Corporate Virtue

March 8, 2013

During the 1980s, perhaps even a little before, corporations have been in the market for “virtue.” This virtue takes on the mantle of “corporate social responsibility” (CSR), which incorporates the implicit commitment to tread lightly on the Earth.

A little over ten years ago, I worked in this area, and consulted with corporations on their plans to “green” their operations. I recall speaking at the strategic planning meeting of a Fortune 100 company, which had spent hundreds of thousands of dollars producing sustainability reports, and possibly even more on public relations, to make sure the world knew that it was now one of the good guys. I spoke to all of the operations managers and I could not fault their enthusiasm for the environment. At the end of my session, the managing director asked me to stay on during the rest of the day, as an observer. The day’s following sessions addressed the strategic business objectives of the company. Put simply, it was how they would meet their profit targets, if not exceed them. The enthusiasm of the sustainability that I had heard in the previous session was forgotten, as hard-nosed managers discussed how to extract more value out of their operations. The only reference made to my earlier session was the need to pay attention to compliance with the law. Although it was not something that I had stressed, the idea that managers could be held legally responsible for pollution had left a lasting impression. None of them wanted to go to jail.

I have been out of the area for some time, although I do lecture on CSR from time to time, so I need to keep up-to-date with the latest developments. In the early days, detailed systems, which identified and managed risks to the environment, were implemented. In practice, this involved lots of form filling, but little, real improvement.

Certainly CSR has moved on from those days, or that is what one is led to believe by an army of consultants and academics. For example, R. Edward Freeman, who is a Professor at the Darden School, (University of Virginia) suggests that CSR has evolved a new narrative.

In this new narrative, the role of responsibility, sustainability, and ethics are at least as important as profits, and these ideas are integrated into the very fabric of the business model. Therefore, I believe that a worthy goal is make the idea of Corporate Social Responsibility disappear. It should become irrelevant as we fully engage this new narrative.

How are profits generated by CSR?  The World Business Council for Sustainable Development provides one answer to this question.  The Council has worked with its corporate members to adopt what it calls “eco-efficiency”, which means extracting more value out of raw materials and energy. This approach has been also taken up by business guru, Michael Porter and his partner, Mark Kramer, who write about “shared value [which] is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success.”

In practice, the new mantra of CSR will receive attention when there is a dollar to be made from using raw materials more efficiently and marketing products with green credentials. However, it does not make a company “sustainable.” It just makes it less unsustainable. With the profit motive at the forefront, a CSR company will act if a dollar is to be earned, yet do nothing if the costs exceed the benefits to its bottom line. There is nothing wrong with that; after all, a corporation’s primary (and some would argue only) raison d’être is to earn profits for their shareholders. The problem with CSR is that it provides an excuse for governments not to regulate.

If you want corporations to be virtuous, then create rules that make them do so. As I have learned, managers respect rules, particularly when they come with penalties. Otherwise, we are left with corporations pursing virtue only when it is profitable.  While this may bring in some improvements, it will not deliver true sustainability.

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