Voluntary CSR to add value to Indian biz: Rajendra Sisodia

Rajendra Sisodia, author and co-founder of the Conscious Capitalism Institute tells CNBC-TV18 about the new way of looking at capitalism. The idea of creating shared value for all stakeholders involved and not necessarily only the pursuit of profit has been a topic of discussion for some time now. Sisodia believes the government’s agenda to make corporate social responsibility mandatory for all companies is not the right way to go about it. He feels when companies do things voluntarily, it can create winning solutions for everyone in society through their core business.

“The most powerful instrument that a business has to achieve is societal impact in a positive way by rethinking about its own core business and seeing how that can actually be on the right side of society and can create value for all of the stakeholders, including society,” he added.

As far as conscious capitalism in India is concerned, Sisodia thinks the Tata group, companies like Mahindra and Marico are following this path to success.

Here is the edited transcript of the interview on CNBC-TV18.

Q: Let me start by asking you about what we are seeing in India, the current debate and the discussion, especially in the context of the new Companies Bill is beginning to see corporate social responsibility (CSR) once again as corporations trying to run schools and hospitals and the same nano way of actually looking at CSR. Do you believe that it is right for the government to mandate or legislate CSR in that sense?

A: I really don’t. I think this is a well-intentioned and it looks like it is on its way to becoming a law. But, I think when something is mandated in this fashion, it first of all takes away a lot of its richness and its meaning. It becomes something that has to be done and people then start to look for shortcuts around it or loopholes in it.

I think when companies voluntarily do things, when they treat the community and society at large as a key stakeholder along with customers, employees, investors and suppliers and so forth, you start to think about creating winning solutions for all of them through your core business.

So, the most powerful instrument that a business has to achieve is societal impact in a positive way by rethinking about its own core business and seeing how that can actually be on the right side of society and can create value for all of the stakeholders, including society rather than saying let’s take a portion of what we have made, through whatever means and then use it to do something, which ends up being sort of greenwashing, public relations (PR). It also ends up getting into areas where you really don’t have a lot of core competency, you really don’t have a lot of effectiveness in doing some of those things.

Q: Let me put the counter argument, the argument which says it is okay for the government to legislate or mandate good behaviour or corporate social responsibility is that governments across the world have mandated or legislated things like emission norms to take care of things like the environment, tax laws, good corporate governance practices. So why is it wrong if the government actually wants to come in there and say free markets haven’t necessarily worked most efficiently, why is it wrong then for the government to say we need to legislate social responsibility on part of corporations?

A: All of those other things are really in the line of doing business. In other words, there are consequences of doing business and some of them have to do with the commons. In other words, when you put pollutants out into the environment it affects all the others that are out there.

Therefore, the government is the logical entity to protect the interests of the commons and taxation likewise is something that is needed in order to fund public services and so forth. But, there has to be a line drawn somewhere and I really do think it comes down to this notion of intrinsic versus extrinsic motivators.

When you put an extrinsic motivator like this or requirement, it does not have the same kind of impact and effect and a company that actually might do a lot more when it starts to think about itself as a conscious business and starts to think about society and the environment as in fact stakeholders in its business. If that mental model were to apply it would actually do a lot more, but when we apply this kind of an approach it almost short circuits the ability for them to transcend to that other way of thinking and say here is essentially another tax that has been put on top of everything else, except this is a directed tax that has to be spent in a certain way. It is a good intention but, I don’t think it’s the right approach to achieving the goals that we all share.

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Q: You were talking about how this in a way will end up as another tax on corporations and exactly why corporate India has as part of its recommendations to the government said fine, if this is what you want us to do which by the way there is still confusion on whether the spending is mandatory or the disclosure is mandatory, corporate India is now saying if you want us to do this, then give us the tax incentives. So, it is almost as if, if I am being obligated to perform a duty which I don’t think necessarily should be my duty to perform in the first place and then incentivises me for performing it?

A: It is sort of a system’s thinking approach. Look at the unintended consequences and sort of the spill over effects and the feedback effects etc. When you start to analyse it more holistically, you may end getting less of a net impact than you are hoping to get.

What we really need to do is to shift the consciousness or the mental model or the narrative around business and the relationship that business has with society. When we start to raise that consciousness, then you start to see that business can start to think of itself quite differently and that is what I think our effort really is with the new book and the movement that we have. It is to open, sort of awaken that latent consciousness that is in people, to say, you can apply those higher level states of being to your work in the world of business and then you see extraordinary value creation that results for all stakeholders including for society, for environment for local communities as well.

Q: You were talking about how businesses are about noble causes, how businesses are about an active heroism in that sense because they help lift people out of poverty but, I want to ask you this because again it comes down to the perception of how we actually see conscious capitalism and what this really means because if we look at a company like Apple, one of the most significant value creators in terms of market capitalisation and so on and so forth is not necessarily seen from the narrow prism that we are usually used to talking about as a conscious capitalist in that sense. Would you agree or do you think that there is a need for us to change the way that we actually look at this business of conscious capitalism?

A: No company is perfectly aligned with all of the tenets of conscious capitalism with just to refresh a higher purpose, stakeholder integration, win-win outcomes for all stakeholders, conscious leaders who care about the purpose of the enterprise and not so much about power or personal enrichment. Then a conscious culture built on love and care and transparency and authenticity and trust.

Q: Would you regard Apple as one of the companies that you would see as being right up there in the list of conscious capitalist?

A: No, Apple has not been in our list in my earlier book and now in this book, but like many companies they are moving in the right direction in a number of different ways. With Apple, they have several issues over the years, some of which are starting to address issues like the supply chain. They really never paid much attention to how their products were being produced in China by Foxconn and others.

Steve Jobs had a real blind spot when it came to that. Now, under the new CEO, they are starting and with all of the negative publicity that they got, they are starting to pay attention to that. The environmental side was never a priority for them. In recent years they have again started to pay more attention to that. They had an internal culture for tremendous amount of secrecy, almost paranoia and a tremendous amount of centralisation of control.

With Steve Jobs being a genius at certain things, it allowed the company to do extraordinary things. But, as a sustainable long term enterprise, there are a number of things that they have to change in order to continue to be special. So they really have to create a different culture inside the company and pay attention to all of their stakeholders in a holistic way. I think it is happening.

The good news is more and more companies are starting to get it, they are starting to recognise that they have to be on the right side of society, that the world today is dramatically different than what it was even just 20 years ago. Unless you are in harmony with all of the changes that have happened, we are extraordinarily better informed now through the internet. We have more phone numbers today than there are people. So we are extraordinarily connected. We can inform each other, we live in a world of total transparency. We are more intelligent. Our IQ is rising at four percent a decade for the last eight-nine decades. So the average person today is more intelligent than 98 percent of the people who were 100 years ago. We have this deeper sense of craving for meaning and purpose. All of those are realities out there in the world. Companies have to be in harmony with those.

Q: So who would you regard as your top five in India as far as conscious capitalist corporations are concerned?

A: I think the Tatas have always had this in their DNA. In many ways they were the original conscious capitalists. We are hard pressed to find a company in the world that is older than Tata. They had a deeply ingrained philosophy like this for 140 years or so.

I would say that companies like Mahindra are definitely moving in this direction, they talk a lot. They use the language as well. I would say Marico is also on track. But, these are not necessarily top five in terms of size or impact but, these companies come to mind.

I think Infosys has had elements of this from the beginning. As they have grown larger, it has become challenging as the leadership has transitioned away from the founders. It always becomes challenging for any company. So they have to go back and make sure that they don’t lose that which made them the extraordinary story that they have been. But, some of the companies like MindTree and Mastek aspire to these values I hear, but I don’t have any personal experience with them.

Again, it is still a relatively new story in India. With the opening of the market, only being a couple of decades over them, many companies still see themselves at sort of capitalism 1.0, etc and see that this is something that they would have over time. I tell them, you don’t need to wait, you don’t need to make the same mistakes that other people are walking away from now. We can embrace this. Of course, the other important element of this is that it is intrinsically India.

In other words, if you look at conscious capitalism, the home of global capitalism is the United States. The real fountain of consciousness is acknowledged worldwide. It is really in India, in its ancient traditions and the ancient wisdom that is resident here. It is really the coming together of these two streams, their extraordinary efficiency and productivity. The technological prowess of the west embodied in the US and the extraordinary depth of conscious understanding and wisdom that we have here, combining or bringing those together in a synergistic way is a gift that we actually have to offer the world and we can embody that, we can practice that here and show the world how to do it.

Q: I want to talk to you about this business of B-corporations (Benefit Corporations) and this is something that we have seen legislations being passed in the US. Do you believe that we are going to see B-corporations not as a minority but, mainstreaming of B-Corporations happening in the near term?

A: I don’t. We write about this in the book. B-Corporations are great, we have nothing against them but, we don’t think it is necessary to change the laws of incorporation in order for the company to operate as a conscious business. We have talked about dozens of companies that have existed under traditional charters, that are functioning in this way today and many others that are becoming that way.

So it is not a limitation on an existing business and sometimes these kind of things become almost a reason not to do something, unless we change the charter, unless the state that I am in has the ability to register as B-Corporation, I cannot operate in this way. What it really takes is leadership and it takes a will and it takes a vision to say that we as a business in harmony with the world can do that without waiting for legislative changes to come. So, B-Corps are nice but not necessary.

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Q: Because the debate sort of rages on and we are seeing this happen even in the west where you have got the giving pledge signed by Bill Gates and Warren Buffet, once again the idea there is what the corporation does is it is accountable to stakeholders, to share holders. What we do in our private capacity is in the business of philanthropy. So, how do you align or balance what a corporation needs to do and what the founders or the promoters of that corporation can do with their money?

A: I don’t necessarily see a need to draw a connection between the two. What the founders or any individuals with large amounts of wealth do is up to them. Most such individuals do end up creating foundations and they do end up giving it away because nobody on this planet is able to consume the enormous amount of wealth they have.

What we really focus on is the corporation and its approach to society and the community. That can include and should in most cases include some philanthropy, include some foundation. For example, Google did not wait for 20-30 years. It created its foundation on day one, the day it went public. It devoted a certain percentage of its stock to that foundation. It works in areas that are aligned with the core business and that is an important element.

Every company should be looking to create value for all stakeholders, including the communities and society at large but they should do it in a way that is aligned with what they are good at and what is connected to their business. So, Whole Foods for example, most of their philanthropy connects to the idea of encouraging farmers to provide more organic foods to the supply chain. It benefits them, it benefits those communities, it benefits the planet and it benefits those farmers.

Likewise, they are getting involved in what they call the whole cities foundation which is around bringing healthy food to inner cities in the US, where most people are subsisting on junk food. They have Whole Kids Foundation which is about creating nutrition education in schools and installing salad bars. Right now they are just eating processed foods and also putting in gardens. All of those things are win-win.

Q: That is the problem here in India because the way the government seems to be looking at this entire issue of corporate social responsibility (CSR) is that, if any of these activities are in some way connected to your core business, they are not seen as your social responsibility or your contribution to social responsibility, it is seen as your contribution towards your own profit.

A: That is the mental model we have to get past. That is a win-lose or a zero-sum mental model. What we are saying is in every situation that we are looking at in business, you can think of win-win outcomes. If I can simultaneously create value for all of my stakeholders, that is a far more sustainable and ultimately greater value creation engine than one which requires me to take from here and put over there.

If I am mandated to do zero-sum thinking, that is going in exactly the wrong direction. Ultimately, the answer to me with government and business and the education sector and the political sector and all the other sectors is the common denominators higher consciousness. Ultimately, if we can raise the level of consciousness in society, then in my role as a business person, as a community member, as a parent, as a teacher etc I will operate in a different way. I will start to see things in a more holistic way.

Q: I understand what you are saying but, you talked about how there is no need to have different legislations and that’s your argument against business corporations. But let’s look at the Pepsi example. Here is Indra Nooyi trying to move Pepsi from fun for you to good for you. It gets a bashing at the market, people don’t buy the argument, not convinced by the strategy and being forced now to go back to fun for you from good for you which any rational individual would know is the approach to go?

A: This transition is not easy. I do think it takes a very strong leader who is able to stick by the courage of their conviction. I do believe that Indra Nooyi is a strong leader but, I think there has to be more consistency and communication. The thing that you have to do is relentless communication about the vision, about the purpose of the organisation. It is evolving not just to certain stakeholders but, to all stakeholders and to the media at large.

Q: But, in the short term, it is going to mean that your bottomline and your profitability is going to be impacted at the time you come out and announce your quarterly numbers. What do you do then?

A: Again, you have to have the ability and the reputation in the market for people to say there is a short term price to be paid as we reinvest in something different for the long term. If you continue incremental thinking, we can always deliver the one or two cents increase in quarterly results but then we are headed towards a cliff and sooner or later that’s a dead end, that is not going to be a business of the future.

You see it everywhere. The numbers are down dramatically for carbonated beverages in many countries around the world. People are themselves coming to that realisation from a demand standpoint. I think communicating that, conveying that and also of course having the replacement products. I know that Pepsi has been doing a lot of R&D to come up with products that actually tastes good and are good for you. Of course, there is review of uncertainty in terms of how quickly you can do that and how much people will respond to that. But, just because something is hard to do doesn’t mean that it should not be done.

Q: So do you believe that post 2008, today we are actually seeing more conscious businesses, more conscious corporations?

A: I do believe that we are generally witnessing a mega trend in this direction because there is a rising consciousness out there. People are, as I said, more informed, more connected, more demanding, more purpose driven, more holistic in their thinking.

Companies are seeing that writing on the wall. I find indicators of movement in many companies. I see very few companies like Wal-Mart for example, Procter & Gamble, Unilever, Coca-Cola, Pepsi and many other so called mainstream companies are going in the other direction and not going back to that narrow view of shareholders only, profit only and not looking at the holistic picture.

Overall, I am actually very encouraged. I do think that eventually, maybe in a few decades, most businesses will operate in this way and it will become the new conventional wisdom. All we are trying to do with our movement is to give it bit of a position, acceleration, as well as a coherent, narrative around what it looks like. Here are people who have been doing it for decades and here is what they have learnt. So you don’t have to make those same mistakes.