November 2002

Corporate Social Responsibility: Is it worth it?

Good leadership means doing the right thing when no one's watching. Values governing the boardroom should be no different from the values guiding the shop floor [Carly Fiorina, sales former CEO,Hewlett-Packard][1]

Misguided virtue? Corporate social responsibility has definitely come of age now that the critics have started to swarm. Misguided virtue was one economist's claim[2]: 'CSR will make us worse off when put into effect with higher costs for questionable benefits'. And, 'business should act responsibly by not fully endorsing CSR'. The London Observer[3] shouts that the concept of corporate social responsibility has 'rarely been paid more than lip service' and The Economist[4] is, as ever, quick to jump on any negative bandwagon that does not have unadulterated profits as its goal when it smugly headlines 'ethical reporting as irresponsible'. Now we see the US president parading in front of large signs proclaiming 'Corporate Responsibility' quickly followed by subversion at the US regulatory body the SEC, we know that the 'social' in CSR means an awful lot more than merely 'corporate responsibility'.

Poorly defined concept? There is some truth in the background to the criticsí assertions. Poorly defined concepts abound, doing well by doing good is universally accepted but when does doing good stop? It is accepted that CSR means treating a companiesí stakeholders in an ethically responsible manner. But who are the stakeholders? What does ethical mean? My responsibility might be another's irresponsibility? And why just talk about social, what about economics, the environment, psychology and sociology? I shall not go into definitions and concepts here - this we have done on our website[5]. What I shall do is to look at a couple of issues that put serious question marks to the CSR agenda.

Body blows? First, a recent decision in California to consider all Nike communications on human rights and related issues as 'commercial speech', and therefore unprotected by the US First Amendment[6] on freedom of speech, could lead to profound consequences whereby any CSR report by a company will be considered commercial. Thus social statements not backed up by concrete evidence or were shown to be untrue even for marginal cases could lead to prosecution[7]. More than 40 companies and others have joined Nike in urging the US Supreme Court to overturn the decision. This could mean reporting on CSR activities being nipped in the bud, at least in the short-term, in the US especially given the conservative nature of the US Supreme Court. I say 'short-term' simply because it is inevitable that businesses will be ever more socially responsible over the coming decades since they will be unable to ignore social problems and issues that have been, to date, largely the preserve of Governments. There are bound to be a few hiccups on the way.

Second, calls for such things as triple-bottom line reporting[8] could set back business interest in CSR simply because life is getting too complicated. The case for an economic bottom line that would take account not only of income and expenditure but also intangible items such as intellectual capital, natural capital and social capital[9] is attractive and some companies such as Skandia have advanced considerably in including such items in their reporting. However, financial analysts and pension fund managers that drive stock market valuations keep their eye firmly attached to the profit and loss sheet of companies. Consequently, the two bottom lines for social and environmental actions are lost in the fog of competing demands. A company that rapes the countryside for trees at low cost and has a healthy profit is immediately the stock market darling. Yet, thanks to environmental lobbying, no company can pay lip-service to environmental concerns these days without analysts querying its long-term sustainability. Similarly, lobbyists have placed exploitative pay to workers in developing countries on the agenda for all companies located in rich countries that produce in poor ones. Simply said, even if social and environmental concerns cannot be captured in one number, their growing importance is reflected in the key number - the profit and loss account. This latter point means that attempts to produce three bottom lines are nonsensical. What is needed is to incorporate serious social and environmental concerns into one number - how do they affect profits and losses. The sentiment behind triple bottom line reporting is well meant, unfortunately it is conceptually suspect. Better to concentrate on the tangible measures of CSR (we include environmental questions under CSR) and try to work out their costs and benefits.

A CSR code? The London Observer expressed its skepticism, 'CSR is dead' it glibly slipped in its article. But then it listed six items in what it called a 'corporate responsibility code'.

These were:

· Don't abuse your workforce.

· Don't cause unnecessary damage to the environment.

· Ensure members of your supply chain are well-treated.

· Treat your customers with respect.

· Don't do business with oppressive regimes.

· Don't let patent protection prevent your products being used in cases of national emergency.

Careful readers will note that each item, including the rather curious last item, covers relations with each of the main stakeholders of a company. Nothing wrong with any of that but maybe, following Carly Fiorina, ask other stakeholders such as the owners, shareholders and managers to behave ethically too. Other quibblers might ask to whom is the code accountable and what exactly a company must do to observe it.
CSR is worth it! Curiously, the skeptics seem to present the case in favour of CSR as well, if not better, than the CSR proponents. For instance, Martin Wolf of the Financial Times[10] concluded, while presenting the skeptic's case about CSR at a recent book launch, that he had 'no problems with the idea that there was a business case for corporate social responsibility - in these cases it was simply mislabeled, since it was really just intelligent profit maximization'. I quite agree. It would therefore appear that even the critics of CSR believe 'it is worth it'!

[1] Address to CBI conference, Manchester, UK, Monday Nov. 25, 2002
[2] David Hendersonís comments at a Greenleaf seminar, London, Nov. 6, 2002.
[3] Nick Mathiason: 'Company ethics? They're not our business', The Observer, Sunday Nov. 17, 2002

[4] ìEthical Reporting: Irresponsibleî, The Economist, Nov. 23, 2002, p.74

[6]ìCongress shall make no law  abridging the freedom of speech, or of the press Öî, First Amendment, US Bill of Rights.

[7] Mallen Baker in Business Respect  CSR Dispatches,, 17 November, 2002
[8] To be dealt with in more depth in a forthcoming 'Monthly Feature'. The concept was first presented by John Elkington: Cannibals with Forks: The Triple Bottom Line of 21st Century Business, Capstone, UK, 1997.
[10] Comments at a Greenleaf book launch and seminar, London, Nov. 6, 2002.