The Big CSR Debate : Elvis rules!!

So, the BIG CSR debate has come and gone. Did we learn anything new? Well, frankly, the only thing that was new to me was the total extent of the disconnect between the views of Dr Aneel Karnani and Chrystia Freeland and today's external reality. At some point, the only way both could feel comfortable about CSR was by calling it simply "good management" or even better "acting in self-interest to make a profit by observing the law". If that is what CSR is all about, then, as Aron Cramer put it, there is a problem. Karnani let himself neatly off the hook by saying that there is no definition for CSR. In fact, this debate might have been called a "dialogue de sourds", where 5 out of 7 people were talking coherently, and two were throwing out a whole series of "wobblies" (a great term used by a former boss of mine), not many of which were accurate, relevant or even interesting. I missed the first part of the debate, so I don't know if it actually started out with an agreement of a definition of what people were going to talk about. In fact, 5 people were talking about one thing, and two people were talking about something else. And there was no middle ground.

At the point at which I hooked in, Chrystia Freeland of Thomson Reuters was referring to "CSR rhetoric", "milk and motherhood and apple pie", and "feel-good win-win Kumbaya language". This might have been relevant about 10 years, ago, but her needle has clearly stuck in that groove. Today, CSR is about strategy, shared value, business opportunity and addressing global challenges. Karnani lives in a world where governments everywhere are icons, where they regulate for every possible impact of business, and enforce every regulation with such perfect finesse that no corporate anywhere is ever able to do any harm to society or environment in any capacity whatsoever. Aron Cramer says this exists only in North Korea, a model which he does not recommend for the entire developed and developing world. Guess we can understand why.

Ultimately, the CSR anti's were putting up smoke screens – the very smoke screens they accuse responsible business of wielding to mask their irresponsible practices and the "deceptive dangers" of CSR. Chrystia Freeland kept harping on about the fallen-halo of " Beyond Petroleum" when in reality, everyone stopped believing that slogan many moons ago, and no educated business person would consider that as part of the current CSR Kumbaya. Another needle, another goove. Chrystia then turned her sights to Microsoft who has just been accused of collaboration with the Russian Government to crack down on outspoken advocacy groups and opposition newspapers. Yep, not a nice story. But Microsoft have issued a full and frank explanation and confirm that "to prevent non-government organizations from falling victim to nefarious actions taken in the guise of anti-piracy enforcement, Microsoft will create a new unilateral software license for NGOs that will ensure they have free, legal copies of our products." Such is the world of CSR. No corporate is perfect. Georg Kell of the Global Compact made this point well. He said "we have to recognize that most big dilemmas are not so easy to solve - climate, poverty and other global issues do not follow a clean simple path, commitment to a non-financial issues is uneven progress, it is very hard to be on top performance in all domains all the time. We have to accept the dynamics of regulatory changes and what business can contribute. Private solutions spill over to the regulatory machine. Where there is a conflict you have to tackle the conflict and work out where you stand." This rings true. The multiple touch-points of any large corporation which impact on so many aspects of our lives are continually being discovered and addressed. The fact that companies haven’t yet buttoned everything down in a nice neat package for every aspect of their business everywhere cannot be an argument for the failure of CSR. Real CSR is that they are willing to try.

Dave Stangis, who told Campbells Soup's Board when they hired him, that he is not a treehugger, but a capitalist who believes in helping them make more money (but in a way which creates positive social impact), says that this state of EITHER – OR makes him crazy. I identify with that, though Karnani and Freeland seem to have problems with the concept of co (co as in shared, together, participative, partnership, working together, interconnectedness, leveraging joint strengths, engaging). The possibility that there is an overlap between the contribution of business and the role of governments in contributing to global sustainability is off their radar. Bob Corcoran gave an example of how GE supported Transparency International in establishing a framework for anti-corruption. But this was dismissed by Chrystia as self interest on behalf of GE, because, she said, apparently GE is apparently not so good at corruption and their competitors are better, so leveling the playing field had to be about regaining competitive leverage for GE. Come on. Is this drivel or is this drivel?

Matthew Bishop, of the Economist, was an eloquent contributor to this debate and got to the crux of things quite effectively. He made the point, which I also subscribe to, that the problem with stock market capitalism is that it overly focuses on short term measures of performance. He says that visionary business leaders are on the side of preparing themselves to be doing things which move the business forward in a sustainable way. Karnani had an answer to this, of course. He says " Shareholders should demand that business be long term. It's a governance problem" . Perhaps Dr Karnani would like governments to regulate that shareholders may only invest in businesses whose governance allows only for a long term shareholder return? Yup. That would work. Not. Bishop again: "How effective regulation can actually be? There is a huge problem of corporate money in America, lack of transparency in corporate lobbying, a lot of our institutions are not being held to account properly" Nail on the head.

Chrystia, continuing in the self-interest groove, raised the issue of Pepsi who on the one hand, sells a product which has "no redeeming value to society" whilst engaging in all sorts of great CSR activities. She calls soft drinks the next "tobacco", pointing out that Pepsi lobbied hard against a soft drinks tax. Hmm. Matthew Bishop wasn’t having any of that. He says that when companies make a claim such as the Pepsico "Performance with Purpose", they are held to account. He says that Indra Nooyi's performance in this respect should be judged by the media and all stakeholders on those promises "Where's the beef, Indra? everyone should ask. He says that this is going to be the defining issue of her career.

Rounding off on this short summary of this long debate, the likelihood is that the camp you started out rooting for is the camp you remained in. And that camp won. If you believe that CSR is a smoke-screen to mask corporate self-interest which is in conflict with the public good, and that the only bodies that corporations should be held accountable to are governments, then you can shake hands with the Karnani-Freeland double act. If you believe that CSR has a valid role to play in improving society and planet whilst enabling businesses to deliver long term shareholder and stakeholder value, in a way which is core to business strategy, then you have many more hands to shake.

If you are undecided, as Aron Cramer says, 50,000,000 Elvis Fans can't be wrong. Go with the majority!

Kudos to Susan McPherson and Fenton for organizing this session and to Christine Arena for skillfully navigating the lion's den. And as it is the start of Yom Kippur, haha, I ask forgiveness for having no patience for arguments that hold back progress.

elaine cohen, CSR consultant, Sustainabilty Reporter, HR Professional, Ice Cream Addict. Contact me via www.twitter.com/elainecohen  on Twitter or via my business website www.b-yond.biz/en  (BeyondBusiness, an inspired CSR consulting and Sustainability Reporting firm)

SCOOP! Karnani responds.

Many thanks to Professor Aneel Karnani of Michigan who has now responded to the myriad of comments, blog posts, commentaries, tweets and all other reactions to his article published in the Wall Street Journal of 23rd August. See the original article: The Case Against Corporate Social Responsibility" here.

This is the full, unedited text of Prof. Karnani's response provided to me by email today 30th August 2010 for which he gave permission for me to post here:

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As the author of this article, I am grateful for the amount of interest and commentary it has attracted. The world faces many social problems such as climate change, resource depletion, disease epidemics, and pervasive poverty. While there are no easy solutions, a good starting point is a widespread public debate on the appropriate approach to tackling these challenges. A critical element of that debate focuses on the roles that business, government, and civil society should play in solving these problems. I hope my article has helped stimulate this debate by challenging some widely held views.

I strongly believe in social justice and that companies should not be left free to pursue the greatest possible profits without regard for social consequences. So, how can we get companies to act to increase social welfare? Whether companies will do so voluntarily or have to be compelled to take such actions depends on whether private profits and public interests are aligned or in conflict.

Many of my critics have pointed out that CSR can and does drive profitability. That is absolutely true when private profits and public interests are in harmony -- the invisible hand at work. That is exactly why the capitalistic system is so good. In these instances, firms driven by the profit motive will also achieve social objectives. Equivalently, firms acting to increase social welfare will simultaneously increase profits. In these cases, the profit motive is the driving force, even though companies might trumpet CSR.

However, the 'invisible hand' argument depends on markets being efficient. We must also be aware of the limitations of markets. Market failures occur due to three causes: externalities (such as pollution), asymmetric information (such as in pharmaceuticals), and market power (such as in electricity distribution). Many of the social problems confronting the world are linked to market failures. In these instances, private profits and public interests are fundamentally in conflict. CSR, a voluntary mechanism, will not be effective in these cases. Then it is the role of government and citizen activism to compel companies to act to achieve social objectives.

It is true, of course, that much government intervention has not been effective either. A practical challenge is to weigh the costs of market failure against those of government failure. However, there is a big difference between market failures and government failures. For example, the externality of pollution is inherent in the nature of gasoline cars. But, incompetence is not inherent in the nature of government, and the costs of government failure can be reduced with improved management. The challenge is to design and implement an effective blend of government regulation, citizen activism and self-regulation that strikes the right balance between private profits and public interests. Government regulation, or at least the threat of such regulation, is a critical element of this blend. It is very unlikely that large social problems linked to market failures will be solved only through voluntary CSR.

Finally, a red herring of an argument is to claim that the conflict between profits and social welfare is caused by companies being short-term oriented. The shareholders collectively want the managers of companies to maximize long-term profits, not short-term profits. In cases of market failure, long-term private profits and long-term public interests are in conflict. In practice, there is, of course, much uncertainty about the long-term impact on both profits and social welfare. But, that does not change the conceptual argument about the role of business in society.

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When Prof. Karnani talks about " an effective blend of government regulation, citizen activism and self-regulation [of corporates]" , I think we share a common ground. Clearly, no-one believes that voluntary CSR alone can solve all the world's problems. But it is my firm belief that CSR AS WELL is a critical element in doing just that.

Thank you again to Professor Karnani. Whether or not we agree with his original article, his willingness to respond and engage is in the spirit of ... well ..... CSR . Haha. 

 

elaine cohen, CSR consultant, Sustainabilty Reporter, HR Professional, Ice Cream Addict. Contact me via www.twitter.com/elainecohen  on Twitter or via my business website www.b-yond.biz/en  (BeyondBusiness, an inspired CSR consulting and Sustainability Reporting firm)