Is corporate social responsibility to blame for the oil spill in the Gulf or for the meltdown of the global financial system in late 2008? This accusation has been made by our friend Chrystia Freeland, the editor at large of Thomson Reuters, in the Washington Post.
While it is easy to understand the contrarian appeal of this claim -- how ironic that the instinct to do good resulted in doing bad; if only they had stuck to greedily pursuing profit maximisation -- it is nevertheless utterly absurd. The lack of any evidence in Chrystia's article, beyond the fact that both BP and Goldman Sachs have long been seen as leaders in the CSR movement, is telling. We are only surprised that she overlooked the fact the Toyota has also been found wanting in its core product quality, despite its public association with greenery. Three prominent failures by CSR leaders would have met any journalist's definition of an 'indisputable trend.'
Let's consider BP and Goldman Sachs in turn. The exact chain of events that led to BP creating America's (probably) worst environmental catastrophe remain to be seen. Certainly, individual errors will be found, and corners were probably cut. Yet it is also clear that the rest of the oil industry drilling in the Gulf were as equally unprepared to deal with such a spill as BP, even those -- as Chrystia presumably prefers -- most committed to maximising profits regardless of the cost to the environment. All of them seemed to believe that walruses would have to be rescued in the event of disaster in the Gulf, because they had simply copied disaster response plans designed for colder parts. As The Economist reported, according to Amy Myers Jaffe, an oil expert at Rice University, the industry's strategy on blowouts was not to have them, rather than to work out how to put one right quickly. Surely no one believes that a strategy based on zero failures is prudent.
It is true that, according to BP board member Walter Massey, its espousal of CSR did buy the firm time and greater leniancy than it might otherwise have received after the fatal accident at its Texas refinery. "The company's reservoir of goodwill, built up over years of committed corporate stewardship, was of critical aid in helping us to weather the storm," he said in March. But there is no suggestion that this led the firm to think it could get away with anything.
Moreover, after the initial thrill of an oil major declaring the need to go "beyond petroleum" to stop climate change, the CSR movement's enthusiasm for BP had waned long before the recent disaster. In particular, BP had been criticised for silo-ing its renewable energy activities away from the firm's mainstream activities, and for increasingly putting financial performance ahead of everything else. Ironically, one of the justifications for replacing Lord Browne with Tony Hayward was his lordship's lack of technical experience.
Financial short-termism seems the likeliest explanation for the problems of Goldman Sachs -- though there is again no evidence to suggest that the Goldman's commitment to social responsibility played any part in the financial crisis nor the unpopularity of the Wall Street bank after it. Goldman actually exposed society to less systemic financial risk than its rivals, including Lehman Brothers, Bear Stearns and Merrill Lynch. Ripping off customers -- for which it has just agreed to pay a large settlement to the SEC, without admitting any fault -- is easier to attribute to sacrificing long-term reputation for short-term profits than it is for being blindsided by the urge to be socially responsible.
Unlike BP's recognition that it needs eventually to move beyond petroleum if it is to survive, the 10,000 Women campaign launched by Goldman Sachs, though brilliantly designed and executed, can hardly be viewed as core to the bank's business strategy. In that respect, it is
somewhat at odds with the trend in the CSR movement to focus on the sort of doing good that helps the firm do well. (And, let's be clear, there are plenty of things to criticise the CSR movement for -- just not the things that Chrystia claims.) Goldman Sachs is notable in doing its corporate philanthropy, and encouraging the personal philanthropy of its staff, in ways that entirely ring-fence them from the every day business of making money.
Indeed, the main reason Goldman Sachs is so unpopular today is surely that it made so much money after the financial crisis, and paid its staff such large bonuses. In this respect, it failed to recognise that the world had changed -- that the public had bailed out the banking industry, Goldman Sachs included, and in return expected some evidence of gratitude and remorse for the events that had made the bail out necessary. From Goldman Sachs, it got neither.
It is our belief that a firm that had been more attuned to society and more committed to engaging with it constructively -- the main goals of the CSR or corporate citizenship movement -- would have been far less likely to make the basic mistakes that Goldman Sachs did, the costs of which are only starting to become clear. As we have said many times, the firm would have done far better, even in PR terms, if it had paid far smaller bonuses and given away far more of the money. (A more core strategy, for the longer term, would be to use its undoubted financial skills to do good, for example by helping to develop the nascent social
investment market.
Rather than justifiying Chrystia's dismissal of CSR, the failings of Goldman Sachs and BP underscore the need for firms to take their engagement with society more seriously, and to put being on the right side of social progress at the core of their long-term profit-making
strategy. A firm that did this would not cut corners with safety or show so little gratitude to taxpayers for helping it survive.
Rather than criticise firms for being part of what Chrystia calls the "cult of CSR", we should be figuring out how to destroy the cult of financial short-termism in the business world. (Our new book, The Road From Ruin, has some suggestions for doing that!) Admittedly, the conclusion that firms need to get better at CSR, and pinning the blame for BP's oil spill and Goldman Sachs's errors instead on short-termism, lacks the contrarian appeal of attacking CSR. But it does at least have the ring of truth.
The human cost of the oil spill and BPs corruption is huge, not only with this oil spill disaster, but with many other losses of life on other BP rigs.
Everyone please take a look at the following tribute by Steve Joynt to the 11 men who died on the Deepwater Horizon, “Oil spill Day 100: The 11 men who died on the Deepwater Horizon”
http://blog.al.com/live/2010/07/oil_spill_day_100_the_11_men_w.html
We can never lose sight of the human cost of BP’s and others’ malfeasance.
http://www.p-ced.com/1/about/background/
Ironically he'd been on the case of both BP and the Washington Post 5 years ago
http://eng.maidanua.org/node/295
In his pitch for business with both financial and social return he reasoned:
"If a corporation wants to donate a portion of profits to its local community, it can do so, be it one percent, five percent, or even fifty percent. There is no one to protest or dictate otherwise, except a board of directors and stockholders. This is not a small consideration, since most boards and stockholders would object. But, if an arrangement has been made with said stockholders and directors such that this direction of profits is entirely the point, then no one will object. The corporate charter can require that these monies be directed into community development funds, such as a permanent, irrevocable trust fund. The trust fund, in turn, would be under the oversight of a board of directors made up of employees and community leaders."
It became a legal entity, when in 2005 the UK introduced the Community Interest Company
An illustration. While we were active in Ukraine raising awareness about children's treatment in institutions, we'd been acting in accordance with the constitution by speaking. It is incumbent for all residemts to do so, yet all businesses we approached for support shied away.
Then someone spoke up from inside the care network and it kicked off a firestorm of publicity:
http://www.deti.zp.ua/eng/show_article.php?a_id=5219
As this was happening, in the same week, so was this call to action from Davos where the wealthy mused on these concepts over lunch.
http://pinchukfund.org/en/news/archive/2009/01/29/986.html
I wrote to Virgin Unite offering to lead the way in Ukraine - heard nothing since.
To be effective, CSR has to be part of the company’s mission, a kind of corporate Hypocratic oath, “Do no harm.” Then and only then will long-term effects be taken into consideration. And, as you so rightly point out, long-term thinking will generate long-term, sustainable profits in a socially responsible manner. Consumers can push companies, such as Walmart, into the long-term zone. For more information read http://ventureneer.com/vblog/speaking-can-bring-change. If we push enough, they’ll get the message.
Truer words have never seen spoken. Corporations nowadays focus only and exclusively on the next quarterly report. As a result, instead of building a foundation for long term success, corporate executives do whatever they can to make the quarter, no matter how short-sighted, illogical and/or unethical their actions end up being.
As there is positively no long range planning, it becomes progressively more difficult for corporations to make each successive quarter using any sort of morally acceptable business approach. So they don't.
Next thing you see are people getting let go, not because they are the least competent, but because they make too much money, and laying your highest paid people at a given level makes it easier to make the next fiscal quarter.
This reminds me of the brief but very funny "Rocky & Bullwinkle cartoon:
There's a knock at the door of R & B. Rocky goes to the door, opens and answers it and there's a military general standing there.
Rocky asks "Who are you?"
General says "Army Intelligence!"
Rocky says "Army Intelligence? Sounds like a contradition of terms!"
That's where "corporate social responsibility has gone.
Mo Rage
the blog
http://bit.ly/bQFHV8
I asked management who the bags go to. "Local needy schoolchildren from our neighborhhood."
Just the answer I expected.
Oh - and Publix gets the credit for the giving. The only giving done in this case is by the customers while Publix gets it's full profit percentage. now that's the kind of CSR I have come to expect.
Corporations are institutionally oriented to attract sociopaths, and as Goldman Sachs, BP, and Massey Energy seem to show, succeed at it brilliantly. Only strong regulation and a corporate death penalty can keep these forces under control.
Accountability for decisions made on the behalf of others is what is expected of us on a daily basis, why not the fat cats? I do not love this system because it does not think of humanity only cash pools. The U.S. capitalism is infectiously sick with greed and we can't change the view of those holding the virus.