Will Lowe: Hello. This is Dr. Will Lowe from Royal Roads University. The topic for today’s podcast is corporate social responsibility. To examine this topic, I have with me Professor Power. I’m just going to read this quote to you:
“Only when the last tree has been cut down; only after the last river has been poisoned; only after the last fish has been caught; only then will you find that money cannot be eaten.” This is from a Cree Indian proverb.
With that introduction, I’d like to ask my first question of you. What exactly is corporate social responsibility?
Terry Power: Will, it’s the future of business. We’re made aware of the importance of CSR daily without even noticing it. Most of our customers choose products with a good reputation. Most investors buy shares in firms with values similar to their own. Firms whose brands become tarnished quickly lose investors’ appeal.
Will Lowe: Thank you for that. My second question really is: why should organizations take corporate social responsibility seriously? What are the rewards?
Terry Power: The rewards are enormous. In a world where brand value and reputation are increasingly seen as a company’s most valuable asset, CSR can build loyalty and trust that ensures a bright, sustainable future. A key part of corporate social responsibility is the notion of sustainability — your area, Will.
A 1987 paper prepared for the World Commission on the Environment and Development, expressed in the language of business, defines sustainable development as: “We should live off the Earth’s interest and not its capital” — not a bad thought, Will.
The next big thing in brands is corporate social responsibility. It will be clever to say there’s nothing different about our product or our price, but we do behave well. A former MBA graduate, Don Cosgrave, and bank manager, said: “In this environment, consumers and business buy the same thing: a company’s reputation.” A good note.
The reputation of the brand, achieved in part as a result of corporate governance, among other things, is the firm’s value proposition. Provide CSR training for your employees, and you’ll gain loyalty and commitment in return. In our complex global society, corporations are becoming increasingly visible and are judged not only on the results, but also on their behaviour. This transformation can be an opportunity. By integrating CSR into your business as a core value and as part of your corporate culture, you are making a significant contribution to a better society and, just as importantly, you’ll be recognized for doing so.
Corporate social responsibility is about integrating the issues of the workplace, human rights, the community and the marketplace into core business strategies. Benefits derived will include improved financial performance; reduced operating costs; enhanced brand value and reputation; long-term sustainability; long-term return on investment; better risk and crisis management; increased worker commitment; good relations with government and communities; and a licence to operate and increase productivity — truly value for money.
Will Lowe: That was terrific. Thank you. The next question is: what exactly is driving this move toward corporate social responsibility?
Terry Power: You’ve read Bob Willard. He’s the sustainability consultant and author. He’s provided ten major market forces that compel firms to adopt CSR values as part of their corporate culture. Willard devised these ten major forces into mega-issues and stakeholders.
The mega-issues are climate change and pollution; health; globalization backlash; the energy crunch; and the erosion of trust. The five demanding stakeholders are green consumers; activist shareholders; civil society and NGOs; governments and regulators; and finally, the financial sector.
KPMG’s international survey of corporate social responsibility in 2005 surveyed more than 1,600 companies worldwide, driving corporations to engage in CSR for competitive reasons. They were economic considerations; ethical considerations; innovation and learning; employee motivation; risk management or risk reduction; access to capital or increased shareholder value; reputation or brand; market position or share; strengthened supplier relationships; and cost savings.
It is clear from the CSR drivers described by Willard and KPMG that there is strong evidence that organizations can benefit by adopting CSR.
Will Lowe: I see. Now, I’ve also heard of a term referred to as the triple bottom line. Can you explain that to me?
Terry Power: My pleasure. In their decision-making, socially responsible firms consider values other than simply the bottom line. A cluster of values popular in the 1990s is referred to as the triple bottom line. Although proponents ascribe a number of definitions, the definition I have adopted was put forward by John Elkington. Elkington has been described as the dean of the corporate social responsibility movement for over three decades. He provides this definition.
“Sustainable development involves the simultaneous pursuit of economic prosperity, environmental quality and social equity. Companies aiming for sustainability need to perform not against a single financial bottom line but against a triple bottom line.”
Most corporate social responsibility practitioners agree with Elkington’s definition. However, others, like Schwartz and Carroll, hold different views and put forward a three-dimensional model for consideration. Their framework is a view of the triple bottom line from an ethicist perspective and encourages firms to consider the ethical, economic and legal attributes.
At my institution, Royal Roads University in British Columbia, it was previously, as you know, a military institution. The campus has many artifacts from the military era. One is an iron statue that I much enjoy, the three iron men, stating the military’s triple bottom line attributes as truth, valour and duty. My point is that firms today must move past the triple bottom line values espoused by Elkington, Schwartz and Carroll, and Royal Roads Military College, and develop others.
The concept of looking at more than just the bottom line is not a new concept. Companies have adjusted their guiding principles over time. For example, when asked how his firm adhered to fundamental principles, Norm Lockington, vice-president, technology at Dofasco, a manufacturer of flat rolling steel, responded: “First, they adopted an open-door policy. Second, they live by the golden rule.” You know that one: do unto others as you would have them do unto you.
Dofasco has a long history of just doing the right thing. Since the 1930s the company has demonstrated social responsibility. Dofasco didn’t refer to this term as triple bottom line, nor sustainability, but they have found that CSR is just good business.
Lockington illustrates the value of CSR by pointing to Dofasco’s success when it created what is called mini-mills in Gallatin, Kentucky, and Hamilton, Ontario. The company found that building mini-mills rather than large facilities reduced the energy consumption by almost 20 percent, reduced the greenhouse gas emissions by 22 percent and ensured that all materials used in, and scrap created by, these operations were 100 percent recycled to steel manufacturing. The benefits of this initiative flowed to Dofasco’s bottom line.
Dofasco observed that it also benefited from harnessing the energy of volunteers. Holding town hall meetings in affected communities to acquire input from all stakeholders has proven to be valuable, championing a number of green initiatives such as the mini-mills over the past number of years.
In the session on CSR we discussed…. Indeed, I provided in that session a chart showing the transformational changes almost every ten years. The descriptor for “just doing the right thing,” the triple bottom line, morphed and changed over 50 or 60 years. Nevertheless, the underlying theme of the golden rule remains constant.
How business and society have evolved through the paradigms, ranging from corporate social responsibility in the 1960s to today’s broader perspective of corporate citizenship…. Today’s paradigm is transforming into something beyond the triple bottom line. Today we must consider other values in addition to the traditional triple bottom line values when crafting our business strategies.
Will Lowe: As good academics, we always think about things in terms of arguments for and arguments against, so even in something like CSR, what are those arguments?
Terry Power: Let me give them to you succinctly if I can. The arguments supporting corporate social responsibility include public expectations, long-term profits, ethical obligations, public image, bettering the environment, discouraging further government regulations, balancing responsibility and power, stockholder interests, possession of resources and the superiority of prevention over cure.
On the down side, arguments against social responsibility consist of a violation of profit maximization, dilution of the purpose, costs, lack of skills, lack of accountability and lack of broad public support. Some see the triple bottom line as anti-shareholder theory.
Will Lowe: That was great. In your opinion, though, is there really a correct view on corporate social responsibility?
Terry Power: Let me offer this if I can. When making strategic decisions we cannot zoom in and out of CSR values as if they were a change of clothes to be donned when the situation dictates. Rather, because of the growing transparency within organizations, companies must now find holistic views.
No longer should firms hire solely based on economic and societal considerations. Today they must consider the total individual or outsourcing firm. Corporations must deal in a collaborative way with all stakeholders, including suppliers, employees and customers, as we’ve been discussing in this course. Firms must frame how we do business and trade with each other in such a way that we all move forward together — a win-win outcome.
What does this mean for business? Unfortunately, it seems increasingly apparent that there exists a growing divergence between what society wants and what individuals want. For example, society wants fuel-efficient, highly sustainable automobiles that produce lower pollution levels. Collectively, we would all support this position. Yet when you and I are given a chance to support these values, what do we do? We often buy fuel-guzzling autos and SUVs. Yet we share the commons, this global village. We must quickly recognize this reality.
Those of you who saw Al Gore’s film An Inconvenient Truth will understand his concerns for climate crisis. It is a time for wholesale change. Issues such as the Kyoto Accord, automobile pollution and the hydrogen economy all need champions. Those who don’t have the same sense of urgency and are satisfied with doing no more than meeting their social obligation, it seems to me, do not have a sustainable mental model. They claim it is not for the private sector but for the community and government to implement green initiatives of this nature. For me the answer lies somewhere in between!
Is it sufficient for a firm to only meet its social obligation on issues like this, or is it obligated to be a citizen and improve the world?
Will Lowe: Another piece that I’m a bit puzzled about is the distinction between social responsibility and social obligation. Could you help us understand that distinction?
Terry Power: A pleasure. One of the major dilemmas business practitioners face daily is the tension between being socially responsible and just meeting the firm’s social obligation. This tension is prevalent when firms have to make choices in the international marketplace.
Social obligation describes the notion that a firm has no responsibility beyond economic obligation to the owners and stockholders as may be prescribed by law or contract. Maximizing shareholders’ values, profits, is the paramount goal of business. Indeed, without profits, nothing else is possible.
Firms adopting this standard as their level of commitment to CSR will pursue social goals only so long as they match the firm’s economic goals. These firms will not pursue social goals just because they’re the right things to do. Supporters of this traditional view include Milton Friedman, who referred to social responsibility in business as a fundamentally subversive doctrine in which there was one, and only one, social responsibility to business: to use resources and to engage in activities designed to increase profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.
Many firms now do more. These socially responsible firms attempt to find an appropriate balance between the minimum standard — social obligation — and the standard past the minimum — social responsiveness. Socially responsible behaviour requires business leaders to determine what is right or wrong and thus seeks fundamental truths, even if they turn out to be inconvenient truths.
When determining the right course of action, business leaders will be guided by the firm’s corporate culture, the importance it places on corporate social responsibility, social norms and ethics. CSR practices must align with good corporate governance that will result in benefits to the organization, its employees, the community, the economy and the environment.
Will Lowe: I understand there’s a model that says there are five stages of corporate social responsibility. Could you take us through those stages?
Terry Power: Simon Zadek, CEO of the UK-based Institute of Social and Ethical Accountability, contends that organizations learn in unique ways, but they inevitably must pass through five stages of corporate social responsibility, from defensive — “it’s not my fault”; to compliance — “we’ll only do what we have to do”; to managerial — “it’s the business”; to strategic — “it gives us a competitive edge”; and finally to civil — “we need to make sure everybody does it.”
Zadek argues that companies need to stay abreast of society’s evolving ideas about corporate roles and responsibilities, further supporting my contention that we’re entering a period of corporate social responsibility that has passed the triple bottom line of the last decade.
Firms transforming themselves through Zadek’s five stages will be challenged. Roger Martin outlines the struggle executives face in trying to reposition their organization as better corporate citizens. He stated: “If they undertake costly initiatives and their rivals don’t, they risk eroding their company’s competitive advantage. If they invite government oversight, they may be hampered by costly regulations. If they adopt wages and working conditions comparable to North American manufacturers, they may drive jobs to countries with less stringent standards.”
So CSR, Will, as you can see, is not an easy ride. How do you convince many skeptics?
Will Lowe: Thanks for that, Terry. I think this is a really important question, obviously. How do you sell corporate social responsibility to decision-makers?
Terry Power: I don’t think my answer will shock any of our listeners, knowing me not in the Plato camp but in the Aristotle camp of the individual, of John Stuart Mill, David Ricardo, Adam Smith — that perspective. For me, I believe the only way to sell CSR to decision-makers is to make a business case. Provide evidence, not rhetoric, to business decision-makers.
You’ll find that until it costs money or resources, most people will claim to be socially responsible advocates. Therefore, prove that the CSR initiative will drive down costs, increase revenues and increase shareholders’ value. Indeed, a few companies will voluntarily take from time to time socially responsible action despite the costs involved.
To persuade companies to adopt social responsibility, Bob Willard suggests framing its sale in a business case and enlisting the support of other advocates. Your stakeholder analysis model might be helpful here. Demonstrate that the firm will attract the best talent. Proctor and Gamble, for example, attracts long-term, loyal employees because the best employees prefer to work for socially responsible firms.
Research has proven the business case for CSR with a long list of potential benefits, including better adaptation and management of an ever-expanding spectrum of risk; improved reputation management; enhanced ability to recruit, develop and retain staff; improved competitiveness and marketing position; enhanced operational efficiencies and cost savings; improved ability to attract and build effective and efficient supply chain relationships; enhanced ability to address change; more robust social licence to operate in the community; access to capital; and finally, improved relations with regulators.
But will the road be difficult? Leading global businesses like Wal-Mart struggle to find the appropriate metrics are not always successful. Following Kathie Lee Gifford’s negative publicity in 1997, Wal-Mart did the right thing. It implemented stringent CSR accounting standards and put in place a self-policing supplier audit system. To implement the system, the firm hired PriceWaterhouseCoopers and Cal Safety Compliance Organization to inspect and audit Wal-Mart’s overseas suppliers. Unfortunately, the professional auditors had difficulty figuring out what was going on.
Business Week reported the actions of Wal-Mart’s offshore supplier, who crowded workers into dormitories; charged $15 a month for food and lodging, even though the workers made only $22 a month in wages; and took personal ID cards so workers were kept as virtual prisoners. Workers were allowed only 60 minutes a day for all of their daily meals and were fined for each instant they spent too much time in the bathroom.
During a protest, one worker reported that he had only $6 after three months of work at 90 hours per week. The offending offshore firm had put up a phony factory to meet Wal-Mart’s audits teams and requests in order to avoid compliance.
The question is: how much effort and due diligence is required by firms like Wal-Mart to avoid being brought into the critical light of public opinion?
Will Lowe: I also wonder: where is corporate social responsibility now?
Terry Power: As you know, social norms in North America are advanced in comparison to those in emerging countries. One factor for this disparity is the relative wealth of North America, with fundamental needs like food, clothing, clean water, shelter and safety in abundance.
Maslow’s hierarchy of needs predicts North Americans have turned to elevating the societal and business values. Global headlines reveal a heightened awareness of corporate governance and corporate social responsibility emerging worldwide.
Will Lowe: Thanks for that explanation. I have one final question. What do you think corporate social responsibility means for our students?
Terry Power: Let me answer that with some first-hand evidence from a couple of vice-presidents that I had a chance to talk to during a recent conference. The message is: it’s important that your personal values align with your firm’s values. Increasingly, HR managers are placing significant weight on new hires’ culture, values and ethics and their alignment with the firm’s culture, values and ethics.
Jennifer Hooper, whom I met, from Dupont — she’s the director of corporate safety, health and environment — commented that when hiring employees, Dupont attempts to identify characteristics such as integrity and team-based skills. She considers questions like: do the applicants’ values align with the corporation’s values? Does the applicant demonstrate a high energy level and experience, coupled with the need to be pushing the frontier within his discipline — much like we’re doing in this series, Will?
When pushed, she commented that these attributes were 98 percent of the selection criteria, and experience was only 2 percent — quite telling. So it is important.
Will Lowe: Thank you, Professor Power. These extracts come from Dr. Power’s text International Business: A Canadian Perspective, published by Thompson and Nelson. I hope you have enjoyed this podcast, and the other podcasts in this series. This is Dr. Will Lowe from Royal Roads University.
