Doing well by doing good is getting a bad reputation.... just when we really need it.
Corporate social responsibility … and your eyes glaze. You’re not alone. Last October, I saw a lecture hall full of members and guests of the INSEAD Alumni Sustainability Roundtable who almost unanimously raised their hands in support of a proposal that "corporate social responsibility" should disappear from our lexicon. Even people who walk the CSR talk want another brand.
There are other signs that CSR – a movement that began in the 1950s, and that accelerated sharply in the 21st century – is in trouble. Over the past year a number of executives from recognised corporate leaders in the CSR field visited INSEAD to describe their companies' initiatives, or simply to learn what others are doing. Yet the single most striking moment in all these events came when Javier Irarrazaval, Managing Director for the Walt Disney Company (Chile), told a keynote session at the 10th annual colloquium of the Academy for Business in Society (EABIS) at INSEAD last October that the fundamental issue for CSR is “credibility”. Quite simply, he said, people outside business do not believe that firms care about the well-being of society.
The late Milton Friedman saw this coming in 1970, when he famously declared that executives who promote CSR are engaged in “hypocritical window-dressing”. Two generations and countless firm-level CSR programmes later, Friedman's distrust is general. Did you believe Lloyd Blankfein as the financial crisis gained momentum, and he claimed that Goldman Sachs is “doing God's work”? Would you have found him more credible if he merely said, “We’re doing well by doing good”?
The widening backlash to CSR
CSR window-dressing is lately generating a growing popular and scholarly backlash. The California Management Review reported this winter that in one way or another, 95 per cent of products that claim to be “green”… are not. The popular backlash shows up on websites like http://gawker.com: “Companies these days love to sell you their crap by assuring you that simply by purchasing their crap you are not just purchasing crap - you are actually doing good. In fact, if you don't purchase their crap, you likely suffer from a severe moral defect.”
Within business, CSR has another kind of credibility problem: no one has proven that it contributes to the top and bottom lines. The best research we could find, a meta-analysis of CSR elements evoked in 167 studies, concluded that their “overall effect… on corporate financial performance is positive.” However, the effect appeared weak.
So why does CSR persist? On the one hand, as scholar Jem Bendell argues, CSR is driven by individuals trying to change corporations “in accordance with their personal commitment to public goals and the expectations of wider society”. A number of leaders and emerging leaders of firms are sincerely concerned that unless some significant changes take place on a number of fronts, businesses and societies alike are headed for a long dark age. Thus CEO Pierre Nanterme of Accenture recently told INSEAD Knowledge that “convergence” of firms, NGOs and governments is inevitable, because solving issues like climate change clearly requires resources beyond any of these sectors acting on its own: “They have no other options”.
We agree, but this transition will be very risky for business. Consider the fate of John Browne, the former CEO of BP plc. At the beginning of the past decade he was called the “Sun King”, thanks to bold declarations that there is “a direct link between business success and environmental progress”, and that “the application of all the normal methods of doing good business to meet the challenges” facing society would solve them. Then came the Texas City explosion of 2005, and BP was on the way to becoming a symbol of business hubris and destructiveness, a reputation cemented by the Deepwater Horizon catastrophe of 2010. People who feel differently are rare these days, but they include UN Assistant Secretary General Henrietta Elizabeth Thompson, a confirmed environmentalist, who went out of her way in a recent interview for INSEAD Knowledge to say “very much” that one shouldn't dismiss Browne's past efforts out of hand.
Stakeholders to the rescue?
Meanwhile, a different approach to CSR is emerging. The key idea is that CSR is not just about doing good, it’s about creating stakeholder networks based on values and objectives, in which each member insists that the others maintain certain ethical and professional standards as a condition of doing business. This vision is at once cross-cultural – we've seen it at Hayleys of Sri Lanka, as well as Europe's Unilever – and consistent with existing best practices. Thus a new book, Leveraging Corporate Responsibility, proposes that stakeholder-based marketing can secure competitive advantage, on condition that the firm demonstrates its “usefulness” to stakeholders. A stakeholder-based approach to CSR implies a partial solution to the inevitable credibility problem, because stakeholders are at once harder to convince, better informed than the public, and more loyal when interests converge. It also helps resolve the bottom line issue: If the choice is between joining a stakeholder network and losing the business, the benefits are easier to see.
Whatever we call it, we need an ideal that gives more people a reason to accept business values as legitimate. Last August, when the BBC asked home-burning London rioters who they were revolting against, a girl answered: “Rich people – the people who've got businesses.” A growing share of society – some claim as high as 99 per cent– is holding business responsible for inequality, for crisis, for injustice; whether that is fair or not, business will have to deal with it. Is CSR the perfect tool or name for this process? No. Is there a better one in sight? Not yet, but if you find it, we’re listening.
Mark Lee Hunter is Adjunct Professor at INSEAD Social Innovation Centre.