By Daniel Litvin – This article was originally published by the Financial Times
A more rigorous approach to CSR is needed – one which does not promise more than it can deliver in terms of reputation protection.
Corporate social responsibility is a growth industry. Hundreds of big companies are now producing “sustainability” or “triple bottom line” reports. New standards, guidelines or indices on CSR appear almost weekly.
All these efforts are well meaning, of course. But the idea of CSR has been sold to companies, and implemented by them, on the assumption that it would help protect their reputation and win them social acceptance, as well as contribute to broader ethical goals. The flood of worthy reports cannot obscure an awkward fact in this respect: that companies that have taken up the CSR agenda have often continued to face severe public criticism.
Many of the companies judged to be the world’s “top sustainability reporters” in a survey last year by the United Nations and SustainAbility, the consultancy, for example, have continued to come under fire in the media on environmental or social issues. Among them are Shell and BP, which run some of the corporate world’s most elaborate CSR programmes. Both companies’ annual general meetings last month were disrupted by protesters. In March, Shell was forced to shut down some of its oil production in Nigeria due to community unrest. This was in spite of its increased expenditure on social welfare programmes aimed at fostering local stability.
So why does CSR not appear to be working in this respect? Does it just need more time? Well, perhaps.
It is certainly true that companies’ rhetoric on CSR has tended to outpace performance. Companies have concentrated CSR efforts on activities that have an external rather than internal focus: producing reports, publicly issuing codes of conduct or signing up to external principles. Popular tactics also include striking partnerships with pressure groups and convening discussions with “stakeholders”.
The result is that companies’ attention is often diverted from the internal task of actually implementing the policies set out in their codes of conduct. Though this is crucial if public criticism is to be avoided, the management difficulties can be immense. New values must be embedded within the corporate culture, and watertight internal control systems established.
Assume, however, that companies can eventually guarantee the implementation of their policies: would they then be protected from criticism? Almost certainly not. A common assumption of CSR’s proponents is that, over time, companies can balance the interests of their various “stakeholders”, whether shareholders, communities, employees, governments or environmentalists, so that everyone can be content. Yet this ignores the conflicts inherent in the operation of big business.
Oil companies operating in developing countries run by corrupt or repressive regimes, for example, face profound dilemmas. Simply selling their investment would probably betray the interests of shareholders. However, if they stay, to what extent should they attempt to influence the host governments to behave better? Clearly they cannot ignore serious wrongdoing; but if they interfere too much, they would rightly be accused of acting like colonial powers.
Related difficulties arise when oil companies are called upon to run local social welfare systems, which they lack the skills and capacity to do effectively. Even if it is ethical for them to supplant the role of the state in this way, they often simply cannot. These are the problems at the root of the local instability faced by Shell in Nigeria.
A similar story can be told of companies such as Nike that are accused of profiting from sweatshop labour. Even if these companies work genuinely hard on CSR, the realpolitik of the global labour debate suggests they will always come under fire. For as long as jobs continue to shift from western countries to poorer countries where wage costs are lower, western unions will protest by publicising low pay and other perceived abuses.
All this is not an argument against CSR. Individual companies clearly need to be sensitive to ethical issues: securing broad public approval is crucial for their long-term financial success. But a more rigorous approach to CSR is needed, one that does not pretend that dilemmas can be avoided or promise more than it can deliver in terms of reputation protection. Otherwise there is a risk that the CSR movement, like some other recent growth industries, may prove to be a bubble.