Tuesday, September 11, 2007

CSR isn't a cohesive concept

"Corporate Social Responsibility: What Would Reagan Do?" by Tom Borelli (Town Hall blog, 8 September 2007) reherses some tired points about a rather inchoate concept called corporate social responsibility (CSR). While entirely sympathetic to the general concept of Borelli's view of CSR, there are a number of issues that are left unresolved by this article. First, the definition of CSR is entirely unclear. Second, companies have long spent money and allocated resources to combat regulation, long before the term CSR (c. 1970) came into current usage. This is what lobbyists do. In many cases, companies seek regulation to establish standards, to gain a competitive advantage, or to block disadvantageous trade agreements. Really, Borelli's arguments lead one to wonder why ISO, WTO, or any other global corporate standard would have traction at all, when in fact companies are full participants in the formal and informal processes of these organizations.

It is something of a mystery, though, why corporations, with their vast resources, do continue to accommodate "stakeholders" on all manner of social, environmental, and economic issues. In some instances, companies of course have a direct business interest in what might be perceived as CSR: mining companies in Africa might wish to participate in promoting the health of their workers and establish AIDS programs, or they might wish to establish a network of local suppliers to create more supply chain efficiency and raise the purchasing power of locals. Company towns, such as Hershey, PA and others, might be considered early examples of CSR, although they fell out of favor when viewed as patronizing (and overly expensive) and with the advent of the New Deal and the fundamental shift in the regulatory landscape stemming from the New Deal.

Corporations are far from passive or under-resourced with it comes to issues affecting their ability to compete, create efficiencies, or respond to the shifting landscape of codes, regulations, standards, and pressures they face. In many cases, CSR is viewed as (a) window dressing; (b) a low-cost way to engage and therefore partially manage stakeholder demands; (c) an integrated business strategy that accomplishes a variety of goals at once, e.g. the GE Ecoimagination initiative.

Borelli ignores what might be termed "soft regulation" which becomes embedded in practice. Societal norms shift, which is why I can't smoke in a restaurant after my meal. I see no significant organized opposition likely to change this social norm, now enforced by regulation that virtually no one calls into question. "Social legislation", that is non-judicial or non-administrative regulation, is a fact for any person or company operating in a social context. I might want to chew gum in Singapore, but my desire needs to measured against my willingness to pay a fine for doing so. The point is that corporations benefit from anticipating and addressing shifting social values--this makes good business sense, otherwise they wouldn't bother to have marketing departments. NGOs, global governance institutions, and many other organizations help companies gain access to organized information; they centralize information about the operating environment in ways a company may not. General Motors may have an interest in biodiversity and protection of certain species when it builds a plant, but would lack the resources of, say The Nature Conservancy or WWF to undertake full scientific investigation of risk leave aside setting standards. On the other hand, industry-driven initiatives such as the Extractive Industries Transparency Initiative provide the sector with the kind of pooled resources that prove of value in operating a business in sensitive areas.

Finally, it is true that corporations are indeed being instrumentalized as agents of public (or lack of) policy. This is partly due to a failure of government to fulfill its role as aggreagator and arbiter of the public weal. But government has always delagated responsibility for implementation of some social policies to corporations; witness employer supported health care for employees, for example. Companies benefit, in most countries, from law giving them ficticious personhood, limited liability, and a host of other advantages designed to make them social agents, not just economic agents. It is ridiculous to imagine that entrepreneurs and investors would take significant risk without benefit of government programs designed to mitigate risk--market rules, insurance regulation, etc. Companies therefore are social agents, just as individuals are, and their actions create impacts on others. Companies have no special exempt status when it comes to the competitive tension amongst a variety of interests in sociey. Whether CEOs and companies should indeed "delight" in trying to address or solve issues governments have failed to solve seems to me to be a question that any shareholder should address if that shareholder finds management policy wanting. But Borelli has the argument a bit backwards by saying these things are CSR-driven or that some kind of inchoate CSR "movement" has fundamentally changed the "culture" of business. Yes, it could be argued that social responses by companies could in some cases harm business; presumably this is why the market makes judgments in the form of price signals. To this point, I would refer Borelli to the recently published Goldman, Sachs Sustain report which examines the role of environmental, social, and governance policies in creating market value.