Corporate Gains: Corporate Social Responsibility Can Be the Strategic Engine for Long-Term Corporate Profits and Responsible Social Development
Berkhout, Tom, Alternatives Journal
ASK ENVIRONMENTALISTS or social activists what they think of corporate social responsibility (CSR) and they will likely respond with a reflexive rolling of their eyes. Pose the same question to a hard-nosed business person and do not be surprised if you elicit a similar response.
At its worst. CSR is little more than corporate greenwashing--the voluntary adoption of a token social or environmental initiative intended to enhance a company's corporate image. At its best, CSR may provide the starting point that businesses need to begin moving toward sustainability.
So what exactly is CSR? If you're looking for a singular definition, you will not find one. Corporate social responsibility, like the phrase "sustainable development," means different things to different people. Canadian Business for Social Responsibility (CBSR) is a business-led initiative to promote CSR in Canada whose membership includes corporate bigwigs such as Nike, Alcan, Scotiabank and DuPont. CBSR defines CSR as, "a company's commitment to operating in an economically, socially and environmentally sustainable manner, while recognizing the interests of its stakeholders, including investors, customers, employees, business partners, local communities, the environment and society at large." (1)
At first glance, the CBSR definition appears to be a long way from the traditional free-market view of the broader social responsibilities of business. The market perspective is probably best summed up by American economist Milton Friedman's statement, "there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game." (2)
In this free-market interpretation, the responsibility of business is to reflect the values and desires of a society as efficiently as possible in the goods and services it produces. A company that does this well will be rewarded in the marketplace by customer support. The support of a company's products is in turn understood to include support for the methods by which they were produced. Democratically elected governments set the rules that determine how products are produced and sold. It is then up to businesses to compete with one another within the parameters of these rules. Firms that give too much flexibility to their managers and executives to interpret and respond to broader social issues run the risk of jeopardizing their legal responsibility to earn the maximum profit possible for the company's shareholders.
Critics of the free-market approach to corporate responsibility argue that companies who focus exclusively on meeting their legal and economic obligations will ultimately fail to secure the level of social legitimacy needed to operate. (3) And why wouldn't simply following the law be enough to earn a good reputation in the public's eyes? Laws are at best a delayed reflection of society's perpetually evolving norms and values. A corporation that fails to perceive and act on informal societal expectations will be viewed as out of sync with the society on which its existence depends. The rules of the game, therefore, are never as straight forward as following the letter of the law. (4)
The public response to Shell Oil's 1995 attempt to sink its floating North Sea oil storage tank, the Brent Spar, shows what can happen when a company follows the law but fails to gauge broader societal expectations. Built in the mid-1970s, the Brent Spar was used by Shell UK as an at-sea storage facility for the company's North Sea oil excavation operations. In 1991, Shell found it no longer required the Spar and had to decide how best to dispose of it. It finally decided to sink the Brent Spar in over 2000 metres of water at the North Atlantic's North Feni Ridge. Legal permission to sink the Brent Spar at sea was granted by the British government in February 1995, in accordance with international law.
Five months later, despite having legal permission to do so, Shell UK announced that it would not sink the Brent Spar as planned. The company's decision was motivated by a highly publicized campaign by Greenpeace against Shell's sinking of the Spar. Greenpeace successfully convinced the public that deliberately sinking a 14,500-tonne oil storage facility at sea was not an acceptable means of dealing with this waste.
The irony of the Brent Spar incident is that, at the time, Shell was considered a global leader in CSR. Shell ultimately damaged its hard-sought-after public image because it had misjudged the norms and values of society.
Promoters of CSR would argue that there is a lesson here--corporate social responsibility actually serves to reinforce, not undermine, a corporation's profit-making responsibility. Had Shell's executives gauged public opinion more accurately, they could have prevented a sales boycott that was linked to the incident and long-term damage to its public image. "Doing good," in this light, becomes synonymous with "doing good business."
The CSR movement may share more in common with the free-market view of corporate responsibility than one might suspect. Both sides agree that a company should only adopt practices that are deemed profitable. As business guru Peter Drucker explains in his article, The New Meaning of Corporate Social Responsibility, "the proper 'social responsibility' of business is to tame the dragon, that is to turn a social problem into economic opportunity and economic benefit, into productive capacity, into human competence, into well-paid jobs, and into wealth." (5)
CSR and sustainability
One of the first challenges facing a company that wants to operate under the principles of CSR is determining how to balance its social and environmental responsibilities with its more clearly defined economic responsibility to earn a profit. It is important for promoters of CSR to acknowledge that at some point the cost of being socially and environmentally responsible outweighs the benefits. When this happens, most firms will cease to engage in new initiatives. In essence, CSR has a built-in social and environmental glass ceiling that is dictated by the dominance of the firm's economic commitment.
If society's evolving norms and rules determine what constitutes acceptable corporate behaviour, one can argue that CSR's glass ceiling is merely a reflection of society's expectations. As society's expectations rise, so will the range of economically feasible CSR initiatives--a scenario that sounds remarkably similar to Adam Smith's "invisible hand".
In his book, The Planetary Bargain: Corporate Social Responsibility Matters, Michael Hopkins argues that CSR has the potential to be far more than a public relations ploy or a means to pluck some "low-hanging fruit" from the corporate efficiency tree. Instead, it can be the strategic engine for long-term corporate profits and responsible social development. But for CSR to achieve its potential, companies must allow themselves to be motivated by something other than the lowest short-term cost for the highest short-term gain.
Fortunately, a number of corporations are beginning to see a strategic value in CSR beyond improved public relations or the short-term bottom line. Employee development and wellness, waste reduction, donations to local community groups and improved environmental performance--all are examples of CSR actions that may cost the company more in the short-term but make it arguably more competitive in the long run.
The goal of many CSR advocates, however, is far grander than these micro-level achievements. Their goal is nothing less than to create "higher and higher standards of living while preserving the profitability of the corporation, for peoples both within and outside of the corporation." (6) In this "win-win" scenario, Hopkins explains that the world's human population wins from CSR as business helps to raise the global standard of living, and business wins from CSR as it gains a larger consumer base. Today's needy become tomorrow's customers.
Henry Ford had a similar idea 100 years ago--treat employees well and pay them a wage that allows them to actually purchase the products they make. Ford's idea was not only about having happy and productive employees, it was also about creating another market for selling cars.
A major difference between Henry Ford's approach to social responsibility and CSR today is that, for many companies, business is now conducted on a global scale. This means that businesses must agree to a CSR playing field that is level, not only in their own backyards, but also in regions of the world where environmental, social and labour regulations are weak at best. This certainly puts a significant onus on corporations not only to act responsibly but also to accurately account for their actions.
Is it naive, then, to expect CSR to have a profound global payoff? Hopkins concedes that CSR's grander vision of raising the global standard of living will require "a worldwide compact, or planetary bargain, between the private and public sectors." As Hopkins sees it, this bargain will work because "the public sector will help private organisms to operate with clear ground rules, and the private sector will pay more attention to longer-term social development issues than ever before." (7)
Given the unwillingness of many of the world's largest countries, including China, India and the United States, to sign agreements such as The Kyoto Protocol and the 1997 Mine Ban Treaty, it is right to be skeptical about the likelihood of a bargain being struck between the public and private sectors anytime soon.
Despite these misgivings, it is fair to say that at the micro- or firm-level CSR is a good thing. But is it realistic to expect all of this to be delivered in a "sustainable manner," as advocates of CSR have claimed?
Paul Hawken is reluctant to make this link between CSR and sustainability. In his landmark book, The Ecology of Commerce, Hawken writes, "Although proponents of socially responsible business are making an outstanding effort at reforming the tired old ethics of commerce, they are unintentionally giving companies a new reason to produce, advertise, expand, grow, capitalize, and use up resources." (8) In other words, improved efficiency and productivity gained through CSR lead to lower costs, which lead to increased sales, which lead to increased resource use and waste generation.
So how can companies use the principles of CSR to take meaningful steps towards sustainability? New business models can provide a framework for corporations interested in conducting business in a sustainable manner. The Natural Step, for example, moves beyond CSR. Founded in Sweden in 1989, The Natural Step requires businesses to meet specific ecological and human conditions for all aspects of their corporate agendas.
The Natural Step framework is appealing because it effectively draws a line in the sand in terms of what is sustainable practice and what is not sustainable practice, something that CSR has not done. It also recognizes that economic progress should not be carried out at the expense of natural systems and human welfare. The principles of The Natural Step recognize that the economic sphere operates within the parameters of the natural and social spheres, rather than the other way around.
Over 100 corporations around the world have started to work with The Natural Step framework, including Nike, Interface, McDonald's and Ikea. The level of integration, however, varies from company to company. McDonald's restaurants in Sweden, for example, began integrating The Natural Step in the 1990s and now serve organic milk and beef, recycle 97 percent of all waste, and have reduced 1200 tonnes of packaging by switching to "smarter packaging." (9) Outside of Sweden, the integration of the framework has been slower and more cautious. According to The Natural Step, however, McDonald's is in the early stages of "moving forward on a vision of building a sustainable global food supply chain." (10) Now that would be something worth buying a Happy Meal for.
This is not to argue that companies currently engaged in CSR should throw away their work in this area and start anew with The Natural Step or a similar framework. What models like The Natural Step demonstrate is the direction that CSR programs must take to guide business toward sustainability. Without such an integrated and focused model, CSR may strengthen a company's public image and perhaps even see it develop some longer-term competitive advantages--but it will not lead to a sustainable company as its proponents claim.
"Sustainable business" does not have to be an oxymoron. For this to be the case, companies need to ensure that their short-term economic goals do not continue to override their long-term social, environmental and economic responsibilities to society and the natural environment. Companies around the world are showing that when they value people and ecosystems, everybody profits.
Learn more about The Natural Step at www.naturalstep.org
Corporate Knights is an independent Canadian magazine that promotes and tracks the CSR progress of Canadian businesses: www.corporateknights.ca
Find better business links, resources and opportunities at www.planetfriendly.net/business
(1) Canadian Business for Social Responsibility, "What is CSR?"
(2) M. Friedman, Capitalism and Freedom (Chicago: The University of Chicago Press, 1962), p. 133.
(3) Committee for Economic Development, Social Responsibilities of Business Corporations: A Statement by the Research and Policy Committee (New York: CED, 1971); and S.P. Sethi, "A Conceptual Framework of Environmental Analysis of Social Issues and Evaluation of Business Response Patterns," in Business and Society: Dimensions of Conflict and Cooperation, S.P. Sethi and C.M. Falbe, eds. (Toronto: D.C. Heath and Company, 1987).
(5) P.F. Drucker, "The New Meaning of Corporate Social Responsibility," California Management Review, 26 (1984), p. 62.
(6) M. Hopkins, The Planetary Bargain: Corporate Social Responsibility Matters (Sterling, Vermont: Earthscan Publications, 2003), p. 1.
(7) Ibid., p xii.
(8) P. Hawken, The Ecology of Commerce: A Declaration of Sustainability (New York: Harper Business, 1993), p. xiii.
(9) The Natural Step, "McDonald's Sweden--A Case Study,"
(10) The Natural Step. "McDonald's Corporation Case Summary,"
Tom Berkhout is a graduate student in Environment and Resource Studies at the University of Waterloo, Ontario.…
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Corporate Gains: Corporate Social Responsibility Can Be the Strategic Engine for Long-Term Corporate Profits and Responsible Social Development. Contributors: Berkhout, Tom - Author. Magazine title: Alternatives Journal. Volume: 31. Issue: 1 Publication date: January-February 2005. Page number: 15+. © 1998 Alternatives, Inc. COPYRIGHT 2005 Gale Group.
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