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No man is an island

CSR is not an isolated process but is linked to all corporate practises. The difficulty pharma has is identifying the benefits of this costly exercise

Our industry is not an island: it operates in a cultural environment that influences how we think and act. These influences may happen gradually; look around your office now and consider how the feminisation of society, since the 1960s, has changed the gender balance of your company and also the way in which your colleagues interact. More obviously, think about the way trends in technology (eg, cheap computing), macro-economics (eg, globalisation) and sociology (eg, mass affluence) have driven the way your company is structured and managed. These drivers, referred to as the 'remote environment' by academics, are constantly shifting and their influence is often pervasive and enduring.

We have to see corporate social responsibility (CSR) as the zeitgeist of the early 21st Century - it flows from scientific discovery, the emergence of new economies and the power of the media. Together, these form a powerful driver that will mould our industry, and others, as firmly as feminisation and technology. Pharmaceutical marketers would be naive to discount CSR as another fad, and need to understand its origins, development and trajectory in the context of the industry in which they work.

Here to stay
It is easy to mistake CSR for a new idea, but the basic concept has its roots in the 1950s; by 1967, Clarence Walton's seminal book Corporate Social Responsibility established the term. In these early years, it was defined as attempts to solve social problems caused, wholly or in part, by the organisation. Related concepts, such as corporate social performance, stakeholder theory and business ethics, all emerged in academic literature over the next decade or so. During this time, what was meant by CSR gradually broadened from addressing social problems to include almost any impact the company had on the world. In particular, the growing ecological movement influenced thinking and environmental impact became a major strand in CSR practice.

These practices gradually filtered in to business life until, by the 1980s, CSR practice by larger companies was sufficiently established to be recorded as part of their annual reports. At this stage, however, CSR was a small adjunct to the main commercial concerns of companies. Generally speaking, CSR activity was disjointed, small scale and of no great importance to marketers. A new phase in CSR reporting began in the late 1980s. Companies such as Shell, Body Shop and Ben & Jerry's started to employ social auditors to produce what were then called 'stakeholder reports', which covered not just financial results but also social and environmental impact. Interestingly, and relevant to pharma, the pioneers of such early CSR reporting were often from industries that were under attack from pressure groups. The reaction to Shell's decision to sink the Brent Spar oil platform in the North Sea, for instance, meant that it needed to take steps to avoid a public relations disaster. Similarly, the HIV/AIDS epidemic and various 'orphan' diseases brought similar attention to the pharmaceutical industry.

By the turn of the millennium, most large companies made CSR reporting an integral part, and even a special section, of their annual report and with this trend emerged the need for some kind of external accreditation. Several bodies emerged which offered guidelines and assessment so that firms could demonstrate that their CSR activity was both meaningful and credible. Perhaps the most high-profile example of these is the Global Reporting Initiative (GRI), which now has 50 pharmaceutical and biotech companies among its 1,000-plus registered organisations. These include giants like GlaxoSmithKline (GSK), Eli Lilly & Co, Roche and others.

Today, most companies of significant size report their CSR activity in some way. CSR reporting is part of a trend that is both led by and leads legislation which increasingly considers non-financial risk. CSR activity reporting has developed in a way analogous with that of financial reporting. New ideas and pockets of good practice have spread to become the regulated norm, at least among larger companies. Understanding this history of CSR is useful because, by considering the history and the current content of firms' CSR activity, you can see patterns that might inform your own social responsibility strategies.

In practise
By looking at what companies actually do when they claim to be socially responsible, you can see that not all CSR is the same. The most basic way for a firm to be socially responsible is to stay legal. Laws concerning how we treat people and the environment, etc, are the basis of social responsibility. In the pharma industry, this obviously includes issues relating to regulation, ethics and so on. This most basic form of CSR now absorbs significant resources, albeit hidden, in all pharma companies but, remarkably, yields no competitive advantage. All this considerable effort buys is a 'licence to operate', in the market. For the bulk of smaller firms, this is the limit of their CSR activity.

A more evolved form of CSR is observed when companies address their legal and ethical environment in a more proactive and visible way. As well as doing much the same things as a company which merely stays legal, these firms seek out potential CSR risks and address them proactively. Adopting best practice on animal testing or employment policies in emerging markets are good examples of this. This more proactive form of CSR differs from basic social respon- sibility in another way too; it actively publicises the company's CSR activity, often including external accreditation. Such higher CSR strategies obviously provide a licence to practise but also offer some additional protection against criticism by pressure groups. Among most significant pharmaceutical companies, this is rapidly becoming the standard approach, demanded by shareholders and other stakeholders. As such, it represents a further cost that buys only competitive parity rather than advantage.

An addition to CSR is cause-related marketing. This is little used in the pharmaceutical sector due to the constraints of laws an2007industry codes governing promotion. It has, however, become a major component of the campaigns of consumer companies such as, for instance, Nabisco with the American Heart Association endorsement of Cheerios breakfast cereal, and supermarket chain Tesco, with its UK

Computers for Schools vouchers campaign. Cause-related marketing is now so well established in markets less constrained than pharmaceuticals that it is recognised through the Halo Awards. Yet, cause-related marketing has made relatively little impact on the marketing departments of European pharma companies. Arguably, sponsorship of conferences and working with patient advocacy groups is a specialised form of cause-related marketing but, in general, neither pharma companies nor potential beneficiaries have advantaged from it in the same way as have consumer companies and linked causes. The current practice of CSR therefore carries some lessons for the pharmaceutical industry. Both basic and advanced CSR involve significant costs but provide only competitive parity at best. Cause-related marketing seems to be a species of CSR that does not translate into the world of pharmaceuticals, at least not directly. Overall, CSR seems to have brought costs without benefits to our industry.

Taking a different view
So, the dilemma of CSR in pharmaceuticals seems to be clear: it is a cost that brings no competitive advantage. Failure brings criticism and brand damage, while success goes unnoticed. Conventional thinking suggests that pharmaceutical marketers have to content themselves that all this effort merely keeps them in the market and allows them to sleep at night. Contradicting this, however, comes a new way of thinking about the problem that involves the overlap of CSR with strategic management to obtain sustainable competitive advantage from social responsibility. This new approach to CSR, developed by esteemed academic Professor Michael Porter among others, is based on two fundamental and self-evident observations:

  • Every point of interaction is an opportunity for advantage, as well as negative impact
  • All firms have a different set of interactions with their environment, dependent on their strategy, positioning, location etc.

Based on these, proponents of the new thinking try not to simply follow a sort of Hippocratic oath of CSR (eg, 'first, do no harm') but also look at ways that socially responsible activity might create competitive advantage.To do this, companies need to look for ways in which their value chain impacts on society and, critically, vice-versa. Usually, this involves thinking far beyond the traditional impacts of making and selling products.

It might, for example, include considerations of how a supply of skilled labour affects the viability of a research function, the impact of traffic congestion on salesforce effectiveness, or how procurement costs might be improved by buying locally. In short, this approach to CSR considers that all of the activities that a firm undertakes in order to create value, from drug discovery to selling and beyond, are influenced by society, as well as the other way around. Therefore, there are actions a firm can take to improve the effectiveness of many parts of the value chain. It might be supporting certain educational programmes, or sponsoring research into traffic management or changing procurement priorities. The number of possible CSR interventions that might create positive results - not just avoid negative outcomes - is huge and the issue is not finding them but prioritising them. The important point about this new way of framing CSR is that it differs from conventional thinking in two ways:

  • It seeks not just to prevent harm but also to do good to both the company and society
  • As it relates to a company's strategy and value chain, it is not a generic approach that creates cost at no advantage, but a source of relative advantage.

This new thinking, which Professor Porter labels 'strategic CSR', is at the leading edge of social responsibility and will create opportunities for the first pharmaceutical companies to seize it.

What is means for pharma
Examples of strategic CSR in pharma are thin on the ground, because it is so new, but there are some examples: Roche has supported Cranfield School of Management's regulatory affairs programme and various companies have made efforts to address the issue of access to drugs. However, the most accurate summary of the pharmaceutical industry's approach to CSR is still provided by Oliver Eckelmann of the European Academy of Business in Society who, in 2004, described it as: Rather a 'muddling through' approach, incomprehensive and lagging behind other industries.

This realistic summary can, however, be seen as an opportunity for pharmaceutical executives. Those companies that seize the initiative and get to market first with a Porter-like approach to CSR will have 'first mover' advantage. They will not only better manage environmental, social and ethical risks but they will also improve the effectiveness of their value chain. The irony is that such an approach is, essentially, quite straightforward (see box above). It is not technical complexity that will prevent pharma companies from using this new thinking. Many will lag behind due to a conservative corporate culture and excessive product focus, and will adopt strategic CSR only when it becomes essential and no longer creates competitive advantage. By contrast, the more innovative firms will understand the zeitgeist that drives strategic CSR and seize it.

2nd September 2007

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