Reviving CSR

I have been under the impression that corporate social responsibility (CSR) had become an integral part of the management world. Even conversations with colleagues in the business world gave me the same impression. It was, therefore, a little surprising to me that  when I walked into one of the biggest bookstores, I could not find a single book on this topic.

The business section was full of the usual topics – strategy, marketing, finance, operations, human resources, investments and even career advice. There were books on leadership, organizational dynamics, business biographies, corporate histories; but not a single book on corporate social responsibility. The books on ethics were in another section and not among the business books. One sales clerk told me there was very little demand for books about CSR.

This has made me wonder whether the business community, by and large, is serious about CSR or merely sees it as a public relations gimmick or merely finds that CSR is one way of enhancing a company’s public image.  In this way, CSR becomes a marketing tool.

The economist Milton Friedman once said that “...corporate executives have the responsibility to make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom.” This sounded like a cynical statement that said companies should adhere to the barest minimum rules on ethical behavior.

The other problem in this Friedman rule is what happens to corporate social responsibility in a society where the rule of law is not respected and corruption is endemic. In this kind of society, managers often find sufficient excuses for violating corporate ethical practices by saying that their obligation to maximize corporate profits forces them to do so. 

Principles can easily be set aside under pressure. Every business is subject to this temptation; but, some are more prone to violating ethical practices than others.  In one of her articles, Eleanor O’ Higgins wrote that some of the signals of vulnerability include the following:

• Highly visible competitive environments. These environments are like war zones. Winning becomes all important. All sense of moral balance is lost in a state of desperation. The competitive arena can be price wars for market share, or for acquisition, or the securing of a lucrative contract or client. Paying a bribe to clinch an all important deal becomes acceptable. If companies find it too expensive to compete, they can collude to set a common price or parcel out government contracts among themselves. 

•  Highly diversified, complex organizations with far-flung geographical operations. In these conglomerates, it is harder to control business units which are subject to different industry and political, social and cultural environments and competitive pressures. It is difficult for a company with dozens of subsidiaries to know what is happening on the ground. 

• Even with stringent management control systems in a highly diversified organization, preventing moral hazards can be difficult. A bank may be stringently regulated unlike a retail chain which has very little regulation and has widely dispersed geographical operation. 

• Businesses that rely on government contracts. This vulnerability relates to government contracts around the world. Many corrupt industries are in large infrastructure construction projects. Industries that are heavily regulated such as public utilities, transportation, energy and communications are also prone to these practices.

• Competing for high stakes. Companies that emphasize profits above all build a culture where everything is measured by its effect on the bottom line. Employees who are seen to be boosting profits become the stars and heroes and reap commensurate rewards with their celebrity status. This approach is one where the ends justify the means. The temptation to feed the profit machine and do whatever it takes becomes irresistible. 

• Weak governance structure and processes. Even with so called independent directors, almost all company boards are ineffectual. Non-executive directors are often beholden to management for their lucrative directorships.  Oftentimes, cronyism pervades boardrooms. Submissive boards, compromised non-executive directors and docile institutional investors can be a lethal combination.

In the new business environment, companies may be forced to undertake various forms of CSR. Simon Zadek in The Civil Corporation says that there are four ways firms can respond to CSR:

• A defensive approach – to alleviate pain.  Firms will do what they have to do to avoid pressure that makes them incur costs.

• A traditional cost-benefit approach – thus firms will undertake activities they can identify as a direct benefit.

• A strategic approach – thus firms will recognize the changing environment and engage with CSR as part of a deliberate emergent strategy.

• As an approach to innovation and learning – an active engagement with CSR will provide new opportunities to understand the marketplace and will enhance organizational learning and thus provide competitive advantage. This is the form of the new economy. 

There are still people like Milton Friedman who said: “There is only one and only one social responsibility of business – to use its resources and engage in activities designed to increase profits.” Hopefully, more companies will realize that a business can focus on its own core business, make profits deliver value to shareholders and still behave in a socially responsible manner. 

It is also important to remember that CSR is not the same as corporate philanthropy. One of the best definition of CSR is that it is a situation when companies are judged not just by the products and profits they make, but also how those profits are made. 

Creative writing classes for kids and teens

Adult Series session on Creative Nonfiction on March 30 (1:30-4:30 pm) with Susan Lara at Fully Booked BGC.  For details and registration,  email [email protected].

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Email: [email protected]