In the Shift

I’m nearing the end of writing the second edition of the book ‘Corporate Responsibility: a critical introduction‘, and I’ve been reflecting on the changes since I started on the first edition in 2006.  These have been years of excitement and disappointment for anyone interested in the role of business in taking on the social and environmental challenges of the new millennium.

No sooner had the first edition been published containing a detailed overview of the Economist magazine’s lambasting of corporate responsibility as a cause of lost shareholder value and a source of bad governance, than the same magazine came out and agreed that corporate responsibility was rightfully high on the agenda of business leaders who saw it as a way of addng value to their companies. What a difference three years makes!

A couple of years on again and socially responsible investment is expanding rapidly, major companies like Nestle through its Creating Shared Value initiative are thinking about their products in terms of benefits for society, social enterprise is generating an incredible buzz in both government and business circles, and senior executives are getting behind alliances such as the Climate Leaders Group on Climate Change to help tackle major social and enviornmental challenges.

But corporate responsibility has been missing in action during the financial crisis when corporate irresponsibility in terms of products, management, the single-minded pursuit of profit as business’ main social mission brought catastrophic results.  BP - a long time exemplar of corporate responsibility best practice – has became the latest example of how ignoring the business-society relationship destroys shareholder value.  And Toyota, heralded for its green technology innovation, has hit the barriers (literally) with its faulty breaks debacle.

Apparently this is what governance looks like

Where we stand today

So, is corporate responsibility in the ascendancy or in crisis?  As ever in corporate responsibility it’s a bit of both, and it depends what expectations we have of CR as a way of managing business’ relationship with the rest of society.  Right now, I see four different sets of expectations – the visions of corporate responsibility.  Here they are:

Vision 1: Business exploits society, and corporate responsibility is an approach to combating things like the exploitation of workers at Apple supplier Foxconn or the contamination of paddy fields near factories in India. In the last ten years there have been significant advances in companies’ monitoring of conditions in their supply chains, and firms such as Patagonia provide the kind of information that allows anyone to find meaningful information about what is produced where and under what conditions.  But the global supply chain is huge, critics like Jeff Ballinger keep providing evidence that labour codes of practice aren’t working, and there are far too few studies like the one commissioned by the Ethical Trading Initiative asking what impact codes of practice are having.

Vision 2: Business is a liberating element of modern society, and corporate responsibility fosters positive qualities like entrepreneurship and innovation in order to tackle the big issues of our age.  The enthusiasm with which Prahalad et al’s concept of the fortune at the bottom of the pyramid has been greeted in business schools and elsewhere is but one example of this.  Social entrepreneurship is energising some of the smartest minds of a new generation of business innovators who believe that the qualities of the entrepreneur, the skills of business management, and even the capital of the financial markets can be harnessed to fix the poverty and environmental degradation associated with dysfunctional markets.  And the promise of budding entrepreneurs tackling being at the frontline in fighting poverty etc has strong appeal to politicians who for financial and/ideological reasons want to cut back the state’s role as a social safety net.

Vision 3: Corporate responsibility is the glue that binds together new kinds of partnership between business and society.  In the 1950s and 1960s – at least in the richer economies – there was a tacit agreement that company management, trade unions and government used their respective power to define and manage business’ role.  Company management allocated capital and distributed profits, but were subject to a pact with unions about sharing the benefits with workers, and were constrained by laws and national policy.  These countervailing forces negotiated and defined business’ role.  But then shareholders got more aggressive in battling management, unions lost their hold, and having unleashed the forces of globalisation, governments found their own role undermined.

The breakdown of the countervailing forces was greeted by many as casting away the shackles on free enterprise.  But a two decades after Milton Friedman went public with his idea of the social responsibility of business is to make money for shareholders, companies found themselves under assault from a society that didn’t buy into the idea of profit at all costs.  Companies around the world have learnt the truth that they need more than shareholders to obtain the licence to operate upon which their success depends.

But with the countervailing forces fatally weakened, what could companies turn to.  Out of the hostile clashes with anti-business protesters emerged the idea of partnerships involving ‘stakeholders’ from all different sectors.  The Forest Stewardship Council whose logo is found in many DIY and stationery stores was an early example of these partnerships.  So too is the International Cocoa Initiative fighting child labour in cocoa production, and the Better Sugar Cane Initiative focused on sustainable sugar production.

Vision 4: There is a global governance vacuum and corporate responsibility aims to fill it through what’s called co-governance.  What that means is that business, organisations such as NGOs and unions, and parts of government come together to oversee the social and environmental outcomes that arise from business doing its business.  Conventional corporate governance is about the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.  Co-governance is about the ways in which providers of a corporation’s licence to operate assure themselves that the company is adequately addressing financial and extra-financial matters material to the firm.

Fairtrade labelling is a good example of this whereby companies look to NGOs to verify the fairness of the trading system.  The Marine Stewardship Council certifies that fish come from sustainably managed fish stocks.  The Fair Labor Association monitors and reports on labour conditions in factories supplying major apparel brands.  What each example has in common is that companies and other producers throughout the supply chain collaborate with non-business and non-government organisations to tackle the social and environmental elements of their business.

Half-time verdict

Your verdict on corporate responsibility at this stage depends on where you stand – the vision you have.  If you see it as a way of putting right the wrongs of business (Vision 1) then for all the advances made, you will probably frustrated that more hasn’t been done more quickly.  You may also feel that some practices are not being addressed, and in fact seem more acceptable now than ever before – think tax avoidance (legal) being used for what was once ‘tax evasion’; think the reneging on pension promises and the replacement of defined benefit pension schemes (favourable to employees) with defined contribution ones (favourable to balance sheets); think the steady erosion of job security and how short-term contracts and outsourcing have become the norm.

If you see corporate responsibility as part of the liberation through private enterprise lens (Vision 2), then you are likely to be excited by what is happening, and the way not only start-ups but also major companies such as Vodafone (with its M-Pesa product) and GE (ecomagination) are making money by tackling head on social and environmental issues.

If you prefer to think of corporate responsibility in terms of a new social contract replacing the old paradigm of countervailing forces (Vision 3), then there are ample examples of partnerships to turn to, although you might feel uncertain about their real potential.  Partnerships seem to work quite well the nearer the organisations are to the problem at hand – e.g. Anglo American‘s approach to managing the local impact of mines.  But the big, much vaunted partnerships designed to tackle problems of a global scale have trouble demonstrating their effectiveness, unless what we mean by impact is press coverage and the number of meetings.  Perhaps it is not the specific partnership’s fault, but rather whether the partnership model is fit for purpose given the sheer size of the problems such as climate change.

And impact – the evidence or lack of it – is at the heart of corporate responsibility as co-governance (Vision 4).  The web is littered with case studies of how companies in partnership with NGOs are putting accountability and transparency into global business operations.  But I know from just finishing a chapter on corporate responsibility’s impact that you will struggle to find systematic evidence of the benefits or otherwise of what is often hailed as a new governance innovation.  What do I mean by systematic?  I mean evidence from multiple locations using the same methodology and conducted by people without a vested interest in the findings.

It is up to you which vision of corporate responsibility matters most to you.  For me, co-governance seems the most essential for deal with transformation and climate change, and from what I’ve seen we are coming up very short.  As I discussed in an earlier posting on the impact of Fairtrade, we seem a lot more concerned about our intentions than the outcomes.  Our knowledge of co-governance has come to resemble less evidence-based action than belief-based evidence.  It is time to reverse that situation because well meaning disaster is a disaster nonetheless.