Looking for a more mature definition of post-Enron CSR
Article from Business Respect, Issue Number 37, dated 25 Aug 2002
By Mallen Baker
In the wake of recent events, one of the most frustrating outcomes has been a certain amount of handwringing on the part of the CSR movement, as well as criticism from elsewhere, based on the presumption that CSR should have been able to highlight Enron and the rest as bad companies.
This presumption follows as a natural consequence of certain myths relating to CSR. These are, in no particular order:
1. That the business case for CSR must discover some elusive but dependable mechanism where "doing the right thing" leads easily and automatically to cash appearing on the bottom line.
2. That CSR and Business Ethics are interchangeable concepts.
3. That a company genuinely committed to CSR will shine out like a beacon in the night, and will be a paragon of best practice in everything they do.
The most high-profile example of such hand-wringing has come from the US journal "Business Ethics", whose editor Marjorie Kelly in the latest issue offered an anguished commentary of guilt over the failure of the CSR movement to prevent or predict recent ethics scandals.
"Enron fooled us. But that's not the real lesson here. The lesson is that all the things CSR has been measuring and fighting for and applauding may be colossally beside the point. Because they fail to tell us what's really going on inside companies. What's going on is a single thing: unremitting pressure to get the numbers, by any means possible."
The thrust of her argument is that since CSR focuses on issues such as caring for the environment, promoting human rights, and taking tough anti-bribery stands - and yet it missed a company like Enron that talked a great game in these areas but then was discredited - these things are clearly the wrong things to focus on.
This is just wrong - but a natural consequence of what has been widespread sloppy thinking as reflected in the three points above. Let's review them.
1. Because the business case was assumed to mean that it didn't matter how you did something, just whether you did it at all, it was easy for companies such as Enron to get along by going through the motions. And yet, there had already been stories about the business culture at Enron, and how that led to them behaving in different parts of the world. Some of the signs were there. But if your rating system depends on whether the company has a policy on a, b and c, and whether it spends a certain amount on corporate philanthropy it's not surprising that such ratings will not go to the heart of the company's operations.
This is important. There are companies we can think of still heralded within the CSR movement as leaders who are flawed in this way. Have a look at how the company does business. Are there lots of stories about anti-competitive behaviour in the media? Does the company engage in controversial lawsuits to get what it wants? Is the company well thought of by those who do business with it? Such indicators are far more important in determining whether a company is socially responsible than the extent of its philanthropic spending. The post-Enron lesson for myth No. 1 is that it is not enough to just do this stuff - you have to do it well - and the CSR movement has to learn to tell the difference for the sake of its own credibility.
2. CSR and Business Ethics are actually not interchangeable concepts - although both are important. To some extent, I would suggest that CSR behaviours can be embedded within the culture and working practices of an organisation - how it manages environmental impact, its attitude to human rights etc. Business ethics is the benchmark for the individuals within the business - how they make decisions on a day to day basis. No company, however good, is immune from individuals who behave in an unethical way. And if those individuals sit at the top, you only have the mechanisms of good governance to help alert you to the problem. That is why transparency at the top and the removal of exclusive power from the hands of one or two executives are so important. For ratings agencies and CSR organisations that focus on individual business leaders, both organisational CSR and business ethics have to be on the agenda.
3. And the problem is that with all the best systems in the world, there will be no foolproof way to guarantee you can tell the best companies from the flawed ones. But so what? Financial accounting and commentary has become a fairly mature art - and yet predictions about which companies are going to do well financially in the next year are so often wrong. Put three economists in a room together and you'll get four different opinions about what will happen with the economy next year. The fact is that companies are small societies of people - as such they can prove you wrong for better and for ill. If the CSR movement is dependent on the health of its favoured advocates rather than on the proven efficacy of certain principles, then it will fall when they fall.
There's nothing to say that a company that is highly socially responsible today may not become less so tomorrow. It's a little like physical exercise. If you don't keep pushing yourself, you lose the gains - may even become a little flabby. Does that invalidate the good performance today, and its value as a case study? Does, for instance, the value of the case study of Odwalla's crisis management (on the website) - the quality of which is undisputed - depend upon Odwalla being then and now a perfectly responsible company in every respect - which is certainly disputed? If so, the CSR movement would be left with about a dozen companies worldwide whose value as inspiring examples would be rather offset by the crowd of journalists and commentators gathering in expectation of the first slip that one of them makes.
A company can be financially successful today - less so tomorrow. So too can its success in CSR performance change over time. If we understand point 1 above, then it puts CSR onto the same footing as every other aspect of management, which is surely where it belongs.
So if CSR really does need to achieve a more mature definition post Enron, it needs to be:
a. About the quality of how companies manage their impact on society - not just whether they "do it" at all
b. Inclusive of both organisational mechanisms for responsibility and personal ethical behaviour
c. Focused on the efficacy of CSR principles, not just on the profile of some of the current leaders
Story link http://www.business-ethics.com/thenext.htm