Corporate social responsibility post 2000 Cover story Global futures

Alistair Ping is in the US conducting research into CSR for a forthcoming book. He sends this report back from the USA frontline.

CSR - myth or reality

Is corporate social responsibility (CSR) a pleasant sounding myth or a practical reality? This was a question debated on the last day of the conference by Henry Bosch (pictured), Ray Evans, Roger Kerr, Alex McDonald, Greg Bourne and Mike Waller and moderated by Jonar Nader.

The debate provided interesting and thought provoking arguments for and against the question of whether CSR is a force for good. The question was well-argued by both sides but the bottom line as opposed to the triple bottom line was that the CSR concept is not well-understood on a practical level.

Last year, AICD in conjunction with Deakin University conducted a survey on the issue of CSR and how directors viewed this. The results showed that there is a general confusion about what CSR is, how it can be applied and what this means for shareholders, stakeholders and the bottom line. The following story furthers the CSR debate.

Bob Dunn is CEO of Business for Social Responsibility (BSR), a non profit business association based in San Francisco that promotes corporate social responsibility by helping companies implement and improve corporate social responsibility (CSR) policies and practices. It has more than 1400 member and affiliated companies worldwide, and has operating revenues of approximately $US10 million.

Dunn is passionate about CSR,but he's also a pragmatist:

"I feel as though we have cleared rocks from the land, turned over the soil, planted seeds in the ground but we have very fragile plants that are emerging. War, pestilence, plagues and foul weather could still put this movement at risk. It is still excessively dependent on champions who have not successfully found ways to make this a part of the DNA of corporate cultures and it is still not sufficiently rewarded when manifest, or penalised when it is not, to firmly embed it in the global business culture.

"I'm hopeful though, because I believe that there is now more happening at this moment than at any time in modern history and some of it is capturing what occurs as a result of people's natural disposition and values."

The events of last year changed the landscape for all of us and the corporate social responsibility movement has faced new challenges as a result of this shift. Dunn sees four key risks to the movement.

"At the macro level if we find ourselves in a global cycle of violence and conflict it's a preoccupation that distracts people from what would otherwise be a focus of their attention.

"Secondly if we allow people to appropriate the language of corporate responsibility without matching deed to it, the consequence is that people become cynical in their perception of what this represents. We've seen a lot of that with PR and marketing stepping in and saying 'Here's a wonderful opportunity for us, let's create something slick and call it social responsibility' . But in the meantime they continue to rape, plunder and steal. So if those who aren't serious are able to capture the language then they put all of us in a position of great vulnerability.

"The third issue is if corporate social responsibility becomes a discredited part of a larger reaction against the market economy because it has over promised what it can deliver and failed to indicate a time frame. The Argentinian example demonstrates this, where democracy and the market economy are joined together and identified as failures because over the course of several years when both have been the driving force of national decision making, people have seen no improvement in their lives and in some cases a worsening in their economic and social circumstances.

"Another way the movement could be threatened is if there is a cycle of movement towards greater public authority and the regulatory model where things are more prescriptive and the floor becomes the ceiling. If governments decide that the only way to influence companies is through law and begin to set standards then a lot of companies may decide that there is no reason for them to do more than what the law requires and then corporate social responsibility become translated into mere compliance."

So, how does the movement progress from here?

"Globally we need to recognise that what is likely to evolve in the US will look different to what is comfortable in Europe at this time. I chafe a bit at the notion of leadership because I think it depends on what you're measuring. For example on the environment, northern Europe is doing more than the States, but if you look at diversity, US companies are light years ahead of their European counterparts. So, this is part of what makes this field hard, there are so many aspects to what social responsibility entails, people don't always have the same values, or have the same hierarchy for those values, they won't always analyse the same data and come to the same conclusion.

"The extent to which regional and national differences could be tolerated were greater when there were barriers around national economies. Now however, there is force towards the alignment of global standards desired by the most global companies due to the importance to them of uniformity or, if not uniformity, at least consistency. That means there are going to be occasions where there must be some reconciliation between the kind of regulatory and voluntary approaches and that occurred most recently around privacy issues where the Europeans legislated and the US said we're going to let companies do what they think is most appropriate and let the market decide whether to support those companies.

"There was a need for dialogue to find a way to make the two environments manageable and to compromise. I think developed economies are going to inevitably impose their standards on developing economies because of the scope of responsibility extending to supply chains. In this country we've seen a whole gaggle of instances where Nike or Wal Mart or Walt Disney, or significant corporate leaders, have got into trouble because of something that happened in Vietnam or West Africa or the Caribbean, as well as Europe or Los Angeles where there are problems.

"So there is great debate underway, although it is very quiet and doesn't get much press attention, between, on the one hand, the leaders of the NGO organisations in the developed world who want to accelerate the application of standards to the developing economies. And on the other, leaders from many of the undeveloped countries who are saying 'time out' - if we can't square the issue of reparation and you're not going to compensate us, for example, for your use of the available carbon dioxide then you can't come in and restrict our capacity to grow and develop along the path which will enhance our standard of living.

"That results in this peculiar alignment of the poorest countries in the world and the richest corporations in the world together against the middle class. I don't know how that's going to be settled but if I was going to bet I'd say the poorest counties and the richest companies will find a way to make it work.

"Examples of this are already beginning to happen. BSR is currently working with a Canadian mining company in Bolivia where the company is planning a mine. BSR works as a facilitator with the company, local and regional government officials, the native leaders, environmental activists to try to craft a plan for how the mine is constructed, how it is operated, and what is done during it's operation to prepare for its close 20 years into the future.

"It's a wonderful model and the company isn't doing it because it doesn't think it can't muscle its way into Bolivia and do what it would wish to do but because it appreciates that it now has to act everywhere in a way that is consistent with the preservation of its charter to operate," says Dunn. "Either in its headquarters or in countries in which it wishes to operate now or in the future."

Maybe this is all too altruistic for some but there are significant driving forces now in play behind this movement. Most notably the spread of the screened investment community is significant because nothing commands attention more than the wishes of the investment community. Secondly there is some growing evidence to suggest that it affects purchasing practices.

"There was an interesting marketing research study that was leaked a couple of years ago when Nike first came under attack when its sales were climbing," Dunn says. "The people in the company said all of this was just a lot of noise and nothing behind it. But then in the marketing study of 13- to 20-year-olds, kids were asked what they associated the Nike brand with. The first response was 'cool' , second was 'sport' and the third highest response was 'exploitive labour practices'.

"So, the people at Nike came to understand that you don't build a global brand through an association with exploitive labour practices and when you look at the value of the brand and you say what's the financial impact of damaging the brand by half of 1 percent, by one percent, by 5 percent, it's an enormous sum. So would you make investments to protect the brand? To enhance its value? Of course you would. There is also growing evidence to show the effect of such things on employees. At Nike the first visible effect of these campaigns was the demoralisation of the people in the company. People who had always been proud to work for Nike were suddenly embarrassed to say they worked for Nike when they went home at night or when they went to cocktail parties.

"Internet technologies have also changed things, it used to be said 10 years ago, 'don't get into a fight with anyone who owns a printing press' today it is more like 'don't get into an argument with any 14-year-old who has a modem and an attitude'. Hundreds of thousands of people can instantaneously receive information, accurate or inaccurate, fair or unfair, about a company. That plays a role in change.

"The globalisation dimension and the fact that corporations now find themselves operating in places where they never would have been, due to the need to source from low cost locations means they have new challenges regarding social responsibility. The challenges of doing business in these places also puts pressure on corporations to address these issues."

How does a company address these issues ?

One thing that is clear is that there is no simple off the shelf solution with a checklist that can simply be ticked off. Dunn tells a story which warns against this.

"There was a prominent member in the ethics community who was invited, over a year ago, by Ken Lay, to come in and do a study of Enron's ethical practices. Reportedly the person wrote a letter back saying that they had no suggestions to make because Enron was doing everything an ethical company could be doing. This happened because people become distracted and focus on a checklist - Do you have a code of ethics? Yes, Do you have an employee ombudsmen that people can go to complain? Yes, Do you have an annual survey of employees? Yes, Is ethics part of your management training program? Yes. Now all of these things are good but taken together does it add up to be an ethical culture? No. But that is what many corporations have been doing. One of the learnings from the Enron scandal is that even where we have been doing this for a long time with sophisticated systems, we have sometimes failed.

"We need to rely on people's judgement and intuition, we can't always give quantitative proof. We need to recognise that there is work to be done in our society to progress these issues - how we measure success; how do we allocate costs and benefits. For example, if you are polluting and it is increasing the costs of my health care then why should your company be getting the benefit of that due to my subsidy ?"

What becomes clear is that every situation will require a unique response. A corporation in the US, while still in the same global market, will have different issues to one in Australia, which in turn will have different issues to one in Bolivia.

So, assuming the movement doesn't get derailed by macro changes, where is it all going ?

"I think that what we're seeing in the world at this time is that when people look at public institutions they want to see them operate in an efficient business- like way," says Dunn. "When they look at institutions in the private sector they want to see them serve a public purpose not just be focused solely on profits.

"So what I believe is that the names we assign to the institutions in our society will become less important, so rather than thinking of us as a society or an economy with multiple sectors we are a society that creates and supports institutions, including businesses that contribute to public well being. Some of them do that by creating wealth and distributing it, whilst others may do it by ensuring that public safety is attended to and others may do it by other means. So the distinction between the three sectors begins to break down.

"For example, Greenpeace is now involved in product development. It is much less clear what a company does, or what a unit of government does or what an NGO might do. This is a very healthy trend and this is my hope for the future.

"The negative view is that we have a consolidation of power in the private sector. That commercial interests become the most telling influence in our lives so that, in ten years time, you might identify yourself as being Microsoft rather than as being Australian. I can't believe that will happen - but it is possible because at the moment 51 of the 100 largest economies are companies not countries.

"However, there is goodwill around. Recently I met with a group of business leaders in the middle east and they said that peace was too important to leave it to government. The private sector must play a role because they have an interest in stability and peace.

"Ultimately I don't think at our core that we all think of ourselves primarily as consumers, we think of ourselves as human. So ultimately we must create structures in a human society that allow our 'humanness' to be expressed in ways that are most gratifying and that's why I think it's not a bad idea to place a bet on the ultimate success of the corporate social responsibility movement."

US facts

• $1 of every $8 invested in the US is in socially screened investments. (Social Investment Forum 1999)
• Good corporate reputation is the second most important consideration for prospective employees. (Cone Inc. 1999)
• Companies with string stakeholder relationships yielded twice the rate of shareholder return of the S&P 500 over the past 15 years. (Towers Perrin 1999)

   

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