For Harold Geneen, the only line was the bottom line,” said his obituary in The Times: and with more than a little justification. ITT employed bribery and coercion as workaday business tactics, funded illegal operations around the world and earned notoriety for conspiring with the Central Intelligence Agency to overthrow President Salvador Allende’s leftwing government in Chile, where ITT had a substantial business.
Paradoxically, Geneen was in many ways the father of modern-day corporate tree-hugging. Revulsion at ITT’s activities helped to produce a 1970s backlash against corporate America that translated into demands for higher standards of business morality. Now, boosted by the growing anti-globalisation movement, those demands have redoubled, resulting in the concept known as corporate social responsibility or, more trendily, CSR.
What is CSR? Cynically, you could say it means making companies act responsibly so consumers do not have to. Most people will do almost anything to save the planet as long as it does not involve any personal inconvenience. So if they can demonstrate their concern by filling their petrol-guzzling Jeep Grand Cherokees and Dodge Durangos with CSR-friendly Shell instead of fuel from some less socially aware oil company, they may feel a little less guilty about sitting in a traffic jam pumping greenhouse gases into the atmosphere while the public transport system falls into decrepitude.
Royal Dutch/Shell is a particularly strong advocate of CSR. After furores in the mid-1990s over its conduct in Nigeria and the disposal of the Brent Spar oil rig, it became a changed company. True, it still makes most of its money from supplying non-renewable fossil fuels that turn into greenhouse gases when lit. But at least the company tries to be nice about it: these days, it puts as much emphasis on meeting its self-imposed obligations to society and sustainable development as it does on making a profit and it recently set up a $250m (Ã??170m) foundation to support social and environmental projects around the world.
Shell may have gone further down the CSR road than most but it is not unique. Most big companies are falling over themselves to appease pressure groups and present themselves as friends of people and the planet. An entire new industry of CSR advisers and consultants has sprung up to serve the booming market and it has become almost impossible to find anyone who disagrees with the notion that CSR is a good thing.
Almost, but not quite. One critic is Ethan Kapstein, professor of economics and political science at Insead, the French business school, whose article “The Corporate Ethics Crusade” appears in the latest edition of Foreign Affairs magazine. Another is David Henderson, former chief economist for the Organisation for Economic Co-operation and Development, whose booklet “Misguided Virtue: False Notions of Corporate Social Responsibility” was recently published by the New Zealand Business Roundtable and is about to be reprinted by Britain’s Institute of Economic Affairs.
Broadly, these critics argue that a little social responsibility may be all right but CSR in its present form is going too far. Nobody has worked out whether it is rational or makes economic sense, or even whether the public really wants it. Instead, it is the product of an undemocratic collaboration between multinationals and campaigning organisations, the former buying peace and acceptability by succumbing to the demands of the latter.
If CSR were properly analysed, the critics continue, it would probably be found to be doing more harm than good. For example, forcing western labour standards on factories in developing countries can backfire by reducing investment and job creation. And meeting unjustifiably alarmist concerns about the environment imposes extra responsibilities and heavy costs on businesses, limiting competition and impairing economic development.
Like anti-globalisation protesters, these critics are better at identifying what is wrong than saying how it should be put right. Their conclusion is that chief executives should speak out on the issues instead of meekly caving in to the campaigners’ demands.
But why should they? Perhaps some chief executives are quietly seething about CSR but most sound like enthusiastic advocates of the movement.
The reason is that times have changed since the days when a company’s main function was to design, manufacture and distribute products. Making things is out of fashion: competition has commoditised products and many big companies do not even bother to manufacture or distribute products any more, preferring to subcontract these functions to others.
Instead, in post-industrial society, brands have replaced factories as companies’ most valuable assets. A high-quality product is merely the price of entry to a market. What companies are really selling is the thing they can use to differentiate themselves from each other: the ideas, emotions and beliefs that their brands convey.
At this point, it becomes obvious why chief executives like CSR. Clearly, they dare not risk damaging their brands by being seen as hostile to people or the planet. But just as importantly, CSR gives them the opportunity to imbue their brands with positive, popular values that plug in to concerns for the environment and human rights. The beauty of it is that, compared with the cost of trying to build the same brand attributes through advertising and public relations, it probably works out rather cheaply.
Perhaps because this sounds a little too venal for comfort, CSR advocates make other arguments for investing in social responsibility. Top of the list is the importance of making your company attractive to the best and brightest youngsters entering the job market. A close second is the importance of making your company attractive to investors, who are becoming increasingly conscious of the risks attaching to businesses that fail to foresee society’s changing attitudes to the environment and human rights.
The first is debatable: it is not obvious that tobacco companies or arms manufacturers have ever struggled to recruit employees. But the second sounds more persuasive, especially in the context of companies’ growing exposure to litigation over past activities that are now considered unacceptable, even though they were legal at the time.
Just a few weeks ago, for example, General Electric was ordered by the Bush administration to foot an estimated $460m bill for dredging up 1.1m lb of PCBs, or polychlorinated biphenyls, that the company had legally released into the Hudson river between 1940 and 1977. And early next year, lawyers in the US are planning to launch a class-action lawsuit seeking hundreds of billions of dollars’ worth of reparations from companies alleged to have benefited from slavery before it became illegal in 1865.
In short, there may be a lot wrong with CSR – particularly the undemocratic way in which the agenda is being set – but companies have convincing reasons for adopting it and it will take more than a few critics worrying about economic impairment to divert them from their course.
Where, after all, were the Foreign Affairs articles or IEA booklets when companies engaged in the merger mania of the 1990s, long after it had been shown that most acquisitions destroyed shareholder value? Or when companies were squandering billions of dollars on fatuous dotcom ventures during the technology boom that went bust last year?
Compared with those excesses, CSR looks like a refreshing outbreak of sanity. If companies get it wrong, their customers or shareholders will tell them soon enough. And if they get it right, who knows? They may even end up making the world a slightly better place.