Responsible business: CEOs attempting to balance profit with benefits to people and planet
Below is an op-ed written by former OCBC Board of Directors Member Chris Harrington as it was originally published in The Orange County Register on Saturday, March 22, 2014 as part of a special section on Conscious Capitalism.
We all benefit, at some time and in some way, from the kindness of strangers. The outpouring of donations when disasters strike, the availability of scholarships, the better environment because of recycling, these just start the long list of benefits we enjoy because others have voluntarily taken action. The kindness that most deeply touches us often comes from family and friends, but the full community of benefactors encompass charitable institutions, religious organizations, governments, and businesses. It is an intricately woven “safety net” holding all of us in some way.
Business is usually recognized in this area through corporate foundations. Pick randomly some foundation names out of a hat, and read about Bank of America Charitable Foundation’s support of workforce development (jobs), housing (community), and basic human services (hunger), or Toshiba America Foundation’s grants to improve K-12 science and math education, or ExxonMobile Foundation’s work to eradicate malaria.
But corporate foundations make only part of the contribution of business to society. The company’s operation, and the products it sells, arguably makes a far greater impact. Energy efficient buildings, water purification systems for underdeveloped countries, and precautionary removal of hazardous substance in manufacturing processes again just start the list of the societal benefits created by business. The name given to this aspect of a corporation’s life is called Corporate Social Responsibility (CSR).
CSR has an evolving meaning and defines a complex set of ideas. It can become narrowly defined by some, intentionally vague by others, or just a feel-good buzz word for many of the rest. It’s most misunderstood when it becomes associated with topics that spark emotional debates, such as climate change, energy agendas or regulations. Today many have gravitated to the word “sustainability.” Michael Porter and Mark Kramer have advocated that CSR be replaced by a more specific program around “creating shared value,” while John Mackey and Raj Sisodia have popularized “conscious capitalism.”
One of the strongest attacks on CSR was Milton Friedman’s “The Social Responsibility of Business Is to Increase Its Profits,” published almost 50 years ago. The title says it all. Social problems should be addressed by governments, non-business institutions, and by individuals who use their business-created wealth philanthropically. A corporation itself has neither the charter nor competency to fix societal ills. According to Friedman, CEOs that get involved with CSR are muddleheaded. Given where we are today in the development of CSR, either the last half century has produced an extraordinary number of muddleheaded CEOs, or Friedman missed some of the forces that are driving the evolution of the role of business in the world.
For example, globalization is bringing countries with diverse cultures, values and religions into interdependent economic contact. What is the common set of principles, codes of conduct, ethics and corporate behaviors that underpin the trusted relationship between companies transacting business across these global boundaries? CSR may not be the invasion of socialism into capitalism feared by Friedman, but the early development of a universal code of principles and conduct for global business.
The evolution of the corporation driven by CSR is not just an abstract long-term mega-trend, but a significant dynamic within business today. CSR contributes to brand and reputation, motivates employees, influences customers and competitors, addresses concerns of activist shareholders or NGOs, mitigates risk and can create value for the company and the causes its CSR initiatives support. CEOs that engage in CSR are not muddleheaded, but generally trying to make decisions in the best interest of their company and its stakeholders. Indeed, either by gut-feel or some process, CEOs are everyday managing the so called triple bottom line, balancing profit with benefits to people and the planet.
Today, CSR faces three evolutionary challenges:
First, CSR is fundamentally a voluntary action, based on the business model of each individual company. Stronger industry coordination, wider and deeper impact and tradeoff analysis, and more meaningful interaction with legislation of these voluntary CSR programs are a critical next step in the development of CSR.
Second, large, global corporations have clearly embraced CSR, but small and medium businesses struggle to do the same. However, large corporations increasingly demand that their supply chains – which are the small and medium businesses – adopt CSR behavior. CSR must find its place in all size businesses.
Third, CSR can be tricky to communicate. Transparency is often at odds with typical PR and marketing. Proper exposition of a company’s CSR programs can build trust, demonstrate best practices, promote valuable dialogs and reap bottom line rewards that can propel more CSR activity; but self-serving cause marketing, green washing, or executive lip service from a CSR playbook can be disastrous. In the world of CSR, it is usually better to have independent and credible third-parties do the speaking, be it positive or negative. CSR is still developing its global grammar and vocabulary.
Looking at these challenges from within California, a natural ally to CSR logically exists. No state has been more protective of its people and environment than California. The obvious question is how can California and its regions, along with non-business institutions, recognize and support CSR within the state’s business community? The soul of California dictates that it should be the world-leader in promoting and stimulating CSR. It may be that a focus on “good “ done voluntarily is more potent and effective than spotlights on “bad” prohibited by mandate.
California, like business, is evolving, and both feel the hand of social responsibility pushing them. New companies – companies with a purpose and led by CSR aware management – are creating the next generation of businesses. A new California should be the embracing home of these socially conscious companies.