Sustainable business goes well beyond "green" initiatives. Corporate social responsibility (CSR) is a core part of companies' commitment to "doing what's good" -- for the organization, its employees, customers and the environment (Earth and surrounding communities). But what is CSR and how do you make it work to the benefit of everyone? I'd like to initiate my presence on Forbes' new CSR Leadership portal by presenting a four-part series over the next month, synthesizing my recent ideas on this very topic. This series will provide an actionable framework for executives currently developing a new CSR strategy or re-evaluating an existing one.
To start, let's focus on why CSR has emerged so strongly in the last decade and why all companies will eventually have to respond to the trend.
At Thunderbird School of Global Management, we frame CSR in terms of global corporate citizenship. The legal basis for the term "citizenship" comes from the fact that modern corporate law gives corporations the status of "legal persons" allowing them to do things citizens do -- engage in contracts, own property, etc. All citizens of a country gain rights and privileges, and as such we have the right to access the legal system, educational system and other public goods. However, there are two sides to the citizenship coin. If one side is our rights and privileges, then the flip side is the implied responsibility to contribute positively to the community. At the very least, we are expected to follow the laws and participate in the democratic process. But citizens often go beyond these minimums by engaging in philanthropy, community volunteerism and public service. Since corporations are legal persons and therefore gain rights from that status, it makes sense that they also gain responsibilities as well.
The CSR Influence: Shell Shock
If I were to choose a date when the corporate responsibility imperative gelled, it would be 1995. That year, a series of events occurred that demonstrated the business relevance of proactive CSR management. The first was the publication of the Values Report by natural skin care retailer The Body Shop. This was the precursor of all subsequent annual CSR reporting and the first time a company felt compelled to state, not only on their financial performance, but also the non-financial impacts their operations had on the communities and the environment where they operated. The more important events, however, were the twin crises confronting the oil giant Royal Dutch Shell. The first was Shell's decision to sink the Brent Spar oil storage platform in the North Sea. The Brent Spar platform was obsolete and after evaluating options and conferring with the UK government, Shell announced they would blow a hole in it and sink it to the bottom of the ocean. When Greenpeace activists heard about it, they occupied the platform and instigated a costly public and consumer outcry against Shell. This shocked company leadership who assumed they had followed the rules. After a six month standoff, Shell backed down, demonstrating that non-traditional corporate stakeholders were gaining influence and could even veto executive decisions.
That wasn't the only major problem facing Shell in 1995. Shell was confronted with another crisis on the other side of the world in Nigeria. Shell's Statement of Principles avowed non-interference in the political affairs of the countries in which they operated: a policy that made sense to both executives and activists alike. But there was a problem. Shell's 50/50 partner in Nigeria was the brutal kelpotcratic dictatorship of General Sani Abacha whose oppressive rule was driving the country to ruin. This wasn't considered Shell's problem until a journalist-turned-activist by the name of Ken Sarowiwa brought the plight of the Nigerians to the world's attention.
Sarowiwa traveled widely throughout Europe making speeches that condemned the Nigerian Government, but also Shell, who he claimed was complicit in the regime's brutal repression. While Shell pointed to the policy of non-interference in national politics, Sarowiwa pointed to Shell's Nigerian operations which generated 90 percent of the country's GDP. Interference, or at least influence, was unavoidable. When Sarowiwa returned to Nigeria he was promptly arrested and, following a short trial, brutally hung to death.
A public outcry ensued, but anger focused not on the Nigerian dictators, but on Shell. What unfolded was an existential crisis for the company. According to Shell's chairman at the time, "In addition to our normal tasks...we are now being asked to solve political crises...export western ethics...and attend to a multitude of other problems. The fact is that we do not have the authority to carry out these tasks... and I'm not sure that we should." Despite these reasonable misgivings, Shell drastically rethought their role in society. They were, for good or bad, citizens in the countries where they operated. They benefited and were dependent on social stability, but also realized it was in their business interest to contribute to that stability and prosperity. In a dramatic reversal from the non-interference policy, one Shell manager recognized that in Nigeria, "We have to become the government because we are the only ones available."
That statement opens up a Pandora's Box for both business and society, which we will discuss later on in this series. But clearly, old rules have changed and it's not just Shell that recognizes that. Former Wal-Mart CEO Lee Scott put it this way: "We thought we could just stay in Bentonville, take care of our customers and associates, and the world would leave us alone. It doesn't work that way anymore." As citizens, society is increasingly expecting corporations to fulfill civic duties beyond the traditional responsibilities of creating jobs, paying taxes and making a profit.
That's a slippery slope, making it imperative to explore and understand just how executives can clarify where those duties and responsibilities lie. Stay tuned for more on that next week.
Cross-posted from Forbes.com