by Tim Mohin
Director of Corporate Responsibility, AMD
With apologies for the double negative, the rest of this piece will be a more straightforward argument for why Corporate Social Responsibility (CSR) is not only a good idea but – like breathing – somewhat necessary.
Last week Dr. Aneel Karnani published an Op Ed in The Wall Street Journal titled “The Case Against Corporate Social Responsibility.” It is somewhat ironic that the author represents the Ross School of Management at the University of Michigan which is hosting this year’s Net Impact conference – an annual gathering of more than 2500 business students, educators and business leaders focused on CSR. Dr. Karnani’s article seems almost deliberately provocative, generating more than 250 comments and this response from Liz Maw, Net Impact’s Executive Director.
While it is hard to add anything new to the maelstrom of criticism Dr. Karnani received for his opinion, I will share three short observations on why I believe CSR has taken root from business schools to board rooms and is growing faster than even China’s GDP.
More and more companies are winning with CSR.
Dr. Karnani asserts that CSR only makes sense when the business’ interest and the public’s interest line up. So why are so many companies jumping on the CSR bandwagon? Sure it could be external pressure from watchdog groups or the herd mentality of businesses trying to keep up with the competition. But these are weak reasons for the magnitude of this trend. More than 85 percent of the Fortune 50 companies are now publishing corporate citizenship and/or sustainability reports in some format. A more likely answer is that smart managers see potential for profit. They look at megatrends in the world and ask themselves – “how can we apply our core competencies to win in the future?” This is business 101 – find the need and fill it… It so happens that the many of today’s trends point to CSR issues – resource scarcity, poverty, pollution, etc.
While a litany of doom for some, these issues can also look like opportunities for a wise business manager. (See my blog on “less is more obvious”). General Electric CEO Jeff Immelt – a speaker at last year’s Net Impact conference – would likely say that this alignment doesn’t just happen; wise managers develop strategies and position their companies for success in a resource constrained world. General Electric’s eco imagination line topped more than $18B in revenues in 2009 and is a growing profit center.
Smart Companies Take the Long View
Dr. Karnani warns that CSR may be dangerous because, by doing the right thing voluntarily, companies may obscure the need for government regulation. One is left to conclude that a better path is for companies to ignore CSR in the quest for short-term profit, and in so doing help increase the size and power of government. Gosh, wouldn’t this be a great outcome!
With no evidence or examples, this notion rests on the shaky ground of conjecture. What is not conjecture is the flood of companies exploiting lower cost locations – which often translates to weaker environment and labor laws and/or enforcement. Rather than obstruct the role of government, responsible companies have actually been propping up the role of government around the world. For example, electronics companies sourcing from China have tangibly improved labor, safety and environmental conditions in supplier factories. Why would they do this when the government does not? The answer lies in taking a longer view.
Sure it may be more work and some initial investment to responsibly manage a business, but when left unchecked, poor conditions can go awry costing many thousands of times more. Perhaps if BP had placed more of its focus on safety and contingency measures, it might have saved itself billions in hard costs, irreparable damage to its corporate brand and prevented the epic harm caused to the Gulf region.
While failures like BP are obvious, successes tend to go unnoticed. A great example of long-term thinking is management of hazardous waste. Many developing countries have yet to implement laws to deal with the scourge of toxic waste. Following the logic of the Op Ed, companies operating in these locations should save money and just dump their toxic materials out the back door or into the local river. Well, it turns out that many of these companies are US owned and have tried this before. Then came Superfund. The Superfund law said that it did not matter whether dumping was legal at them time; if you did it, you had to pay for the cleanup. And, oh by the way, you might also have to pay to clean up everyone else’s waste in the same dump if they could not afford the bill. Smarter companies learned a hard lesson this way – better to manage toxics responsibly now than get stuck with a bill later – and these companies manage this way whether they are in Chicago or China.
Companies know CSR Impacts Brand Value and investment
Last but not least – CSR is a vital component of brand value. Often listed as the largest intangible asset on the balance sheet, brand reputation can make or break a business. The Reputation Institute and others estimate that about 40% of brand reputation is manifest through CSR. Hmmm, 40% of one of the larger items on the balance sheet…CSR is starting to sound a bit more important to even the most self interested shareholder. And, if that is not enough business value, the latest estimates of socially screened investment assets are closing in on $3 trillion in the US, making it tougher still to ignore the business implications of CSR.
Rather than struggling with definitions and rationales for CSR, it seems that most companies intrinsically understand their duty to account for their impact and, if possible, lend a hand to make things better. This change did not happen because CEOs woke up one day with a desire to save the planet. I believe the trend toward sustainability stems from a common realization of scarcity and the instinctive imperative to husband our resources.
Perhaps it is the “Tragedy of the Commons” on a global scale. Increasingly, the public consciousness is demanding accountability and action not only to protect, but to enhance our common good and our shared resources. It is encouraging that the thousands of young MBA students who sign up for Net Impact know this.
The trade-offs inherent in this debate are difficult. Balancing the needs of people, impact on the planet and making a profit is not easy. Perhaps I am an optimist, but I believe that as companies are increasingly held accountable for their impacts and their behavior — both negative and positive — there will be a steady stream of innovation leading us toward sustainability. If the past is prologue, the private sector will be the engine of change by actively selecting and deselecting winners and losers in the new paradigm.
While it may not have been his intent, Dr. Karnani’s provocative opinion may have done more to promote CSR than to slow it. Having stirred up legions of impassioned objectors, he has added momentum to the movement. Hopefully, Dr. Karnani will have a chance to share his views with the Net Impact audience at his campus this October…I volunteer to moderate the panel!
Tim Mohin is Director of Corporate Responsibility at AMD and a board member of Net Impact. His postings are his own opinions and may not represent AMD’s positions, strategies or opinions. Links to third party sites are provided for convenience and unless explicitly stated, AMD is not responsible for the contents of such links sites and no endorsement is implied.