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.