Educating Tomorrow's Executive
Educating tomorrow’s executive: The business case for the integration of corporate social responsibility. By Alyson Warhurst.
The business case for the integration of corporate social responsibility. By Alyson Warhurst.
Few journalists, politicians, corporate CEOs or international agency professionals would bare-facedly reject Corporate Social Responsibility (CSR). But every year, MBA courses in business schools all over the world are full. Full of ambitious would-be executives who argue that the “business of business is business.” Reiterating Friedman’s 1970s utterances about the social responsibility of business being to make profit, from which all benefits will "trickle down" to those who patiently wait, MBA students are most reluctant to make the business case for CSR.
Foremost they want be taught how to make money fast. Indeed, one of the greatest discrepancies in the evaluations MBA students customarily make of their professors pertains to their appreciation or not of whether the case for CSR has been made convincingly or boringly. At Warwick Business School learning about CSR is a compulsory part of every MBA. In some business schools it is a losing battle to make one session an optional elective. Nonetheless for students or senior executives alike, to reject CSR is to be oblivious to one of the most fundamental challenges to have impacted international business over the previous 10 years.
Over the last decade, foreign direct investment by international companies in developing countries has increased tenfold and public funding of development assistance has declined. CSR is now not only a bottom-line issue but also a moral imperative, with respect to the relationship between business and its internal/external stakeholders. CSR is to be sidelined at your peril.
Ethical deliberations are demanding more time in the boardroom. Business leaders are realizing that they need to address company culture so as to merit an image of integrity and responsibility. They are also aware that the "external costs" of their operations (i.e. the costs of those environmental and social impacts beyond operating costs that previously the state or local host communities have absorbed) can no longer be taken for granted, and over time, need to be internalized.
Globalization also means that international business is increasingly operating in areas of conflict. Business can no longer pose as neutral. There exists a growing imperative for business operating in areas where human rights are infringed to use legitimate influence to promote human rights even outside of their areas of operation. At the very least they are being called upon to examine whether their presence and their indirect impacts contribute to, or undermine, the development rights and opportunities of their host communities.
I offer the following reflections for those that still believe that there is no business case for CSR and that companies have no role to play in contributing to society other than through profit making:
Some believe that people will a priori benefit if business is allowed unbridled to make profit. This is called the ‘trickle down’ effect. The concept refers to economic measurements of benefits not equity or well-being considerations. Furthermore, history has demonstrated that people living in poverty, especially indigenous communities in the vicinity of remote agricultural, mining and oil operations, have been among the last to benefit. They have lost faith in the distribution powers of the governments that hosted these investments. They now frequently resort to negotiating directly with business to secure more immediate benefits in education, housing and health – basic development rights, and in return they grant what is tantamount to a local social license to operate. This is understandable, and most companies respond rationally by seeking dialogue not conflict. Some countries require this in law, few are aware that such prior consultation is enshrined in an ILO (International Labor Office) Convention or in the national constitution of countries with strong indigenous communities, such as Colombia.
Companies also recognize that they must take responsibility for the wider impacts of their operations beyond their workforce and the perimeter fence. With the recent liberalization of investment regimes worldwide, governments may have made downward adjustments in social welfare spending in order to accommodate tax breaks to attract these foreign investments, sometimes with strong encouragement from international financial institutions. Business is starting to recognize that it has a responsibility to address locally, the social impacts generated as a result of their investment opportunities. Companies are acknowledging that they cannot pay their taxes then sleep easy in the knowledge that benefits will trickle down, other than through employment, to their local host communities through the lifetime of their investment.
Some suggest that the greater the competitive pressure on business the less able they will be to serve wider social goals, but this misses the fact that, in many countries, governments and banks now select companies, award licenses and approve finance on environmental and social track records and not just on economic grounds. This is the "triple bottom line." Many companies are pushing CSR up the supply chain by demanding that their suppliers demonstrate ethical and environmentally sound practice. Research shows that the conditions attached to investment financing and procurement, which are sensitive to longer-term political, environmental and health risks and liabilities, are drivers as potent as government regulation in promoting more environmentally and socially responsible business practice which in turn now enhances a company’s competitiveness and contributes to acquiring preferred supplier status.
Some observers have expressed concern that there exists pressure from "socially responsible" businesses to impose costs they have accepted voluntarily on their suppliers and that this is tantamount to unfair business practice. The response here is that, yes companies can and do set higher and higher standards, and these improved social and environmental practices, in turn, are quite appropriately diffused through the market. As a result, a number of corporate initiatives in the areas of human rights, biodiversity conservation and social development have addressed development needs that were not being met by governments.
This view, in a sense, is a corporate parallel to the argument that we should not give money to charities as individuals as this takes away the pressure on governments to address social development. While we might agree with the theory, who are we to say that those living in poverty and those whose human rights are being infringed today should wait for governments to change tomorrow, or in the case of developing countries that have invited foreign investment in, for the benefits to trickle down. In an ideal world there would be no need for corporate social investment or for charities, but surely there is room for both while we are striving for a "trickle-down utopia." In the meantime, appropriate consultation and active listening to stakeholder needs and concerns should ensure that the strategies of companies wishing to pursue responsible practice are tailored to local needs.
I have heard it asserted that companies, through being obliged to operate to higher standards, are harming the development prospects of poor countries on account of eroded competitiveness. This seems misconceived on two counts. First, economic wealth is no longer a single priority; rather broader concerns about health, well being and quality of life are as important and, in some specific situations of weak government, business can deliver these more efficiently and directly to local communities through corporate social investment. Secondly, communities and politicians in developing countries have strived hard to achieve high environmental and labor standards and not to be considered pollution havens.
Moreover, research suggests that undertaking environmental investment can promote economic, technical and energy efficiencies and savings and reduce costs in the long term through avoiding costly retro-fitting and reducing future liabilities. Increasingly, some companies consider they have a responsibility to use their legitimate influence to promote human rights and labor codes of conduct as well as improved environmental standards, as good corporate citizens.
Just because we don’t all agree about what is development, is that justification for doing nothing? I should think not! It misses the growing importance to business of partnership and dialogue with stakeholders and interested partners that can assist companies to understand what would actually constitute improved social performance and contributions to development as defined by specific affected groups.
Finally, it is ironic that MBA students are good at scoring points today about the legitimacy of NGOs, while their professors probably protested in the 1960s and '70s about apartheid, the coup in Chile, policy toward the Sandanista government in Nicaragua and the "cuts" at home in education. Students today (MBAs or political scientists) are more likely to make a "hit" on the stock market rather than hit the streets protesting. They miss the important point about why pressure groups exist. NGOs in most cases endeavor to speak on behalf of people (or issues) who, for reasons such as human rights infringement, have no "voice" – i.e. displaced communities, refugees, disadvantaged groups such as woman and children, endangered species etc. It is through dialogue with NGOs that many of these issues are put on the business agenda.
I am definitely not arguing that MBA students are unworldly or immune from social responsibility concerns. In fact, the most rewarding part of teaching is beginning with a class of skeptics and ending with an enthusiastic group of students who are queuing up for further reading and case studies to make the CSR business case.
--------------------------
By Professor Alyson Warhurst, Chair of Strategy and International Development at Warwick Business School and Director of the Corporate Citizenship Unit (CCU), University of Warwick. For more information on Warwick CCU, write Warhurst at [email protected]. This piece reprinted from Ethical Corporation magazine, a GreenBiz News Affiliate.
Few journalists, politicians, corporate CEOs or international agency professionals would bare-facedly reject Corporate Social Responsibility (CSR). But every year, MBA courses in business schools all over the world are full. Full of ambitious would-be executives who argue that the “business of business is business.” Reiterating Friedman’s 1970s utterances about the social responsibility of business being to make profit, from which all benefits will "trickle down" to those who patiently wait, MBA students are most reluctant to make the business case for CSR.
Foremost they want be taught how to make money fast. Indeed, one of the greatest discrepancies in the evaluations MBA students customarily make of their professors pertains to their appreciation or not of whether the case for CSR has been made convincingly or boringly. At Warwick Business School learning about CSR is a compulsory part of every MBA. In some business schools it is a losing battle to make one session an optional elective. Nonetheless for students or senior executives alike, to reject CSR is to be oblivious to one of the most fundamental challenges to have impacted international business over the previous 10 years.
Over the last decade, foreign direct investment by international companies in developing countries has increased tenfold and public funding of development assistance has declined. CSR is now not only a bottom-line issue but also a moral imperative, with respect to the relationship between business and its internal/external stakeholders. CSR is to be sidelined at your peril.
Ethical deliberations are demanding more time in the boardroom. Business leaders are realizing that they need to address company culture so as to merit an image of integrity and responsibility. They are also aware that the "external costs" of their operations (i.e. the costs of those environmental and social impacts beyond operating costs that previously the state or local host communities have absorbed) can no longer be taken for granted, and over time, need to be internalized.
Globalization also means that international business is increasingly operating in areas of conflict. Business can no longer pose as neutral. There exists a growing imperative for business operating in areas where human rights are infringed to use legitimate influence to promote human rights even outside of their areas of operation. At the very least they are being called upon to examine whether their presence and their indirect impacts contribute to, or undermine, the development rights and opportunities of their host communities.
I offer the following reflections for those that still believe that there is no business case for CSR and that companies have no role to play in contributing to society other than through profit making:
Some believe that people will a priori benefit if business is allowed unbridled to make profit. This is called the ‘trickle down’ effect. The concept refers to economic measurements of benefits not equity or well-being considerations. Furthermore, history has demonstrated that people living in poverty, especially indigenous communities in the vicinity of remote agricultural, mining and oil operations, have been among the last to benefit. They have lost faith in the distribution powers of the governments that hosted these investments. They now frequently resort to negotiating directly with business to secure more immediate benefits in education, housing and health – basic development rights, and in return they grant what is tantamount to a local social license to operate. This is understandable, and most companies respond rationally by seeking dialogue not conflict. Some countries require this in law, few are aware that such prior consultation is enshrined in an ILO (International Labor Office) Convention or in the national constitution of countries with strong indigenous communities, such as Colombia.
Companies also recognize that they must take responsibility for the wider impacts of their operations beyond their workforce and the perimeter fence. With the recent liberalization of investment regimes worldwide, governments may have made downward adjustments in social welfare spending in order to accommodate tax breaks to attract these foreign investments, sometimes with strong encouragement from international financial institutions. Business is starting to recognize that it has a responsibility to address locally, the social impacts generated as a result of their investment opportunities. Companies are acknowledging that they cannot pay their taxes then sleep easy in the knowledge that benefits will trickle down, other than through employment, to their local host communities through the lifetime of their investment.
Some suggest that the greater the competitive pressure on business the less able they will be to serve wider social goals, but this misses the fact that, in many countries, governments and banks now select companies, award licenses and approve finance on environmental and social track records and not just on economic grounds. This is the "triple bottom line." Many companies are pushing CSR up the supply chain by demanding that their suppliers demonstrate ethical and environmentally sound practice. Research shows that the conditions attached to investment financing and procurement, which are sensitive to longer-term political, environmental and health risks and liabilities, are drivers as potent as government regulation in promoting more environmentally and socially responsible business practice which in turn now enhances a company’s competitiveness and contributes to acquiring preferred supplier status.
Some observers have expressed concern that there exists pressure from "socially responsible" businesses to impose costs they have accepted voluntarily on their suppliers and that this is tantamount to unfair business practice. The response here is that, yes companies can and do set higher and higher standards, and these improved social and environmental practices, in turn, are quite appropriately diffused through the market. As a result, a number of corporate initiatives in the areas of human rights, biodiversity conservation and social development have addressed development needs that were not being met by governments.
This view, in a sense, is a corporate parallel to the argument that we should not give money to charities as individuals as this takes away the pressure on governments to address social development. While we might agree with the theory, who are we to say that those living in poverty and those whose human rights are being infringed today should wait for governments to change tomorrow, or in the case of developing countries that have invited foreign investment in, for the benefits to trickle down. In an ideal world there would be no need for corporate social investment or for charities, but surely there is room for both while we are striving for a "trickle-down utopia." In the meantime, appropriate consultation and active listening to stakeholder needs and concerns should ensure that the strategies of companies wishing to pursue responsible practice are tailored to local needs.
I have heard it asserted that companies, through being obliged to operate to higher standards, are harming the development prospects of poor countries on account of eroded competitiveness. This seems misconceived on two counts. First, economic wealth is no longer a single priority; rather broader concerns about health, well being and quality of life are as important and, in some specific situations of weak government, business can deliver these more efficiently and directly to local communities through corporate social investment. Secondly, communities and politicians in developing countries have strived hard to achieve high environmental and labor standards and not to be considered pollution havens.
Moreover, research suggests that undertaking environmental investment can promote economic, technical and energy efficiencies and savings and reduce costs in the long term through avoiding costly retro-fitting and reducing future liabilities. Increasingly, some companies consider they have a responsibility to use their legitimate influence to promote human rights and labor codes of conduct as well as improved environmental standards, as good corporate citizens.
Just because we don’t all agree about what is development, is that justification for doing nothing? I should think not! It misses the growing importance to business of partnership and dialogue with stakeholders and interested partners that can assist companies to understand what would actually constitute improved social performance and contributions to development as defined by specific affected groups.
Finally, it is ironic that MBA students are good at scoring points today about the legitimacy of NGOs, while their professors probably protested in the 1960s and '70s about apartheid, the coup in Chile, policy toward the Sandanista government in Nicaragua and the "cuts" at home in education. Students today (MBAs or political scientists) are more likely to make a "hit" on the stock market rather than hit the streets protesting. They miss the important point about why pressure groups exist. NGOs in most cases endeavor to speak on behalf of people (or issues) who, for reasons such as human rights infringement, have no "voice" – i.e. displaced communities, refugees, disadvantaged groups such as woman and children, endangered species etc. It is through dialogue with NGOs that many of these issues are put on the business agenda.
I am definitely not arguing that MBA students are unworldly or immune from social responsibility concerns. In fact, the most rewarding part of teaching is beginning with a class of skeptics and ending with an enthusiastic group of students who are queuing up for further reading and case studies to make the CSR business case.
--------------------------
By Professor Alyson Warhurst, Chair of Strategy and International Development at Warwick Business School and Director of the Corporate Citizenship Unit (CCU), University of Warwick. For more information on Warwick CCU, write Warhurst at [email protected]. This piece reprinted from Ethical Corporation magazine, a GreenBiz News Affiliate.