Can Middle Eastern Startups Engage in CSR? Should They?

As the entrepreneurial ecosystem has grown in the Middle East, interest in corporate social responsibility (CSR) in the region has also increased. Many firms in the Middle East no longer see themselves purely as machines for generating profit. These companies see their success as a way to drive community development. In markets around the world, CSR can drive both. People are more likely to make a purchase when they know that a portion of the profits will benefit a charitable organization.

middle east businessmen
Image courtesy Jaguar MENA | Flickr

Moreover, some startups have launched with philanthropy at their core. In the international arena, TOMS is the most obvious example. This company donates a pair of shoes to a person in need for each pair purchased. In the Middle East, many companies are similarly blurring the line between business and philanthropy, especially as more young individuals become interested in entrepreneurship.

The popularity of so-called social entrepreneurship, which combines profits with community impact, is becoming a more common path in the Middle East. Additionally, other startups that are not directly involved with social causes are committing a portion of their profits to charity. However, CSR is distinct from philanthropy in that it sits closer to social entrepreneurship. While giving is admirable, CSR encompasses the ways in which people and businesses interact with their communities, treat their employees, and view their work.

Reasons to Pursue CSR

The primary reason to pursue CSR is the potential for economic benefit. Companies with robust CSR programs often benefit from a better reputation, which can translate into greater profits. According to the Reputation Institute, CSR can account for 40 percent of brand image.

Image courtesy Jaguar MENA | Flickr

Outside of the financial realm, however, CSR also has an emotional component. Through CSR, companies can develop closer relationships with their stakeholders. This impact can prove extremely important for startups as they search for funding and investors. When stakeholders connect to a company’s work on a personal, emotional level, they are more likely to invest.

Entrepreneurs should also consider how CSR might attract talent to their organizations. The emotional component extends beyond stakeholders and can attract excellent employees to a firm. In addition, employees who are proud to work for their respective organization tend to feel fulfilled and work harder, which translates to higher retention rates and greater productivity.

In developing countries, the need for CSR can prove very great, since governments often do not have the funding and infrastructure to launch and maintain beneficial social programs. For this reason, taking part in CSR in these places can amplify the impact of both the financial and emotional benefits of engaged philanthropy.

The Argument against CSR

Despite its benefits, not all professional feel that CSR is a wise business move. The biggest criticism of CSR is that all businesses do not have the requisite skills and knowledge to engage in philanthropic work. In other words, people who have been trained in business do not necessarily have the skillset needed to make wise philanthropic decisions about social or environmental concerns. Thus, a company may be wasting its money without creating much of an impact at all.

Other people claim that governments have a responsibility for philanthropy, not the businesses that already pay taxes to support these programs. Elected officials and government leaders are theoretically chosen for their ability to use such money efficiently and effectively.

The strongest critics of CSR would actually claim that engaged corporate philanthropy usurps the political function. In some jurisdictions, governments do have the ability to enforce regulation, which eliminates some of the competitive advantages and disadvantages associated with adopting CSR.

One of the most essential arguments against CSR is an economic one. Economist Milton Friedman held that companies have only one ethical responsibility, which is to engage in free competition and seek to increase profits without using deceptive or fraudulent practices.

Startups and Community Engagement through CSR

Despite these criticisms, CSR is a powerfully growing trend. Some industry experts continue to think of CSR primarily as the realm of large corporations, but small businesses and startups can also engage.

office buildingLarger companies often have more resources to support CSR initiatives, but that does not mean that startups cannot launch their own effective programs. In fact, as pressure increases on large corporations to give, this pressure often trickles down to their suppliers, which often means small businesses and startups.

CSR should be scalable, so it is never too early to engage. However, startups need to be careful not to undertake projects that are beyond their means. Ideally, companies should choose a very limited number of charities to interact with, or they can focus their philanthropic mission on one specific cause.

Also, CSR is most effective when it aligns with a company’s work. By engaging with communities in ways that are related to what the company does, firms can increase exposure by making strategic connections.

Entrepreneurs need to keep in mind that a bad CSR program can actually harm businesses, so the decision to engage with the community must be strategic and appropriately scaled. If a company makes promises that it cannot keep, customers will not trust its products and services.

Companies should never allow CSR to jeopardize the quality of their products and services, and their community engagement should also be high quality. If companies cannot devote enough resources to CSR, they run the risk of damaging their reputation. Similarly, if they dedicate too many resources, their products will suffer.