Corporate Social Responsibility is it a Myth?

We live in the world of transnational corporations, who are invested in multiple markets all around the globe.  The age of Globalisation has seen global citizens demand corporations don’t live above the law, and are held accountable for their actions. In the past few decades, we have seen the re-emergence of the Super-Corporate Entity. These corporations are huge, have tentacles that stretch around the world, have employees from multiple cultures and nations, are intimately engaged in political discussions in numerous jurisdictions….. and in general have made a lot of money.  But what has this to do with Corporate Social Responsibility (CSR)? Well as global citizens we have ‘demanded’ that corporations behave in an ethical and accountable manner as we the citizens of the world would be expected to behave. Life is more than just pure profit, and we expect our corporations to reflect this world in which we live.

The problem with Corporate Social Responsibility is primarily in the name itself. Corporations are not social enterprises, the do not have core functions to have parties, go to the pub with a mate, or ensure that societies are cohesive. Corporations, particularly in the western world, have a core function of making a profit. The bigger the profit the better. This is essentially the need for Greed. The more the merrier, and as long as the profit is attained within legal boundaries then all is good.  In a society, if a ‘real’ person was acting this way, totally greedy, and self absorbed, only interested in the accumulation of wealth and power, then as a society we would probably not like them very much.  Of course there are some people out there who are like this, but be honest…you think they are a not nice people, and if you don’t need to see them you wouldn’t. So if Corporations can’t be social, how can they be trusted to be responsible?

Now don’t get me wrong, I do believe in CSR programs and statements by large Transnational corporations, I do believe they have value, but I don’t believe they go far enough to truly satisfy the expectations of global citizens.  As I mentioned before corporations are profit seeking enterprises, and so their core function is to achieve profitability. In the last few decades, some large corporations have had brand damage due to poor ethical practices, such as Nike with the use of Child Labour,  ExxonMobil with the Alaskan Oil Spill, and many other examples of brand damage due to a CSR failure. This brand damage has often resulted in substantial losses, and that affects profitability. What happens when profitability goes down? The share price goes down. This is the problem.

Transnational Corporations are highly dependent upon share valuations.  So anything that erodes profitability will be damaging to the share price. Spending more money on CSR, is an expense, which may affect profit negatively, and therefore the share price.  The recent BP Gulf of Mexico Oil disaster is a prime example. It appears as if BP have not acted in an illegal manner, they have operated exactly as required under government regulations, and minimum operating standards.  However, questions have been raised as to whether BP operated to best practice standards, in the development and management of the Oil Rig and Well.  The BP CEO recently suggested that the risk to this Oil platform of collapse was one in one Million. If they had constructed the well in a more rigorous manner, a more “responsible” manner, then the risk may have been one in one billion. The cynic would suggest that BP has now decided to merge the CSR budget with the Marketing budget, in order to get the best message out there about how they will help clean up the mess. It is now about managing the Brand, not necessarily about managing the environmental disaster.  BP is also taking a hit to the share price, so there is some corporate karma out there….but this is too little too late. How many other examples is there that we don’t know about where minimum standards have been employed to ensure profitability, and nothing has gone wrong? Does this make the cost cutting search for profitability ethical? and what value do we place on this corporate behaviour?

If we want Corporate Social Responsibility to be important to Transnational Corporations then we need to develop a financial system that rewards corporations for spending on environmental management, corporate responsibility, and ethical practices. Until we do this, we will continue to see large corporations make decisions that are determined by the ultimate profitability and the share price that follows.

Advertisements

About Nathan H. Gray
Nathan H. Gray is Managing Partner of AsiaAustralis. AsiaAustralis is a stategic consulting service partnership established by experienced international management consultants to assist private and public organisations achieve their strategic objectives in trade, investment and government relations throughout the Australasian region with a particular focus on SE Asia. Based in Adelaide, South Australia, AsiaAustralis has a network of associates throughout Australia and Asia that can be called upon to assist and facilitate major projects, business opportunities and government to government trade and investment facilitation. To Contact AsiaAustralis check out the website: www.asiaaustralis.com or send Nathan an email: nathan@asiaaustralis.com

4 Responses to Corporate Social Responsibility is it a Myth?

  1. K says:

    As a government or managing body, to say that corporations are only motivated by profit – particularly short-term profit – at the expense of ethics would be a very Theory X approach. And to a degree true.

    But I think with growing competition between the larger companies there is pressure to go beyond what you can get away with and striving higher to be the best. Otherwise, someone else will outstrip you.

    We’re generally seeing that SRI funds are performing better – companies with good CSR programs think in the long term and thus are more likely to have long term growth – is this the kind of reward you think would help to encourage more CSR programs?

    I agree that a change in system would help to encourage better corporate citizenry, but I’d be very interested to hear how you think that could be done!

    • I would not like to make a distinction between short term and long term profit in this argument. The key component is the achivement of profit. And if we agree that Corporation seek the largest profit possible then that is an indicator of what is the motivator behind spending decisions. An important question to ask is how do corporations allocate CSR funding? is it independent of other funding? is it larger or smaller than the marketing budget? HR budget? or is it sourced from both of these budgets? This is generally not clear.

      Currently CSR programs are about Risk minimisation and marketing….risk minimisation to the brand, not to the society. This is part of the problem.

      Although their are ethical shareholder groups, their influnece on these large Transnations and their associated share price is minimal, so at this stage I dont think it affects the strategic direction of Transnational corporations, in regard to CSR.

      Do I think this can be changed? well I am not sure what mechanisims could be used to encourage better Corporate citizenry, but the last two decades saw a move to decreased corporate regulation (globally), and it could be argued that this was one of the drivers of the current economic whoa’s. Perhaps by lifting the regulatory bar with regards to CSR then corporations will move to meet the requirements of Global Citizens.

      The key thing to consider is that if we think that large Transnational Corporations are indeed engaging in CSR then we cant complain too much when it all goes bad. BP did and does have a CSR program, it has made a number of statement about this in the past, and present. It has met all regulatory hurdles and not acted outside of the law. If that is the case, then is it ethical and appropriate for us as global citizens to criticse them for not having high enough standards? Reflective criticsm when it all goes bad, does not neccsessay encourage those corporations who have yet to go bad, to lift their game. And for this reason, I dont think that competition plays much of a role currently.

  2. Hi, do you have shares? I have shares in a mining company that only seem to be going backwards? How is that you scream? Me also! Please diresct me to this turn around. My shares are domed. Maureen.

    • This is my poitn exactly. The market is primarily concerned with profitability and so the most ethical and socially responsible mining compenies do not perform as well on the stock exchange as some of the less responsible miners and resource companies. I think you will find that in time the mining companies will increase their share value as the global economy recovers broadly, until that time the best performing stocks will be highly leveraged in the Chinese and broader Asian markets…..this is where th most money is held currently and therfore the highest profit potential.

Leave a comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: