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June 12, 2006

Richard D. North argues that Wal-Mart, Shell and Cadbury don't need Corporate Social Responsibility - and Enron and Bhopal don't help the case that they might

Posted by Richard D. North

Richard D. North analyses the current wave of popularity for Corporate Social Responsibility (CSR), and why it doesn't help firms fulfil their social responsibilities.

CSR is mainstream - and past its sell-by date
Now that Corporate Social Responsibility has become completely mainstream - it's the theme of speeches by David Cameron as well as half the CEOs of this or any country - one may perhaps be forgiven for thinking that it will soon go out of fashion.

It ought to, because we should be allergic to spin. CSR advertises new virtues which can't be delivered and implies old sins which weren't committed. Curiously, it was born out of an obsession with messaging which business sought to learn from Third Way politics in the late 1990s. It is not the best sign in Mr Cameron that he has acquired a taste for it.

CSR has fooled many decent business people. Todd Stitzer, who runs Cadbury Schweppes, has found himself mourning the way the public doesn't trust business (itself a highly disputable notion). He's torn between wanting people to be bold about the merits of commerce, and deploying CSR to help his firm become popular.

I don't think firms can junk the CSR rhetoric. But they should think themselves cowardly in the degree to which they celebrate it. They should think themselves brave in the degree to which they advertise its weaknesses, both as a moral and a business force.

Scandals are not CSR failures
Mr Stitzer shows some sign of not getting the nature of the problem. He wrote in the FT (1st June, 2006):

The business scandals that still haunt us, from Enron and Arthur Andersen to Exxon Valdez and Bhopal, were the unacceptable face of capitalism, but they were in no way typical.
True, and not said often enough. But two of them were old-fashioned financial crookedness and two were technological cock-ups. All happened because of reprehensible behaviour which are not addressed by CSR's novelties. (Insofar as Bhopal was an exception to these strictures, it is a partial one at best.) What's more, they have nothing to do with the problems his own firm faces.

Much more obvious CSR failures (again, not Mr Stitzer's) flow from firms whose whole mode of operation is to pare costs to the bone. CSR obviously doesn't appeal to these tough-minded, no-frills firms so beloved of consumers, but not always so appreciated by their employees and suppliers. One might put Wal-Mart in that category. Perhaps it was such firms Brendan May, head of Corporate Responsibility and Sustainability at Weber Shandwick Worldwide, had in mind when he wrote to the FT (1st June, 2006) saying,

..... plenty of business leaders still appear to tolerate the social and environmental excesses that accompany their commercial activities.
Why not name these firms? If these excesses matter, why aren't they illegal? Is Tesco one such, as Mr Cameron has implied? Let's suppose that Wal-Mart is an example. It is under a good deal of old-fashioned pressure to have a greater care for its employees and suppliers around the world. With luck, public opinion and - failing that - the law will prove more robust routes to its reform (if reform is needed) than a CSR agenda. Wal-Mart could adopt CSR, but only by becoming a high-cost firm and thus creating space for competitors to see how close to the wind they in turn can fly. Even Wal-Mart, sadly, asserts that being a good corporate citizen means donating money to local charities. Even mighty Wal-Mart doesn't dare say that it can't be generous, it can only pass on costs.

As Cadbury's agonisings suggest, it's the overtly public-spirited firms who grope for CSR most, not least because they assume they're nearly there anyway. What's more, such firms sense that their reputation for respectability is valuable: they have to go where "respectability" takes them. Mr Stitzer's article insisted:

We must declare that values have a central role in business and that if you are passionate about human rights or you care about the environment then business is a good place to be.
But the point about such remarks is that they were true long before CSR came along and CSR adds no more likelihood that they'll be true tomorrow. At this level, CSR is merely a repetition of good old stuff, puffed up for a sillier world.

Unpicking the CSR language
Nearly all of its harm is in its linguistic fudges. (If you can bear it, I have done a note analysing its use of words.) CSR wants firms to be "responsible" because the word takes aspirations which ought to be voluntary (compassion, say) and turns them into duties. It implies that firms are obliged to be altruistic, when that's a matter of choice by persons, which they are not.

CSR wants firms to be "social" because that so widens the scope of their assumed responsibility as to amount to making them agents of communitarianism, socialism or environmentalism, the preferred goals of the campaign groups who most cheer on CSR.

CSR combines "Social" and "Responsibility" as though we know both what such a thing looks like and that it is different to firms operating mostly with an eye to profit. But actually, it is the stuff of politics to sweat out the profound differences of opinion about how to do widespread good. Chuck in "sustainability", and we have a planetary obligation which no-one knows how to fulfil.

The essence of it is this: no-frills firms serve society in their own way just as well - perhaps better - than opinionated, compassionate, value-laden, full-service, paternalistic, green firms.

Firms can of course do what they like. If shareholders want to capitalise a goal-laden organisation, that's literally their business. If they can find employees and customers who share their tastes, they may have stunning success. They won't have a monopoly on virtue, though they may have cornered the market in humbug.

CSR or else…
But the bad magic about CSR is that firms are being blackmailed into doing it. They must buy this agenda or risk being castigated as monsters. What's more, firms can't be minimalist about CSR. They must seek to be ahead of the moral curve, or risk being portrayed as being way behind it.

We should, however, be sceptical of firms which want to be social pioneers. Firms have little legitimacy as social operators. Social engagement is what governments, campaigners and charities are for, and they are designed to be opinionated and controversial. We are expected to be sceptical about their efforts. They are accountable in many ways. Firms aren't. To a degree which would be unacceptable in a person and in most of civil society, firms can and indeed must take society as they find it. If a firm does get opinionated and involved, it should understand itself not to be fulfilling a "responsibility", but adopting a stance for various reasons, probably inglorious.

The multinational case
It is arguable that Western firms operating in the Third World have a duty to behave better than indigenous firms might. However, they will usually be well-advised to be hard-nosed - not romantic - about what that obligation means (as Cadbury must consider when they buy their cocoa). If CSR encourages them to be thoughtful foreigners, then that's good. In almost everything they do - let's cite Anglo-American's work with HIV/AIDS - they are doing what government or affluence ought to do. That's to say: while good, it is a second-best.

CSR in the West
But firms in the West face such a powerful barrage of laws and politicised agendas that they should be free to argue their own self-interested corner. And that's where CSR hardly ever enriches debate, but rather scuppers it.

CSR damages truthfulness
The biggest damage CSR does is to plain speaking. Never mind, for the moment, that it forces firms simultaneously to claim that they like CSR because it is virtuous and because it increases profits, an appeal to enlightened self-interest which locks us in a prison of oxymorons.

Worse is that firms have to pretend to be things they aren't, and it doesn't pay them to talk robustly about the fact. The hard line green campaigners largely get this, and often characterise CSR as "greenwash". They are right to fear CSR: if firms successfully embrace CSR claptrap, and persuade the public to leave them alone, then the green and left-wing brickbat will be broken for good. But even the downfall of green nonsense is not worth the rest of us talking nonsense.

Integrity matters
The honesty factor is important. Modern managers operate in a goldfish bowl. Oddly, this will expose their real difficulty in being hyper-virtuous. They will need to explain their realities - including the limits to their virtue - better to the public, rather than imagine they can be spun away. They may hope that embracing CSR will allow them some wiggle-room. They may sense that they can give a bit on the CSR roundabout and gain on the robustness swings. This seems to be Mr Stitzer's pitch, stripped of airiness. Indeed, CSR spending at its poor best is a matter of buying the right to tell the truth.

But it doesn't work. The CSR agenda is owned by campaigners who will always raise the bar beyond the reach of firms, however athletic they become.

Mr Stitzer admitted that having a thriving CSR department hasn't helped Cadburys much:

Recently, perceptions of us changed from hero to villain in the debate on obesity and consumer health.
Indeed, he faces a classic case, as we watch a nearly universal demand for controls on advertising of junk food to kids on television. There are pitiably few voices prepared to point out that the evidence suggests that such a ban would do little (and perhaps nothing) to reduce obesity, but would certainly betoken one more erosion of freedom and one more concession to those who think neither parents nor children can learn to keep treats in their place. CSR won't help here: it hates unpalatable truths, and deflects us from acknowledging them.

An appetite for robust truthfulness will provide a sufficiently tough regime for business. It will require an uncomfortable amount of integrity. It is noticeable how many quite thoughtful commentators think that the lack of decency at Enron might have been mended by CSR. But it was the older problem of corporate governance which was at fault: Enron was actually rather good at CSR. It was philanthropic, and it supported the Kyoto Treaty on climate change (for entirely selfish reasons). But, like Shell - another CSR star - it got into the habit of lying. In Shell's case, the firm lied about its oil reserves even whilst it was bigging-up its interest in renewable energy.

Beyond integrity - plain speaking
Combined with fair-dealing and attention to the law, it may well be that honesty is the beginning and the end of a firm's duty to wider society. It would certainly represent a shift toward adulthood. Firms cannot be paternalistic, but they can be grown-up. Indeed, my hunch is that the intelligent young - those capable of giving corporations real headaches as they grow up - will more appreciate that than being spun more yarns.

Richard D. North is the author of Rich is Beautiful: A Very Personal Defence of Mass Affluence and of Mr Blair's Messiah Politics: Or what happened when Bambi tried to save the world.

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