Implementing Corporate Social Responsibility in Health Sector

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1 Student Research Projects/Outputs No. 003 Implementing Corporate Social Responsibility in Health Sector Sam Lee MBA 2005 China Europe International Business School 699, Hong Feng Road Pudong, Shanghai People s Republic of China

2 Index What is CSR Why Now? CSR in Health Sector Ex. Bayer Learning Points What is CSR? Corporate Social Responsibility (CSR) has been an uprising issue for last two decades. It has been developed from US and Europe simultaneously over series of irresponsible activities from large MNCs (Multi National Companies). Since the beginning of the new concept, global companies have revised their code of conducts and ethical regulations to be able to prove to their stakeholders that they are a responsible business entity and that the profit given back to the shareholders are not from unethical practices. CSR involves multiple stakeholders, including the government, shareholders, employees, consumers, media, suppliers, NGOs, and the general public. CSR has been defined by many groups. Although they all bear similar meanings relating to taking responsibilities of the society as a business entity, its definition has been getting wider from a traditional point of view of philanthropy and volunteerism to doing the business in a responsible way. What is clear is that CSR is becoming one of the clear topics of interest to the stakeholders. 1

3 At the current stage of CSR development, rather than spending a certain portion of a company s profits for a good cause, most updated CSR guidelines tell companies to concentrate on earning the money in a responsible way. And the cost of changing the current steps of making money to a more responsible way is considered as a CSR investment towards the society and the company itself, heavily emphasizing sustainable development. Thus, CSR could be defined as a responsibility that a company has towards its stakeholders in earning profits. Traditional way of thinking CSR as a donation or a volunteerism is only a very little part of current CSR, which has been started to be considered as a part of a corporate strategy for many multi national companies. Large companies need to build social issues into strategy in a way which reflects their actual business importance. says Mr. Ian Davis, Managing Director of McKinsey & Company, through an article on Economist. Why Now? CSR is more about how one makes money rather than how one spends their money. CSR has been viewed by several companies to be their next blue ocean strategy. With all the interest from stakeholders from around the world, CSR will be stressed more and even may be enforced in the coming future for every business entity. Companies will need to act upon the issue, pressured from its stakeholders, whether the business likes it or not. ISO (International Standard Organization) has been producing ISO on Corporate Responsibilities, to be launched in 2008, and many countries are developing their own Corporate Responsibilities guidelines for their companies. The time frame at the moment looks like a last train for early birds to get on board. In few years, every company will be looking at their responsibility guidelines and those who started early enough will get a big head start on the matter with relatively easy maintenance to do. Bottom line, if a company starts now to consider CSR as their corporate strategy and builds a systematic approach to 2

4 the issue, it will save lots of trouble and resources in the future. CSR in Health Sector Health Sector clearly stands out as a leader, when discussing the CSR issues. Part of the reason will be its close relation to its multiple stakeholders of society, government, and other private sectors. Another part of the reason may be that its way of making profits has a bigger relationship to people s lives by affecting their health problems rather than other business entities. There are numerous epidemic diseases and other serious diseases in the world which needs close attention, both from public sector and private sector (i.e. HIV/AIDS, Avian Influenza, and etc.). In order for authorities to take close measures and keep the diseases under control, critical amount of resource is essential. This is when public turns to private sector s support. However, just by being in this sector does not give one an obligation to contribute to these social health issues as it bears lots of problems. And there is a lot more to supporting these issues for a private sector, as described in the definition of CSR. Healthcare companies have been blamed in the past for their issues including different prices on some critical medications sold over the world. They simply cannot lower the price in countries where the critical amount is needed (e.g. HIV preventive medicine in Africa) since they ve had incidents where the donation has been sent back to the local black market. This also has a problem with IP regulations to deal with. Although there are not clear solutions for these problems, the matter is being seriously looked in to for improvement. Bottom line, Pharmaceutical companies are willing to share their know how under no extra cost to provide medicine to these patients if IP laws and black markets problems are resolved. This is only a single problem outlined from many other. However, 3

5 they healthcare companies needs to constantly think of innovative CSR approaches with pressures from their stakeholders. There are two foremost jobs of Health Sector companies before they solve the complex issues of helping the needy. First of all, the business units have to be earning in a responsible way. This has to be communicated to supply chain, marketing, finance, HR, and other departments throughout the company. If a company is contributing to HIV/AIDS issue but with the money from illegal transaction or from selling medicines packaged by children, what good is it? Second, Health Sector, just like other business sectors, needs to focus on certain areas to contribute to the society and link it with their business. This does not have to directly relate to their products or services and this would be the clear difference of healthcare companies compared to other industry companies. However, overall, there needs to be clear effects and companies need to realize that. As a result, by doing business and making money, business could be contributing to the society. This is certainly not an easy task but not impossible. When above two parts are implemented as a corporate strategy, a company in the health sector would be recognized by the public rather than be blamed upon for only chasing after the profit. Here is a good example of a Healthcare company that is doing very well in CSR. <Bayer in China and Germany> 4

6 Bayer, although a chemical company, is better known as a healthcare company and a company that produces Aspirin to consumers. This is one of the reasons that they concentrate a lot on Public Health. They have defined their focus on Disabled people and HIV/AIDS. This initiative is driven in China by the Bayer China Communication team. Bayer supports numerous activities on HIV/AIDS in China. The idea has been clearly communicated within the company and Chinese employees have changed themselves to loving the initiatives after many attempts by the management for their employees to really feel it. Currently they have hired many disabled people and are even trying to recruit HIV/AIDS affected employees on a trial basis. In China currently, it is very hard to spot disabled people on the street, whom have not been accepted as part of a society. Bayer has started calling their CSR practices as innovations. Explanation to this Innovations mean that the Bayer s management has concluded that their CSR practices is helping the Bayer China s business greatly both internally and externally. Bayer China s Communication department head emphasizes that CSR should not be something to give back to the society but simply a business strategy for a corporation that is impacting the society. Using the communications background, the CSR team launched a Studies program with Tsinghua University on HIV/AIDS program for journalists. By bringing China s important journalists to discuss about what has been considered as a provocative issue in China, has been a real success for Bayer s communication strategies. Bayer has proven to them that A journalist can save more lives than doctors. Bayer China also is the biggest supporter of Special Olympics and has close communications with the athletes regularly. Bayer China currently has a team of eight people working full time for their CSR communications team working on five different 5

7 focuses that they have identified. It is one of the biggest CSR team in a single company operating in China. To surprise, Bayer China is dealing with all the initiatives, not Bayer Healthcare. Internal employee has mentioned once that Bayer s social activities do not help Bayer Healthcare or other Bayer affiliate s sales at all. As mentioned, Healthcare companies should be aware of earning direct gains from their CSR activities. Then what gains did Bayer have? First, employee satisfaction of Bayer China is well above average. Turnover rate, new employee recruitment performance of Bayer has greatly increased since Bayer has been acknowledged in public. Second, Bayer s brand awareness has increased tremendously, placing Bayer as one of the top German brands in China. Third, stakeholders around the world, including ones in Germany, developed firm beliefs in Bayer China s operations. Lastly, Bayer has been acknowledged by the PRC government as one of the most ethical MNCs in China. With all these gains that are somewhat hard to measure, Bayer (including Bayer Healthcare) s sales most likely did increase due to Bayer China s activities. Bayer Healthcare is looking in to Micro Financing these days by helping poor rural people to launch their own business. Again, this does not have a direct relationship to their sales but will eventually help Bayer s reputation in China. Bayer HQ in Germany concentrates more on sustainable development and global partnerships such as the one with United Nations on Environmental protection or Global Compact missions. Also, they have partnered with WHO (World Health Organization) to help African people s sleeping sickness problem. There clearly is a difference between China s operation and the HQs. One thing notable is that regional operation has a deep relationship with the country s development stage and 6

8 the problems that the society has. In China, the society s growth still is unbalanced with the recent economic growth that the country has. Thus lots of impact could be achieved by private sectors when they concentrate on certain issues. Bayer has done it well in that sense. Bayer China s success story is currently spreading to Japan, Korea, and other neighborhood countries. Success is not guaranteed since these countries are more developed than China but it will be a great communication strategy experiment. Learning Points 1. In Healthcare industry, CSR is harder than normal industrial companies. CSR should not directly give benefits to company s growth or revenues in a relative sense. Customers are more judgmental towards healthcare companies when they are engaged in a social cause. Thus, CSR should not be considered as a PR show. 2. Regional and HQ operation is different in terms of CSR. Regional CSR strategies will have more impact on the society. This will work well in developing countries and may not work well in developed countries. 3. CSR, in general, will improve both internal and external relationships with different stakeholders around the company. 7