Monday, February 8, 2010

Business Ethics VS CSR

One of my strategy students sent along a blog posting by a Business Ethics professor in Halifax claiming that CSR is essentially wasteful and that we need to focus more on business ethics.

See posting here

I was surprised to read the very Milton Friedmanist approach from a Business Ethicist. Although I agree with the criticisms associated with CSR, I think there is a danger in relying too exclusively on ethical behaviour in addressing social and ecological issues. I offer a few counter-criticisms to this posting:

Types of CSR: The CSR approach to which this professor is referring may be outdated. While there are many companies still taking on a very philanthropic approach to CSR, this was more prevalent in the 1970s and 1980s. Since that time though the notion of CSR has evolved to take on a wide range of meanings and adoption levels according to the degree to which it is integrated into the strategy of a firm (in other words, how the firm differentiates itself from competitors). For instance, CEMEX is a cement manufacturer in Mexico and part of its CSR strategy is to target the rural poor in Mexico as a market diversification opportunity by providing them with housing services. They’ve helped the rural poor with hundreds of housing projects under their Patrimonio Hoy initiative. Its core operations are limited to providing cement to large distributors and retailers in urban centers. Now is it enough that CEMEX conduct its core operations ethically? Would they have thought about targeting this rural market if they were acting ethically? Would they have had the tools necessary to enter this market? As the dominant actor in society, now more powerful than governments, is it enough that firms continue on with core operations? While we can criticize CSR, this “movement” has instigated a very interesting array of strategic trajectories that have demonstrated simultaneous social/ecological and economic value.

Subjective Nature of Ethics: One issue of business ethics is that judgments of what is determined ethical varies by a number of factors, including the managers’ own personal values, the firm’s culture, it’s operating context, national cultural factors, NGO perspectives, activist perspectives, etc. So managers of Pepsi and other companies creating systemic social and ecological devastation may think that by creating shareholder value and following all the rules is ethical and ‘good enough’. You can be ethical but ignore the social and ecological pillars of the triple bottom line because the mainstream definition of what is ethical is dependent on market demand and societal norms. A Pepsi manager may believe that systematically diffusing high fructose corn syrup to the masses is honest and demonstrates integrity so long as they report it. But is it sustainable?

Failure of Markets: Markets and government regulation are much too slow to address the social and ecological issues we’re seeing today. We know for a fact that business molds markets. When the former CEO of General Motors asked why he didn’t make more fuel efficient cars, he said that GM “builds what the market wants”. Evidence then indicated that GM had played a huge role in influencing government policy that would reduce gasoline taxes thus making it more affordable for American consumers to drive SUVs – a very lucrative product segment. Would an ethical GM have prevented this? I’m not so sure. I bet many people would suggest that this was ethical as the company was looking out for its best interests and those of the shareholders. If we flip this around, we see companies creating new markets and industries based on social and ecological sustainability. Interface, deemed the most sustainable carpet manufacturer in the world, did this. TerraCycle created a market for waste and Grameen Bank created a market for microfinance. To me, this is a very different version of CSR that Tom overlooks.

Business Ethics is not Enough: Perhaps where we do agree is that before we can talk about embedding CSR into a firm, we need to curb unethical behaviour. Otherwise we do have a society where companies represent hypocrites. The issues of governance, greed, and fraud are real and enfolding business ethics into business curriculum will certainly help. But I would suggest that business ethics may not be enough if business is going to be a force for social change. I fear that relying on this exclusively may result in firms ethically playing the rules of the game and relying on other organizations and governments to clean up the mess they create that doesn’t breach the market’s definition of ethical behaviour. Companies like Coca-Cola, Pepsi, McDonald’s can make useful products, provide employment, and investment opportunity for investors, abide by the law and pay its taxes and still contribute to major social and ecological issues.

So while I agree that there is a waste of money towards superficial things, existing approaches to business are insufficient in today’s society. We need tools and frameworks that will assist managers in not only doing things honestly and with integrity but addressing some of the major issues we’re facing today. As the dominant actor in today’s society, business must take on a responsibility to leverage its power for good without presuming that other actors will fix up their mess

1 comment:

  1. I think that you have made some rather cogent points, but the cynic in me wants to question the motives for implementing CSR types of programs in companies. As you know, my knowledge of CSR is indeed very limited, but the root of the problem is not necessarily a lack or business ethics nor the the need for more attention to be paid to social and ecological issues. It lies in the nature of capitalism itself, as you and I have discussed on numerous occasions. Capitalism and globalization have created the problems that companies are now trying to address through CSR initiatives. Obviously, rather than alleviating the problems that global capitalism has caused, it would be more effective to ameliorate these problems by changing the structure. However, we both know that would be a long and difficult road as previous attempts across the last century and a half have shown. So at this juncture, CSR programs in conjunction with strong and positive business ethics are the best way to move foreward. Having said this, the cynic in me questions the motives for CSR programs in that although they are indeed beneficial as you indicate, many are simply a way for companies to redirect attention away from the negative practices in which they still engage. That is, in my mind, many are simply PR efforts. The efforts of CEMEX that you cite are valiant ones, but if neoliberal economic systems weren't so embedded and there was a greater embrace of Keyensian ideas, perhaps the rural poor in Mexico wouldn't need to be targeted because they would be earning a living wage. So to me the debate between the merits of promoting either business ethcis or CSR is far less important than working toward negating the effects of neoliberalism through international laws and covenants and a return to strong regulation at the local, state, and international levels.