Business Ethics, Corporate Social Responsibility (CSR) And Corporate Governance - Boon Or Bane? - Eaton Business School

Business Ethics, Corporate Social Responsibility (CSR) And Corporate Governance – Boon Or Bane?

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Technology Innovation And The Law Of Diminishing Returns
September 21, 2018

Business Ethics, Corporate Social Responsibility (CSR) And Corporate Governance – Boon Or Bane?

The Origin, History And Evolution

The phrase Corporate Social Responsibility (CSR) – a sub-set of business ethics – was coined in 1953 with the publication of Bowen’s ‘Social Responsibility of Businessmen’, which posed the question: What responsibilities to society can business people be reasonably expected to assume? Writing on the subject in the 1960s expanded the definition, suggesting that beyond legal obligations, companies had certain responsibilities to society at large. In 1984, the celebrated management guru Peter Drucker, wrote about the imperative to turn social problems into economic opportunities. Throughout the 70s and 80s, academic discourse of the concept grew, but the first company to actually publish a social report was Ben and Jerry’s in 1989, and the first major multinational was Shell in 1988.

The First International Code Of Conduct

In the late 70s, both the Organisation for Economic Co-operation and Development (OECD) and the United Nations Centre for Transnational Corporations (UNCTC), began developing codes of conduct in an attempt to control different aspects of corporate globalisation. In 1976, the OECD, recognising the complications associated with companies operating across borders, established a set of guidelines to ease the workings of globalisation, thereby setting the rules of the game for foreign direct investment (FDI), and creating an atmosphere of confidence and credibility in overseas corporations. The OECD ‘Guidelines for Multinational Enterprises’ covered areas, such as, accounting, tax payments, and operating in accordance with local laws. The guidelines were actually aimed at the respective countries rather than the companies, so that compliance would be critical or crucial for credit and ranking.

However, on the other hand, the UNCTC code of conduct aimed at monitoring and regulating corporate abuse rather than to facilitate corporate access to new markets, was unsurprisingly less successful. The code might have been an effective tool to control corporate excesses, but, unfortunately, the whole body was soon dismantled/dissolved under enormous pressure from the worldwide corporate conglomeration.

The Present

The final outcome has resulted in a highly superficial and acutely watered-down set of measures that are little more than a shopping list/guide:

  • Cause-related marketing
  • Sponsoring awards
  • Voluntary codes of conduct
  • Social and environmental reporting
  • Shareholder engagement
  • Community investment
  • Eco-efficiency

In order to accomplish the above, huge investments being made in think tanks, front groups and fly-by-night operators; needless to say, the benefits are obviously about brand and image building, consumer loyalty and PR, such as,

  • Reputation management
  • Risk management
  • Employee satisfaction
  • Investor relations and access to capital
  • Competitiveness and market positioning
  • Operational efficiency
  • Maintaining the licence to operate

Let me at this point quote the most touted example of CSR, internationally speaking: the case of LEGO – Build (And Be) The Change (You Want To See In Others) – a Danish company manufacturing educational toys for children.

It all started, a couple of years ago, with a nine-year old kid writing to the company, which read: When I grow up, I want my children to grow up in a healthy world.

The company, at once, responded by launching the ‘Build the Change’ initiative; a series of events held around the globe, giving children the voice to tackle the various challenges they face. 

LEGO wants these events to be a place where children from around the world can come together, on a regular basis, to creatively explore and collaborate on solving problems.

Each event has a theme, such as, build your school, neighbourhood, etc, with an emphasis on children’s ideas and creations that inspire the future.

As benign as it might seem, the questions that still need to be asked are:

  1. Can any investment made with a profit motive be socially and environmentally responsible (and accountable)?
  2. Even assuming that it can be (which has never been the case – not even once in the annals of business history), is an ethical investment enough?
  3. What if tackling social and environmental issues does not support economic growth (i.e. economies of scale)?
  4. Do voluntary codes of conduct really work?
  5. Does a company or a corporation have a set of values other than its share value (price)?
  6. By being almost exclusively responsible (and accountable/answerable) to the investors, can companies/corporations place the interests of people and the environment above that of self-interest?
  7. If compliance is the issue, then who pays for it – the multinational or the wholesaler/retailer  and/or the employee/local community?
  8. In the final analysis, can the consumer really change the market – its behaviour and its imperfections?
  9. Finally, if CSR cannot bring an end to destructive practices for as long as they are profitable, does it really hold water or can it be actually put to the ultimate test?

Likened to an iceberg, CSR activities are rather invisible, making it an active attempt to increase corporate domination, instead of merely a defensive image/brand management operation.

In other words, can we expect every decision made in one’s self-interest, through market machinations (the so called Adam Smith’s ‘invisible hand’), to result in public good?

 Who can stop the market juggernaut and who can fight the PR industry, especially, if it is all about only rights, devoid of responsibilities, duties and obligations?

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