Israeli Firms Learn the Benefits of Doing the Right Thing

Corporate social responsibility is on the increase in Israel, but it still has a long way to go before it catches up with other Western countries.

Corporate social responsibility is not meant to cover a multitude of a firm's sins.
Tomer Appelbaum

On the very day Bank Hapoalim topped Transparency International-Israel’s 2016 report on corporate transparency, the scandal involving its former CEO, Zion Kenan, came to light. It was a stinging irony for customers, who learned about the claims of sexual assault, secret mediation and a huge payout that, essentially, came out of their pockets.

Beyond dismay at the apparent grievous violations of the basic elements of corporate responsibility in the Hapoalim case, those who advise on corporate responsibility in Israel take a longer view: “Every such crisis is an opportunity to insist once more how vital it is to adopt the principles of corporate responsibility as a business and a general strategy – and how, in the long-term, these principles also reduce risk and contribute to profits,” says one experienced consultant in the field.

The European Union defines corporate social responsibility (CSR) as “the responsibility of enterprises for their impacts on society, and outlines what an enterprise should do to meet that responsibility.” In other words, if it wants to earn public legitimacy, a corporation cannot donate generously to hospitals and simultaneously conceal worker exploitation by its subcontractors; it cannot boast of its employees’ communal involvement while simultaneously polluting the environment; it cannot misuse public funds and then absolve itself by donating to children in need.

“This outlook takes into account not just how much money you make, but how you make it, and how this activity impacts those around you,” says Elaine Cohen, CEO of CSR consulting firm Beyond Business.

Easier said than done: A corporation’s conduct can often adversely impact workers, customers, suppliers, the local community, the environment and the public at large.

Box-ticking operation

While the concept of corporate responsibility has been around for over a century, it made its first real inroads in Israel about two decades ago – largely thanks to the local branches of global companies that operated by the parent company’s standards.

By 2008, several dozen companies here had full- or part-time corporate responsibility managers. Maala, an NGO that works to promote corporate responsibility, says there are now 150 CSR managers in the business sector in about 50 companies: 50 are employed full-time and 25 of these are also senior executives, with a good chance of participating in and affecting decision-making. For the remaining 100, CSR is just one of a number of areas under their responsibility.

About 80% of CSR managers in Israel are women. Revital Bitan, CSR director at Intel, believes the high number of women in this position is indicative of the holistic abilities required to perform the job.

“Our job is to look at all the worlds, to be in touch with all the branches and all the relevant parties and to identify opportunities, to create connections and bridges,” she says. “Women are naturally gifted with such abilities.”

Data from Maala, which has been ranking the ethical, social and environmental conduct of Israeli companies since 2005, show that the number of companies adding a CSR position has grown at a rate of 10% every year. But Daniela Prusky-Sion, CSR director for Strauss, says that “even the placement companies don’t always know what it means. After years in the profession, I still have to explain what I do over and over again.”

In many ways, a CSR director’s job is very similar to that of the CEO, says Nir Koren, head of CSR and sustainability for accounting firm BDO Ziv Haft. “This person is supposed to see the company as a whole, to measure the achievements of all the departments, to set goals, to see what’s happening in the world, to identify risks and opportunities, and bring the necessary pressure to bear in order to harness all the relevant parties to move the organization forward,” he explains.

The other side of the coin, of course, is the lack of correlation that often exists between the prestigious title and the ability to have real influence.

“In the worst cases, there are companies that just want to ‘check off the box’ – the ones that tell you, ‘I have a bidding process coming up next week, draw up an ethical code for me.’ It’s clear from the start that such companies only view CSR as a superficial thing; that it’s not something they actually believe in,” says Ivri Verbin, CEO of consultancy firm Good Vision.

“On the other hand, you have organizations that spend a year and a half working on their ethical code because they’re not satisfied and want to improve,” he says. “A lot depends on the CSR manager, but it also depends a lot on the organization. Not every place attaches the kind of importance to CSR that we would like to see.

“Another parameter for a CSR manager’s effectiveness is the organization’s ability to measure, report and set goals,” continues Verbin. “When a CSR report merely reports what was done in the previous year, that’s not sufficient. A good manager has to be able to listen to all the parties involved and make innovative connections. He can do a certain project just because the regulator compels him to, but he could also find opportunities within that project to improve employee conditions and reward customers.”

Some recent examples of CSR directors leading companies to take innovative steps: Last year, Roche Pharmaceuticals, in conjunction with the Israel Cancer Association, issued a guide – in Hebrew, Arabic and Russian – for women diagnosed with breast cancer, to aid in managing the disease and the daunting bureaucratic process that often follows diagnosis; and Delta Galil Industries was recognized for excellence by the Israeli Society for Human Resources Management for its Be Yourself program, which encourages employees to be proactive toward better living, healthy living and self-improvement in both their personal lives and the workplace.

Beyond greenwashing

With more and more companies adopting practices that, in CSR parlance, go “beyond compliance,” the question must still be asked whether corporate responsibility in Israel largely comes down to “greenwashing”: the addition of some esoteric activity mainly intended for image-boosting purposes, but which pales in comparison to the company’s primary business activity – which may be seriously detrimental to the public.

“Every CEO and CSR director, and the public as well, should be looking at how authentic a company’s conduct is in this regard,” says Maala Director Momo Mahadav. “Of course a company has to make a profit, but the motivation for success only increases with the understanding that it has to provide something that is inherently valuable.”

Beyond Business’ Cohen feels Israel is still far behind in terms of CSR. “A lot of things involving CSR are done for business considerations, or outside pressures, or a desire to avoid risk, rather than out of thought about the opportunities that such activity can hold,” she says. “Many companies submit annual CSR reports because they know they need to do so to be on the playing field. But they haven’t yet developed much of a commitment to it, or an awareness of the long-term profitability that can come with it.”

Changing attitudes

Mahadav believes that corporate responsibility in Israel is maturing. “As you mature, although you lose the innocence and boundless hope of youth, you also learn what to focus on,” he says. Much of this maturity derives from the change in public attitudes toward corporations. A 2016 Maala-GlobeScan survey of public expectations from Israeli businesses found that in the food and drink industry, for example, healthfulness and the quality of ingredients in a product was of the highest concern; the previous year, price was the top concern. For the pharmaceutical industry, the top concern last year was the development of new drugs; the previous year it was accessibility and price.

“This is a real revolution,” says Mahadav. “The public is saying, ‘Go ahead and make a profit – but we also expect some absolute good from you, some inherent value.”

“In the past couple of years, we’re not just talking about how much a Milky pudding costs, but what’s in it,” agrees Amir Adar, founder and CEO of Kaima Research, which does sustainability research and analysis.

“Consumers, and worker associations, are showing much greater awareness,” he notes. “The global companies understand they have to listen more closely to the public. We’re starting to see this change with local companies, too, though not at the pace we anticipated.”

The idea is that every step a company takes to create financial value should simultaneously yield some social value, so it’s a win-win for the company and its stakeholders. Thus, in its project to build the Ashalim solar thermal power station – which includes the use of numerous mirrors – Shikun & Binui pledged to the banks financing the Negev project that it would employ local Bedouin in the adjacent mirror factory.

“We were committed to principles of sustainability before this, but this project set a new threshold for us,” says Uri Ben Porat, the company’s vice president for sustainability. “We do it willingly not only because we care about protecting the environment, but because we also benefit: The more we involve the stakeholders, and the more we concern ourselves with renewable energy and environmental preservation, the more we also protect the company from risks and fines, from project delays, and from potential legal troubles,” he says.

Despite the frequent frustrations they encounter and their awareness of how far Israel lags behind Europe and the United States when it comes to corporate responsibility, CSR directors in Israel are generally optimistic. “Five years ago we wouldn’t have been having this conversation,” says BDO Ziv Haft’s Koren.

“The change is sinking in,” he says. “Outside investors, the standards overseas, regulation, clients and the public are all telling companies: We don’t care where you volunteered or what cause you donated to; we care about your core activity – your product or service, your business environment and your treatment of stakeholders. The pressure to improve is coming from all directions.”