Part 1 – The genesis of corporate sustainability:
Corporations, the world over, are formed and then go on to conduct business, with one express purpose to generate a financial return on the investment of their shareholders. In simpler words, to make profits. This may sound obvious and even cliched, but on the other hand, it is a fact that tends to get easily forgotten, especially by various seekers of corporate largesse, who can be anything from imploring to belligerent! This is an issue that is increasingly growing, fuelled as it is by still fairly widely spread confusion in the general public, equating corporate philanthropy with corporate social responsibility.
That corporations exist to make profits is as true today, if not truer, as it was when the first clearly recognizable corporation in modern history, the East India Company, was established by Royal Charter in 1601, by Queen Elizabeth 1 of England and Ireland.
The bigger, or more accurately, the bigger and the more visible a company is, the higher the public scrutiny of its operations and the greater the pressure on it from all quarters to be accountable on the one hand, and part with money generously to societal causes on the other hand. Beverages companies for instance, have extremely high visibility, compared to for example, arms manufacturers. And while the giants of the global carbonated soft drinks industry are always in the cross-hairs of public outcry and demands for hand-outs, the arms manufacturers seldom if ever are even mentioned in general public discourse. Leave alone being asked or tasked to elaborate what their CSR milestones are. This, while the global carbonated soft drinks market size is around US$ 200 billion, compared to the global arms industry market size of about US$ 1.5 trillion.
Even a government taxing a company or an industry excessively, just because it is a cash-cow and offers an easy solution to raise revenues, is forgetting that the companies in that industry were established to make profit for the shareholders, and not to become fast-revenue raisers for the state coffers. Yes, they are willing to pay reasonable taxes, but if taxes mean the end price to the customers becoming prohibitive, then the taxes become self-defeating. In many cases the better option may well be for the government to in fact reduce taxes, allowing the companies to reinvest at least part of their increased profits into expanding the business and the market base. This in turn would actually mean higher gross revenues for the government.
Corporate accountability promoting a sustainability culture:
While no one today would deny a company its profit goal, civil society broadly, and a company’s stakeholders in particular, now demand that the company conducts its business far more ethically, responsibly and transparently than ever before. These demands sometimes even turn into movements, transcending international borders and socio-cultural barriers. The whole ‘Occupy’ protests are a case in point, irrespective of their merits and achievements, or lack of these, depending on what viewpoint you may hold.
This changing perception of business and its role has been a gradual evolutionary process over the past century or so, since the modern corporation started evolving, first in the United States. Over the decades, concepts, laws and standards applying to corporate conduct and practices have gone through several stages of development and refinement, and continue to do so, on an ongoing basis.
Thus terms like ‘good governance’ and ‘best practices’ have become common corporate parlance in our times, as has been the pursuit of businesses to qualify for international standards like ISO 9001 or ISO 14001; the threshold level really for companies in many industries to even consider a future.
At the same time the corporate world has come under increasing and often intense public scrutiny. This process in itself has been energized largely by the information and communications technology revolution that we have witnessed, and continue to witness, in our own lifetimes. The old dictum, bad news travels fast, has today taken on an altogether new meaning, with satellite television beaming ‘breaking news’ from practically anywhere in the world, in a matter of minutes of something happening. And this media exposure is not limited to political events or natural disasters. The corporate sector too has been thrust into the public eye and put into the dock in what often unfortunately deteriorates into a media trial, rather than objective and responsible reporting.
But even with the media not taking sides or gunning for the corporation, just the factual reporting by itself, of corporate misconduct is enough inducement or pressure on the concerned company to make good. This is the power of the media today; a direct consequence of how information technology and means of instant communication have taken over our lives. The ‘sweatshops’ in south-east Asia associated with Nike several years ago, the apparent failings of BP during its Deepwater Horizon oil spill crisis in April 2010, and now the fairly recent case of Labor rate manipulation by certain banks, are just a few examples from recent years of the global media acting as an effective watchdog of corporate conduct and exposing their poor governance before all.
The above by no means implies that all companies are only focused on making money, while smartly staying just within the law; even if some occasionally cross the circle of morality through unethical or irresponsible practices on the quiet, until they are caught out. To the credit of the corporate sector, it is to be noted that today many companies the world over have voluntarily and proactively adopted new strategies that place societal and environmental responsibilities on themselves, well beyond purely legal requirements.
The move towards corporate social responsibility (CSR) has come about and is gaining greater following all the time, in spite of it being strongly opposed not so very long ago. Nobel Laureate Milton Friedman famously pronounced in the 1970′s that: “few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.”
A later, somewhat more tempered statement from Friedman advocated that “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.”
This was then the thought process espoused by arguably the greatest economist (after Keynes, as some say) of the 20th century. This champion of monetarist economics exercised great influence over America and all capitalist economies, but others in these same countries, at the same time, were advocating a more responsible social role (environmental responsibility was then still not in focus) for the corporation, and effectively building up what is today known as the business case for CSR.
Reverting here to the very first sentence of this writing – corporations, the world over, are formed and then go on to conduct business, with one express purpose – to generate a financial return on the investment of their shareholders – the arrival of the business case for CSR must be heralded. If it succeeds in convincing businesses that a CSR way of conducting business actually contributes to the bottom-line, then CSR itself, if I may be permitted to say this, will be in business!