organizational strengths, and finally to make concrete progress in resolving them. Most companies tend to neglect the first two phases, focusing their efforts on solutions. But responsive businesses work hard on identifying and internalizing issues and constantly strive to make improvements in these two areas. Genuine dialogue with stakeholders with a wide range of social viewpoints enhances companies’ ability to identify issues. Internal assessments based on quantitative targets that change as improvements are made contribute to the internalization process. And development of human resources equipped to promote dialogue and internalization helps accelerate the shift to a more responsive and resilient corporate culture.
Our 2015 white paper offers six examples of responsive companies, explaining what they are doing and where they are focusing their efforts.
Amid the constant collision of values that characterizes today’s society, Shiseido has succeeded in building a company that earnestly engages the community through ongoing efforts to enhance dialogue. Here we catch a glimpse of the sort of genuine exchange that only a responsive company can engage in, and of the challenges corporations must overcome in addressing social issues head-on.
British retail giant Marks and Spencer has achieved a rare degree of dialogue and collaboration with stakeholders by actively involving the community in its CSR initiatives. The progress it has made at every organizational level since adopting its current sustainability vision—a surprisingly recent development—epitomizes responsive management and underscores the importance of companywide commitment and of putting one’s principles into practice.
Denso is an example of a company in the B2B (business to business) sector that has taken pains to assess the value it delivers to society and the burden it imposes. Denso has developed detailed indicators and targets and rigorous process management geared to a quality-first manufacturing ethos. Regarding its CSR program as the company’s “window” to the broader community, it has made its social initiatives an integral part of its personnel training program. In this way, responsive management has led to ongoing evolution in the area of CSR.
Fancl has a fairly long history of involvement with society and especially with society’s most vulnerable members, but it has recently taken its CSR a step further by redefining its social commitment as central to its raison d’être. Through its meticulous engagement with the community and its commitment to training highly responsive personnel, it has built a CSR program that has made the company stronger.
Japan’s CSR Challenges and Lessons from Our Case Studies
German software giant SAP views its CSR program as a training ground for the development of responsive personnel and a steppingstone to upper management. It claims there is no better learning experience than being assigned to the forefront of efforts to deal with social issues and taking responsibility for implementing solutions backed by the power of the organization. This focus on CSR as a key aspect of human resource development is immensely valuable to businesses and society alike.
Fuji Xerox sets quantitative targets that are adjusted as the company makes progress in various aspects of CSR—an area that is notoriously difficult to quantify—and translates those targets into action at every level. In the evolution of the company’s CSR program, we see how continued practice leads to deeper and more effective involvement and how a responsive organization tackles one new challenge after another.
The importance of responsiveness is a view shared by the CSR experts whose essays appear in this white paper. What are the social issues of tomorrow, and how should we approach them? How are social and economic changes altering the viewpoint of investors and the market? What are the implications for corporate engagement with civil society and the whole spectrum of stakeholders? Only a responsive company can stay abreast of these trends. This report also focuses on CSR in the European Union, a global leader in corporate ethics and social responsibility. Some of the findings regarding aspects of social change and differences between Europe and Japan are highly instructive.
Responsive companies can help build a responsive society—this is the kind of virtuous circle for which we should strive. But what conditions are needed to set the cycle in motion? This report makes clear that the key requirements are dialogue (in order to identify issues) and internalization (in order to translate the issues identified into action). Unfortunately, most Japanese companies are lacking in these two basic prerequisites. Now they are facing a critical test of their ability to chart a new course with the understanding that dialogue and internalization are both essential steps toward a sustainable future. Can Japanese businesses pass the test?