Development Crossing

Corporate Social Responsibility (CSR) and Sustainability

Corporate Social Responsibility is Just Self-Interest

The world has changed. Even in this economic downturn corporations are being pressured to adopt socially responsible and sustainable practices. But how much should business be responsible for? And where are the lines between business, government and non-profits?

I am trying to figure something out.

I was listening to my daily dose of Harvard Business Review’s IdeaCast on my Ipod. I had come across an interview with Rakesh Khurana, a professor at Harvard, which had aired April ‘08. It was a fascinating discussion of Rakesh’s suggestion that MBA students be required to take an oath similar to the ancient Hippocratic Oath recited by medical doctors. With such public furor still rising against what is perceived as enormous and undeserved excess on Wall Street, this podcast seemed fairly prescient. (HBR IdeaCast 89: “Should Managers Have a Green Hippocratic Oath?”)

Rakesh suggests, “The dramatic scale and scope of the challenges presented by climate change will require the next generation of business leaders to adopt a more socially oriented professional identity.” He cites Bill Gates’ recent remarks: “The next generation of managers will be held responsible for decisions that have effects far beyond their corporations and the markets they serve.”

Should MBA’s be more professional?

Given the important role that business leaders have in today’s society, the professionalization of the MBA may indeed be a good idea. The MBA Oath would formalize a contract with society and set expectations for academic institutions authorized to confer the professional status.

Just one problem, Rakesh notes: most business schools may not be anywhere near ready to make such a contract with the societies in which they operate. Henry Mintzberg of McGill University (Montreal Canada) believes that "Conventional MBA programs train the wrong people in the wrong ways with the wrong consequences." Indeed, the venerable inventor of the MBA degree, Harvard University, is taking a long hard look at the program, including where it needs to go for the future. After extensive interviews and research at some of the more prestigious MBA schools in the US, the “findings presented a mixed diagnosis of the health of MBA programs but on balance were, in the words of one HBS faculty member, "depressing."

For his part, Rakesh contends, “many business schools have been complicit in creating recent corporate scandals by turning out graduates fixated on shareholder value at the expense of all other stakeholders in society.” - which brings us to Rakesh’s call for the Hippocratic Oath for managers.

No one is saying that all managers have to have MBA’s. No one is saying that we ought to limit access to executive level leadership to professional managers. But there are questions being asked about how we should formalize society’s expectations of the powerful elite of business executives who possess tremendous influence in our society. The recent universal economic collapse, precipitated by a handful of men and women who created Mortgage Backed Securities comprised of sub-prime mortgages, stands as an easy, if not unavoidable illustration. (For a full explanation of how Wall Streets insatiable thirst for MBS products caused the financial collapse please read my blog entry - Did Corporate Social Responsibility Cause The Financial Crises?)

There is a veritable ground swell rising within societies of both developed and developing nations demanding Corporate Responsibility, Sustainability, and Operational Transparency in exchange for a license for business. This however, begs the question asking where to draw the line between government and business - not to mention the Third Sector; the chronically overworked and under-resourced non government organizations?

Should Business be more Responsible?

The question is actually much simpler than where to draw the line of responsibility. The question is whether Corporate Social Responsibility is the province of business at all. Milton Friedman, the American economist and Nobel prize winner famously claimed, “The social responsibility of business is to increase its profits.” In his book Capitalism and Freedom, he refers to Corporate Social Responsibility as a "fundamentally subversive doctrine.” As far as he could see, "there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

And this is what I am trying to figure out, because I actually agree with Friedman.

Yep, I said it - I think Milton Friedman is right.

The only reason business exists - scratch that - the only means by which business exists is to create profit. No profit; no business. Government and Non Profits (okay, I guess that’s a bit too self-explanatory) exist for reasons other than profit. But without profitable business contributing the the GNP, we are all doomed to an existence of impoverishment and destitution.

And yet, as I sit here in Starbucks writing this blog, a friend just walked in and complained to me about this very thing. Apparently, a major customer was asking his company to produce documentation outlining their Corporate Social Responsibility practices. The customer is a major distributor of his product, and is looking to ‘Green’ their supply chain. They wanted documentation to alleviate concerns of unfair labor practices, prove good environmental impacts, and any and all other data that would substantiate his companies position as a good Corporate Citizen.

(Needless to say, I pitched my services.)

So, I believe in Corporate Responsibility and I also believe in Friedman’s basic premise of the priority of business as profit. Can these two ideas be reconciled? And in the reconciliation, are there clear guidelines for what business should be responsible for when it comes to CSR?

You bet your Nike Zoom BB II Lows (look it up) they can.

The problem with Friedman is that he lacked imagination. He just couldn’t conceive of a world where the priorities of CSR were being demanded by the consumer. In the New York Times Magazine of September of 1970, he decried, “businessmen believe that they are defending free enterprise when they declaim that business is not concerned "merely" with profit but also with promoting desirable "social" ends; that business has a "social conscience" and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are–or would be if they or anyone else took them seriously–preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”

So the question remains - what is business responsible for? And by extension, what should be the focus of the academic institutions offering business education?

Should we all be more self-interested?

Before Milton Friedman, there was another famous economist called Adam Smith. He is the author of Wealth of Nations, which in 1776 was the seminal work on economics. One of the statements Smith makes early in this writing is now the most famous: "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard for their own self-interest".

Why should CSR be a key strategy in business today?

Simple self interest.

If CSR is a fad, it will fade. If, on the other hand, we are at the tipping point of Global Sustainability then business will adjust; or fail. Either way, the question is not where to draw the line with Corporate Responsibility. Rather, the question is, what must business do in order to remain profitable? The planet and it’s people are making the immediate answer loud and clear: Adopt a strategy of Corporate Social Responsibility.

This brings us back to the question of the MBA Oath. This direction may or may not be the best option for America’s business schools. The point is, it seems there is a new standard being asked of these degree-granting institutions. Makes sense, really. If society is demanding a higher level of responsibility from business itself, the academic institutions training men and women for those roles must follow suit.

The change is happening. Who will lead on the front lines and who will find themselves left behind and bewildered?

I’m betting on companies that possess a finely honed sense of self-interest.

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