The January 19th issue of The Economist has a special report on Corporate Social Responsibility (CSR). "Corporate social responsibility, once a do-gooding sideshow, is now seen as mainstream," the report starts out saying. "Why the boom?" it later asks and proceeds to answer: "For a number of reasons, companies are having to work harder to protect their reputation - and, by extension, the environment in which they do business."
The report further explains, "More than ever, companies are being watched. Embarrassing news anywhere in the world - a child working on a piece of clothing with your company's brand on it, say - can be captured on camera and published everywhere in an instant, thanks to the Internet." It continues, "As well as these external pressures, firms are also facing strong demand for CSR from their employees, so much so that it has become a serious part of the competition for talent."
Why should a business embrace CSR, not just as a feel-good part of its advertising campaigns, but as a value truly ingrained in its culture? In the past, experts have argued against the concept from multiple points of view. Some point out that CSR is a sideshow for a business, which diverts its energies from its number one - perhaps sole - objective: making money. Milton Friedman, arguably the most influential economist in the second half of the 20th century, argued succinctly in a 1970 article that "the social responsibility of business is to increase its profits." Others point out that when a business engages in social activities, it is essentially playing with other people's - its shareholders' - money. Then there are those who claim that social actions for the common good are the proper responsibility of elected governments, not of business. In their view, companies' claims regarding CSR should be viewed with suspicion.
I think that CSR is a fascinating subject, because it goes to the essence of what business is all about. The top priority of a company has to be making money - otherwise it will just not survive. However, to then describe a company as solely a profit-making machine feels very one-dimensional and somewhat old-fashioned.
First, the arguments presumes a relatively static relationship among business, government, communities and civil society at large – with each playing a pre-determined, unchanging role. In this view, the role of business is to single-mindedly seek profits and shareholder returns, and the role of government is to provide the appropriate levels of control, a lot or a little depending on your political ideology.
However, in the increasingly interconnected and globally integrated economy and society of the 21st century, those old boundaries are looking more and more porous, and those old roles are becoming a lot more complex. More and more, governments have to do things that used to be the province of business – and vice-versa.
Second, I think the arguments lack emotional intelligence. After all, a company is at heart an organization of people working together for some common objectives. A company exists within an environment that involves the communities and nations where it does business; the various other companies with which it does business; and, of course, its customers and potential customers. The company exists not just in an economic environment, but in a social and political one as well – and those are composed not of numbers but of people. Most of those people - employees, business partners, customers and neighbors - want more from a company than a profit-making machine.
Businesses spend considerable time, money and energy associating positive qualities with their brands in the marketplace. The relationship between a brand and its customers is a complex one, full of emotional connections, associations, expectations - and chemistry. Well managed companies know this, and have worked hard to establish a culture that balances the need to make profits with other positive attributes that attract people to want to be associated with the company and its products and services. This is even more important in our times, due to two cosmic forces: globalization - as more and more companies are doing business around the world and thus need to establish global brands; and the Internet - which enables a company's actions, especially its missteps, to be instantly communicated to all.
Let me offer some examples of why companies should embrace social responsibility in their culture and their brand, using the company I know best, IBM. Take diversity, for example, something very personal to me, being both Cuban and Jewish. IBM has a stellar record in supporting equal opportunities for its employees.
For example, in 1953 IBM President Thomas J. Watson, Jr. published the company's first equal opportunity policy letter - one year before the U.S. Supreme Court decision in Brown vs. Board of Education and 11 years before the landmark Civil Rights Act - which said, "It is the policy of this organization to hire people who have the personality, talent and background necessary to fill a given job regardless of race, color or creed." And he put IBM’s money where his mouth was – writing to two Southern governors that IBM refused to adopt “separate but equal” policies, and that if those states didn’t like that, IBM would locate its plants elsewhere.
IBM has continued to deepen its culture of diversity through the years, including company-wide diversity councils in eight areas: Asian, Black, Gay and Lesbian, Hispanic, Men, Native American, People with disabilities and Women. I was a founding member of the Hispanic Leadership Council.
As we move toward an increasingly competitive, global, knowledge economy, a culture of diversity turns out to be one of the most important compeititve assets any company can possess. You want to be able to attract the best possible talent to your company - the original motivation for Watson's 1953 opportunity letter - and highly talented people are increasingly diverse - both in your own country and in your workforce all over the world. You also want to attract clients and partners from all over the world to want to do business with you - which they will be more inclined to do if they feel that you truly respect their country and are comfortable dealing with them as individuals. Having had a culture of diversity for decades has made it very natural for all of us in IBM to work with different kinds of people from all over the world.
How about the greening of corporate responsibility, - the awakening of business to take a serious look at the impact of their actions on the environment? Green or sustainability initiatives are a major part of the expectations that society now has of socially responsible companies. Are such initiatives just a matter of frittering away shareholders' money to satisfy a politically correct fad that will eventually move on to its next target?
Not really. That’s because environmental consciousness turns out to be efficiency consciousness, as well. When companies look at their products and services through fresh eyes in an attempt to make everything they do much more efficient, they usually come up with disruptive innovations that enable them to pull ahead of their competitors and become leaders in their industries. Green and sustainable initiatives are part of this tradition. The disruptive innovations necessary to develop more energy-efficient and less wasteful products and services will prove highly beneficial to companies – far beyond helping them improve their social responsibility image.
IBM, for example, has started Project Big Green to reduce the energy consumption of data centers through innovative new technologies, products and services. A related initiative, Big Green Innovations, aims to bring advanced technologies and computational modeling to bear on emerging environmental opportunities, such as alternative energy, carbon management and water management. In addition, IBM recently announced the formation of an Eco-Patents Commons, in partnership with Sony, Nokia and Pitney Bowes. This public domain patent portfolio aims to encourage researchers, entrepreneurs and companies of all sizes to create products, processes and services in a way that will help to protect the environment.
In the end, as The Economist special report points out, "One way of looking at CSR is that it is part of what businesses need to do to keep up with (or, if possible, stay slightly ahead of) society's fast-changing expectations. It is an aspect of taking care of a company's reputation, managing its risks and gaining a competitive edge. This is what good managers ought to do anyway. Doing it well may simply involve a clearer focus and greater effort than in the past, because information now spreads much more quickly and companies feel the heat.… Paying attention to CSR can amount to enlightened self-interest, something that over time will help to sustain profits for shareholders."
I could not agree more with the report's conclusion: "It is the interaction between a company's principles and its commercial competence that shapes the kind of business it will be."
There are a number of looming 'corporate battles', which can involve the resources of corporations (in competition with each other); governments (in balance with their judiciaries); and individuals.
Mostly, the individuals cannot afford to engage in opposition to a corporation, a government, or a judiciary; there is a massive inequality of economic resources deployable. And yet, the corporations, governments, and judiciary ultimately only exist by the consent of, and to provide service to, the individuals.
If we look, for example, at one of the 'live' questions in the UK http://news.bbc.co.uk/1/hi/business/7183003.stm where neither I nor my employer has a financial interest; but it illustrates the point nicely.
The UK government are engaged in litigation against the UK banks, before a UK judge (who in principle represents the Queen) on the question of whether the charges that the banks make for handling bank accounts which are overdrawn are 'fair'.
On the one hand, why should a government tell a private business what prices it may or may not set ? On the other hand, hundreds of thousands of UK individuals have been 'kicked when they are down' by the imposition of what the government thinks are unfair charges.
Closer to home, there's a new release of IBM Lotus Symphony available here http://symphony.lotus.com/ ; 'no charge, for everybody'. I assume it's there because IBM corporately thinks it improves IBM's competitive position, to end the retail market for standalone word processing, presentation, and spreadsheet applications; the sort of thing that Lotus Development Corporation (now part of IBM) was selling before IBM bought it and redirected its efforts towards Lotus Notes and infrastructure value. If the price is zero, there is no market.
So the global corporations, the large governments, and the commercial legal systems which have to balance between them as to what it equitable, look as if the horn-locking is set to continue.
What of the individuals who get tossed and buffeted on the waves, between the behemoths ? Is there a safety valve, an outlet, a safe harbour ?
Posted by: Chris Ward | February 04, 2008 at 09:48 AM
Rock on, Irving... God be with you. Till we meet again, Ken Kalinoski
Posted by: Ken Kalinoski | February 14, 2008 at 07:46 PM
Irving,
The Milton Friedman piece gets more interesting when you look at it in full. Milton's position is more subtle than that fragment would suggest.
"...That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom"
http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html
I'd argue that the customes and basic rules of society are changing too. Businesses that focus on CSR effectively do so out of enlightened self interest, not out of philanthropy. Societial rules and norms move on. Most of the time it takes a while for business to adapt to the change.
IBM has recently published an in depth study on CSR. You'll find my former colleague, James Farrar worth a read on this
http://blogs.zdnet.com/sustainability/?p=106
Posted by: Thomas Otter | February 19, 2008 at 07:46 AM