1 The Why of CSR
It is a truth universally acknowledged that companies which do not adapt to their environments die (Burns and Stalker 1961; Duncan 1972; Emery and Trist 1965). It is also true that the world we live in has experienced in recent years a wave of change almost unprecedented in human history. Among these changes are unheard of levels of globalization in markets and production systems, mass customization of new technology, market liberalization policies, environmental destruction, climate change, and a significant increase in social inequality.
All of these changes affect directly how companies are managed and run. In fact, companies are key drivers behind some of these changes, such as globalization of production systems, and play a major part in generating others, such as environmental destruction and climate change. Moreover, many of these changes are exponential, meaning that regardless of whether companies are active or passive contributors to them, their role in generating impacts that affect society is greater today than ever before. The consequences of all this are that the responsibilities of any business, and particularly large multinational organizations, have grown substantially in recent years. In a changing world, managing these responsibilities in an effective and efficient way is both complex and ever more important.
As a result, companies have begun to pay more attention to the impacts they generate, be they positive or negative, and do so under a broad umbrella known most commonly as corporate social responsibility (CSR). Yet it is increasingly clear that CSR, despite its advances, is not capable of genuinely reducing the considerable negative impacts companies generate. When important decisions need to be taken, the economic objective is nearly always dominant, and all other considerations play a secondary role (Rifkin 2014). This view is supported by the increasing evidence of environmental and social damage, driven by the actions of mass consumerism and the endless search for new markets. The failure of CSR and the desire to replace it with something more coherent is the underlying ambition of this book.1
The principal argument against CSR is that, in its current form, it is incapable of achieving its stated aims of making the worldâs corporations more responsible and responsive to the demands of multiple stakeholders. Much of what is done in its name is disjointed, and actions that create gains in one area of an organizationâs zone of operations are offset by policies that create the opposite effect in another. There is a glaring unwillingness to consider these actions in a holistic manner and evaluate them accordingly. In addition, and perhaps most importantly, when social and environmental responsibilities are set against financial performance, the latter is inevitably prioritized.
This inconsistency in responding to different corporate responsibilities goes to the heart of what is wrong with CSR. It should be possible to create organizations that act economically responsible, without doing so at the expense of the environment or society. However, this would require a fundamentally different way of thinking about how organizational priorities are fixed, and how the value creation proposal is defined. In essence, it calls for a more articulate and balanced approach to CSR, one sufficiently different to current practice that it requires a separate nameâcoherency management.
The book will be divided into two sections, each with a different aim. In the first section, coherency as a concept for managing responsibility is defined, followed by an analysis of current CSR theory and practice. An assessment is made of different management philosophies that drive incoherent responsible management practices, and several new concepts are introduced regarding how an effective and truly responsible organization should behave, and what it should look like. The second section will provide a series of tools to enable organizations to move from current inefficient CSR to a more coherent way of behaving and offer different approaches toward improving performance. These two blocks will be interspersed with a series of case studies to demonstrate how incoherent practices lead to suboptimal responsibility performance.
2 Origins of CSR
Both theorists and practitioners of CSR deserve a lot of praise for the work that has been done up to now. They are to be credited with substantial progress made in terms of conceptualization, application, and dissemination (see Bowen 1953; Carroll 1979; Freeman 1984; Garriga and Melé 2004; Mitchell et al. 1997; Waddock and Graves 1997; Wood 1991). Yet most credit is for their persistence and determination in promoting a message of equality, justice and fairness, and for a need to find an effective balance between business and society. Their determination and passion is all the more noteworthy considering that many of their arguments have been blithely accepted by business leaders, while the work of driving financial performance at any cost continues apace.
Despite the progress CSR has made, it cannot be considered as having had any genuine impact of how our economies work, in the way that says, Einsteinâs theories of general relativity and special relativity did for the field of physics, setting the scene for the atomic age. If anything, its impact has been theoretical, a concept whose time had come, driving an understanding among a growing number of people that current business practice simply cannot continue, and that change is urgently needed.
Although some works on CSR start out by identifying the fieldâs origins as a management and academic discipline, such an approach does injustice to the broad foundations underlying the concept, which have been prevalent throughout history. If we search for âCSR origins,â we are implying that the idea that companies have responsibilities (outside the narrow economic responsibility to run a business effectively and make a profit) is something new. Yet this view is both incorrect and misleading. For example, Rivas (1999) argues that the ideas which today are associated with the field of corporate responsibility are in fact as old as the act of doing business itself.
All major moral traditions have considered the relationship between business and society in some detail and in many cases have been quite explicit. For example, the Judeo-Christian tradition speaks of issues such as transparency in business practices, whereby âa false balance is an abomination to the Lord, but a just weight is his delightâ (Proverbs 11:1, English Standard Version). There are also passages on acceptable working conditions, whereby âif your brother becomes poor beside you and sells himself to you, you shall not make him serve as a slaveâ (Leviticus 25:39, English Standard Version), and a need for social equality, so that âthere should be no poor among youâ (Deuteronomy 15:4, English Standard Version).
Saint Thomas Aquinas, in a clear reference to the conflict between the common good and the narrow interests of the investor, described the fundamental role of business in society, as the âdefinite purpose.â When comparing the merits of economic activity and societyâs needs, he argued strongly that seniority should be given to the good management of households (Eberstadt 1977).
Islamic law is explicit on norms and responsibilities, and scholars have laid down clear guidelines on a wide range of business practices. On price-fixing, it states that âAllah is the One Who fixes prices, withholds, gives lavishly, and provides, and I hope that when I meet Allah, none of you will have any claim on me for an injustice regarding blood or propertyâ (Tirmidhi, Hadith 1235). Other instructions are clear in stating that using asymmetrical information to gain advantage is unacceptable, stating that âA town dweller should not sell the goods of a desert dwellerâ (BukhÄrÄ« 1951). In a more general sense, it demands honesty in transactions, declaring that âThe truthful merchant [is rewarded by being ranked] on the Day of Resurrection with prophets, veracious souls, martyrs and pious peopleâ (Tirmidhi, Hadith 1130). Besides these, there are the well-known exhortations on the application of interest to loans, which state âAllah has permitted trading and forbidden Ribaâ (Khalidi 2009).2
In Hindu scripture, the Vedantic tradition with its emphasis on a holistic worldview and a necessary balance may be considered to provide a base for responsible business practices. One of the four Vedic scripts, the Atharvaveda, makes specific reference to the need to take into account the wider community and consider the common good in wealth creation (Muniapan and Dass 2008).
Much later on, Adam Smith dealt extensively with such issues, particularly in The Theory of Moral Sentiments (Smith 1776), where he argued that human morality requires a sense of empathy, and that people become aware of the morality of their behavior through the empathy they experience for others. While Smithâs teachings have always invited debate (in particular on what he meant by the invisible hand, a term he used on several occasions in different works and different contexts), some of his ideas can be stated with clarity.
By the time The Wealth of Nations was published, his views on the negative effect of unproductive labor were clear. He argued strongly against monopolies or cabals and warned people to be extremely skeptical of cozy relations between the business and political communities, or of attempts by the former to influence the latter for their own ends. He was also an explicit supporter of a progressive tax system.
While Smith believed in selfish self-interest and a society that allowed business to satisfy this self-interest, he also argued that such behavior would lead to virtuous communities and be molded by the moral parameters of society. As Herbert Stein (1995) argued, while Smith was interested in uncovering the workings of the free market and thought it often functioned best without government intervention, he also felt that there were moments that required this same intervention. In Steins view, this would justify environmental protection laws, social security, consumer protection, health benefits, banking regulations, and a host of other initiatives.
The phrase social responsibili...