Jan 22nd 2004
From The Economist print edition
AT THIS year's gathering of underworked snow-loving corporate chieftains at the World Economic Forum in Davos, Switzerland, anti-capitalist protesters were expected heavily to outnumber the delegates. These rebels against the system could be forgiven for thinking that they have been making progress: they were literally out in the cold this week, but metaphorically speaking they are warming themselves at corporate hearths everywhere. Companies, governments and international organisations pander to them eagerly. Good corporate citizenship is (again) a theme of the Davos celebrations.
One of the biggest corporate fads of the 1990s—less overpowering, no doubt, than dotcom mania, but also longer-lived—was the flowering of “corporate social responsibility” (CSR). The idea that it is not enough for firms to make money for their owners is one that you might expect to be an article of faith among anti-globalists and eco-warriors. Many bosses now share, or say they share, the same conviction.
In a survey of the 1,500 delegates (most of them business leaders) attending the Davos meetings, fewer than one in five of those responding said that profitability was the most important measure of corporate success. Admittedly, even fewer, just 5%, named CSR in its own right as the single most important criterion; but one might add to this the additional 24% who said that the reputation and integrity of the brand, to which good corporate citizenship presumably contributes, matter most. (The quality of the product was the highest-scoring category, with 27%.) When asked to name the leading threat to “security and integrity of the corporate brand”, 38% of the businessmen who responded said “economics/markets”. Evidently, not all the anti-capitalists in Davos are huddled outside the conference rooms.
There's profit in it
CSR, at any rate, is thriving. It is now an industry in itself, with full-time staff, websites, newsletters, professional associations and massed armies of consultants. This is to say nothing of those employed by the NGOs that started it all. Students approaching graduation attend seminars on “Careers in Corporate Social Responsibility”. The annual reports of almost every major company nowadays dwell on social goals advanced and good works undertaken. The FTSE and Dow Jones have both launched indices of socially responsible companies. Greed is out. Corporate virtue, or the appearance of it, is in.
Is this a good thing? Possibly not. From an ethical point of view, the problem with conscientious (as opposed to fake) CSR is obvious: it is philanthropy at other people's expense. As a rule, so far as public companies are concerned, managers do not own the firms they work for. They are entrusted with the care of assets belonging to others, the firm's shareholders. Supporting good causes out of their own generous salaries, bonuses, deferred compensation, options packages and incentive schemes would be admirable; doing it out of income that would otherwise be paid to shareholders is a more dubious proposition. Anyway, is it really for managers and NGOs to decide social-policy priorities among themselves? In a democracy, that is a job for voters and elected politicians.
Advocates of CSR typically respond that this misses the point: corporate virtue is good for profits. And so it may be, on occasion. The trouble is, CSR that pays dividends, so to speak, is unlikely to impress the people whose complaints first put CSR on the board's agenda. So there is a dilemma. Profit-maximising CSR does not silence the critics, which was the initial aim; CSR that is not profit-maximising might silence the critics but is, in fact, unethical.
An unusually persuasive advocate of the view that CSR—or “compassionate capitalism”, as he calls it—benefits shareholders, employees and the needy all at once is Marc Benioff, boss of salesforce.com, a private company (for now) that provides online customer-relationship-management services. In a new book, co-written with Karen Southwick, Mr Benioff argues that corporate philanthropy, done right, transforms the culture of the firm concerned*. “Employees seeking greater levels of fulfilment in their own lives will have to look no further than their workplace.” As well as doing the right thing, the firm will attract and retain better people, and they will work more productively. He makes it seem plausible.
Mr Benioff advocates “the 1% solution”: 1% of salesforce.com's equity, 1% of its profits and 1% of its employees' paid hours are devoted to philanthropy, with workers volunteering their time either to company-run schemes or to charitable activities at their own initiative. His book describes similar projects at many other firms, always underlining their win-win character.
Unlike some advocates of CSR, Mr Benioff says he opposes government mandates to undertake such activities. Compulsion would neutralise the gains for corporate culture, he points out. (He is not averse to tax relief, however, and complains that America's corporate-tax code does too little to encourage his charity.) In any case, if Mr Benioff is right, and CSR done wisely helps businesses succeed, compulsion should not be needed. Companies like salesforce.com and the others discussed in his book will thrive, and the model will catch on by force of example.
Lack of compulsion, however, is exactly what is wrong with current approaches to CSR, say many of the NGOs that first put firms on the spot for their supposedly unethical practices. This week Christian Aid, with Davos in mind, published a report claiming to reveal the true face of CSR†. The charity is “calling on politicians to take responsibility for the ethical operation of companies rather than surrendering it to those from business peddling fine words and lofty sentiments.” (If Christian Aid has no time for lofty sentiments, one wonders, who does?) It regards CSR as a “burgeoning industry...now seen as a vital tool in promoting and improving the public image of some of the world's largest companies and corporations.”
The report features case studies of Shell, British American Tobacco (BAT) and Coca-Cola—all of them, it says, noted for paying lip-service to CSR while “making things worse for the communities in which they work.” Shell, says the report, claims to be a good neighbour, but leaves oil spills unattended to. Its community-development projects are “frequently ineffective”. BAT, it says, claims to give farmers training and protective clothes; contract farmers in Kenya and Brazil say otherwise. Coca-Cola promises to use natural resources responsibly. The report accuses an Indian subsidiary of depleting village wells. So, “instead of talking about more voluntary CSR in Davos, government...should be discussing how new laws can raise standards of corporate behaviour.”
This is a switch. CSR was conjured up in the first place because government action was deemed inadequate: orthodox politics was a sham, so pressure had to be put directly on firms by organised protest. Ten years on, instead of declaring victory, as well they might, disenchanted NGOs like Christian Aid are coming to regard CSR as the greater sham, and are calling on governments to resume their duties. Might this be a sign, Mr Benioff notwithstanding, that CSR has finally peaked? If so, it might be no bad thing. If bosses are no longer to get credit for pandering to their critics, they may as well go back to doing their jo