Honest to goodness

A spate of high-profile scandals has left a lot of the ‘corporate engagement’ agenda looking sadly marginal to the real action. It’s time for business to get down to ethical basics, says Ian Christie and to find ways to make 'doing right' a common pursuit.

For 20 years, arguments for ‘corporate responsibility’ have rested to a large extent on ‘the business case’. A set of arguments has been developed to stress how companies can benefit, if they integrate into their core activities a concern for social inclusion, international social justice and environmental sustainability, and if they seek engagement with communities at home and abroad.

But the corporate social responsibility (CSR) movement has been thrown into crisis. In the past two years, business scandals and controversies over top executives’ values and behaviour have followed one another with depressing regularity, dominating headlines about business in the press. Organisations such as Business in the Community find that public trust in big business has been seriously damaged by all the coverage of corporate irresponsibility - the collapse of Enron, the related scandals in the US, and the ceaseless flow of stories about chief executives’ astounding pay and pension deals both there and in the UK. And the excesses that have come to light at the top of major corporations - even though most businesses are untouched by either wrongdoing or the uproar over top executives’ pay - undermine the impact of two decades and more of hard work to build up a critical mass of businesses engaged in a huge variety of CSR initiatives.

If anti-capitalist campaigners had been operating undercover inside Enron, Arthur Andersen, WorldCom and others, in order to discredit the system, they could not have done a better job than the executives themselves, who lived up to every extreme of criticism thrown at capitalism by its modern-day detractors. This has done an immense disservice to the responsible and law-abiding majority in business. Not only has it corroded public confidence, it has made it harder for the idea to carry credibility that ‘corporate citizens’ can be a force for sustainable development and a vital contributor to social wellbeing. The crimes and misdemeanours that have come to light have also done damage to those who contend that business can do better for itself and for society through self-regulation.

All this raises a basic issue for the CSR movement. How was it that Enron could pose for so long as a decent corporate citizen in the US? Why is it that the CSR agenda over there and in the UK has managed to exclude discussion of extreme inequalities in society, of excessive pay awards, and of the ‘irrational exuberance’ that drove the dot-com boom and brought it to bust?

Too often, CSR membership bodies have shied away from recognising a central truth: that CSR is about hard politics and ethics as well as corporate systems, awards, good practice and ‘win-win’ projects that benefit both companies and communities. We need more debate about the nonnegotiable criteria of claiming to be a good corporate citizen.

And this leads straight to the heart of the matter. Is CSR to make its fundamental arguments on the business case - or on the ethics case? However important the business case arguments may be, do they need to be founded on a prior 'ethical case' for values in business?

Hard-nosed or hard-hearted?

The point of businesses is to make profits. This is entirely proper and desirable. Companies are bound to respect the law, but as long as they comply with whatever legal rules constrain them, they are not here to duplicate the work of government or charities. The great merit of the classic CSR business case is that it recognises that the system of motivations that operates in companies is, in the last analysis, bound to be driven by the need to make profits and compete successfully in markets.

The key elements of ‘business case’ models for CSR emerged in the 1970s and 1980s and have been greatly elaborated since. They focus on both qualitative and quantitative arguments. Advantages accrue to businesses displaying high levels of commitment and activity geared to social inclusion and environmental care. They can gain consumer trust; they can secure first-mover advantage in emerging markets; they can attract and retain better recruits; their reputational advantages can make them more attractive to investors; companies showing high engagement in CSR can argue better for self-regulation as opposed to government intervention to mould their behaviour; CSR is good for employee relations; and so on.

Quantitative evidence continues to be built up, and much more needs to be done. Roughly summarising two decades of work on whether CSR pays as the business case suggests, we can say that sometimes it does, and sometimes it seems to make no difference, and sometimes it might not pay at all, or at least not for a long time or without external intervention to change the rules of the marketplace.

It is not yet a decisive array of arguments with a rock-solid core of evidence. But the merits of using a business case approach to companies are clear enough. It speaks to business people in terms that are directly relevant to their work and corporate goals. It provides a way to translate ethical concerns into practical business language and practices. It helps companies make their case for CSR to investors and customers. At its best, it can be a subtle and powerfully persuasive tool. An excellent example is the business case for disability equality in companies, prepared for the Employers’ Forum on Disability by Simon Zadek and Susan Scott-Parker.

That said, there are two deep problems for the business case. The first is that it has come to be used as a superior and more sophisticated tool than a clear ‘ethical’ case for CSR. We can see this process at work in many pronouncements by committed business leaders, who point out in interviews that their CSR work is driven wholly by hard-nosed commercial considerations. ‘Doing good’ is good business, so we do it. The practical value of such language in many business contexts is obvious. But, over time it brings with it a damaging implication - that if it weren’t good business to do the right thing for social inclusion and the environment, we’d stop. The use of hardnosed language about the business case also subtly ‘puts ethics in their place’ - a subordinate one. This is unintended, but it has practical effects. It creates a sense that ‘philanthropic’ motivation is somehow old hat or inevitably inferior to tough-minded, business-case-based action.

The second point is a related one. It has been made with great force in recent writings by Sir Geoffrey Chandler, lately with Shell and now with Amnesty International. Often, Chandler notes, there is a powerful business case for doing the socially and environmentally irresponsible thing. And making the business case seem to be prior to an ethical case is deeply damaging to the prospects for public trust in companies, and to the long-term health of capitalism. Chandler’s argument, made for example at the BT/Forum for the Future Just Values conference in January 2003, is powerful and timely:

“I don’t believe ethical behaviour should depend on its paying. To suggest that doing right needs to be justified by its economic reward is amoral, a self-inflicted wound hugely damaging to corporate reputation....Doing right because it is right, not because it pays, needs to be the foundation of business."

It’s true that the business case and the ethical case will often both converge on a demand for exactly the same values and policies. But the issue has to be faced: what happens when a company finds that the business case cannot be made, but stakeholders in society at large are demanding new standards of ethical behaviour?

One approach for companies is to hope that government will step in and make regulations that will level the playing field. Another is to wait until market developments - such as changes in consumer values - make the business case work. Another is to be bold and try to change the terms of the market by oneself, setting the pace when others are not convinced. Many companies have been pioneers in this sense. But many are not.

Universalising right action

One under-explored idea could be the foundation of a new approach from business to the case for CSR. It involves taking seriously the arguments of some schools of moral philosophy, about the existence of universal needs and rights that should be respected. When we know something to be the right course of action, the argument goes, what we mean is that we would wish it to be universally enacted.

In this setting, what should a company do, when faced with a clash between the business case and the ethical case for some form of CSR? It should aim to make its desired course of action one that could be universally shared. This could mean making a business case for regulation, in order to redefine the marketplace. Or it could mean making a case for self-regulation by peer companies - and working to form ‘coalitions of the willing’ among companies and partners, such as NGOs, in order to transform the market environment in question.

This may take us some way beyond the business case as it has been developed so far. But arguably we are now at the limits of what that particular approach can do for business and society. It is time to move on. It’s time to return to the ‘ethical case’. And it’s time to use ingenuity and imagination in applying universal ethics to CSR challenges.

Ian Christie is an associate of the New Economics Foundation ( www.nef.org) and of openDemocracy
( www.opendemocracy.net).

12 October 2003

Ian Christie