The New CSR: Smart, Savvy and Sophisticated

Click here to see article in The Conference Board of Canada’s Winter 2006 publication

Remember the “tree huggers” of the 1960s and 1970s? They climbed to the top of towering trees on North America’s west coast, refusing to come down unless companies stopped irresponsible environ- mental practices. They were known as “CSR crazies,” who belonged up in trees and not in boardrooms—a corporate percep- tion that lingered long after everyone had come back down to earth.

If the business world wasn’t initially attentive to the “tree huggers,” neither was the mainstream Canadian public policy world. Concerns for a “green environment” were not particularly welcomed in major political parties (with the exception of the New Democratic Party), nor were environ- mentalconcerns near the top of bureau- cratic agendas. Legislation that fined or otherwise penalized heavy polluters was nearly non-existent. Clean water was taken for granted—the small Ontario town of Walkerton had not yet spewed out deadly water caused by lax monitoring and benign oversight. Only meteorologists and scien- tists discussed the ozone layer. Both the corporate and the political worlds decided that the whole environmental issue was somewhat faddish and assumed that it would go away. But it didn’t.

Sadly, the highly visible yellow streak of polluted cloud hanging over our cities in recent months is a more effective and shocking argument for corporate social responsibility than any “tree hugger” could have imagined.

When I worked at George Weston Ltd., my office was on the 20th floor of a Toronto business tower, at a height that was just above the cloud line. The white cloud days always made me hopeful that we had not completely ruined our environ- ment. The “dirty” cloud days increased in frequency over the four years I worked there, reminding me not to be naive.

When I was a kid growing up in Oakville, on the shores of Lake Ontario, my father would frequently insist on family outings that consisted of swim- ming in cold and algae-laden waters. Miserable as we often were, rarely did anyone become sick from immersing him- or herself in the lake. Today, no one would dare to swim off the beaches of the Toronto–Hamilton corridor, for fear of contracting a pollution-related illness. A day at the beach these days can often become a passive experience—sitting, rather than swimming, while waiting for authorities to declare the water safe to invade. Furthermore, paying for clean water can be expensive—a fact many of us ruefully acknowledge, as we plonk down money to buy bottled water. But the “tip- ping point” may not yet have been reached.

“Ninety per cent of the diseases of the world are still water-related . . . four out of every five deaths in developing countries are the result of water-related diseases . . . approximately six million people die every year because of contaminated water . . . sanitation remains a global issue,”accord- ingto an article in The Toronto Star. And we know that water is not the only element at risk. As “smog days” become the new norm, even ordinary habits may now be considered hazardous pastimes. The facts speak for themselves.

No longer do we need the unorthodox behaviour of the 1970s to remind us that our “green” world is changing and some- times disappearing in front of our eyes. Today, politicians, business leaders and non-governmental organizations (NGOs) all know that they need to work in public– private partnerships and alliances to tackle issues such as toxic waste, contaminated land and climate change—issues that threaten our daily way of life.

Nevertheless, dealing with the current reality of the necessity for sustainable development is not easy. In fact, some argue that capitalism, which traditionally does not place monetary value on the air we breathe and the water we drink, is ill-equipped to manage environmental concerns. If this is the case, then we may be in serious trouble.

However, others recognize that by changing our perceptions and attitudes (rather than the economic framework), society may be able to inch its way toward some solutions. The fact is that every individual and every institution has an incentive to protect and sustain the environment. Pollution-related illnesses drive down the fiscal and social bottom lines both in companies (i.e., the health of employees) and in society (i.e., the efficiency of our health-care system). In other words, while capitalism will always be the economic bedrock of our society, there is a need for new rules to govern us.

Just as the yellow, polluted sky has woken us from our environmental slumber, corporate and public wrongdoing have alerted us to the need for improved atti- tudes to governance. Scandals have taken their toll on the trust the ordinary citizen has in both the public and private sectors’ ability to have society’s best interests at heart. Trust needs to find its way back into our psyche. Confidence in our institutions needs to be restored.

This forceful combination of the demand for good governance and the need for sustainable development is reaching right into the heart of capitalism itself, pressuring business to acknowledge that other criteria than just the financial ones are needed if they are to deliver on the “bottom line.”

Suddenly, idealism is back in vogue and, along with it, the search for a modern compass—whether moral or corporate— is in progress. The resurgence of interest in the subject of ethics is everywhere— including business and law schools, which have developed a renewed interest in rules of conduct and moral principles.

Surely, at this point in our history, ethical behaviour can blend with capitalism to produce a 21st-century business model that attracts responsible behaviour to the entire chain of stakeholders, from investors and consumers to employees and suppliers. “State of the art” models, whether those articulated by Roger Martin in his Virtue Matrix or PricewaterhouseCooper’s recent findings that a new, integrated business model should include governance, risk and compliance, seek to build on the success of capitalism, rather than undermine it.

Yet, some business leaders continue to worry that a change to the “profit first” theory will become too complex and dis- tract from the pure goals of commerce. Such leaders believe that it is better to stay with the original model, which they see as “carved in stone.”

These theorists have a valid concern, well-enunciated earlier this year in The Economist, but a concern that nevertheless fails to recognize the changing aspirations of modern society.  Why can’t we see the traditional business model in a different light? And why do we find it so difficult to look at capitalism with fresh eyes?

What some leaders clearly don’t under- standis that the debate about corporate social responsibility is not an “either/or” argument, as in: eitheryou made a profit and were a bad corporate citizen, oryou didn’t make a profit and were a good corporate citizen.

Today’s smart advocates for improved social responsibility realize that there is no need for such polarization—the thrust to build better corporate citizenship is not an issue that is black or white, good or bad. Sadly, the aforementioned article in The Economistwent so far as to describe the discussion in a confrontational way: “winners” were described as charities and NGOs, while “losers” were to be found in the “corporate world, which has intel- lectually surrendered.” Clearly, the editors did not understand that the new CSR is not a battleground with victories and defeats, but rather a complex set of issues that challenge all stakeholders to respect one another’s limits while seeking common ground. CSR is not “anti-business”—it is a way of addressing environmental concerns and the current lack of trust society holds for the public and private sectors. The new global CSR activism simply underlines the need for change.

Savvy advocates of this “new world order” understand these changes and are adapting to them. Far from being “tree huggers,” the new breed of socially respon- sibleglobal leaders often comes from the business world. These are people who understand that any new business model needs to carefully balance short-term pressures with the goal of long-term sustainability.

Examples abound. Travis Engen, the well-regarded President and CEO of Alcan, has recently been named the Chairman of the London-based Prince of Wales Business Leaders Forum. This forum promotes and encourages business activities in the CSR field, as well as supporting sustainable socio-economic development in local communities. Stephen Jarislowsky, the legendary Canadian money manager, co-founded the Canadian Coalition for Good Governance. George Heller, President and CEO of the Hudson’s Bay Company, is a champion of fair labour practices and ethical supply-chain management, through the monitoring of the company’s vendors.

Jane Nelson, a former Vice-President at Citibankand guru of the corporate social responsibility world, shrewdly zeroes in on the competitive advantage of corporate social responsibility in her book Profits with Principles, citing several valid reasons for managing ethical, social and/or environ- mentalperformance.

In it, she says that we know systemic corporate failure can lead to bankruptcy (e.g., Enron) and that jail time is becoming a new possibility for corporate executives (e.g., Martha Stewart, Bernie Ebbers). Litigation/settlement and/or public rela- tions costs are the norm in the event of an environmental tragedy (e.g., Canadian National Railway Company). She notes that a combination of these factors being
present will often lead to increased regu- latory action (e.g., the American Sarbanes– Oxley legislation), which may not be “business friendly.”

On the other hand, she finds that successful CSR management may result in reduced capital costs and insurance premiums, greater access to investment capital, more satisfied and loyal customers, increased brand reputation, and a stable and engaged workforce.

In spite of this business case, sophisti- cated global advocates are not naive. They don’t strive to be agitators of business, nor regulators of business. In fact, they recog- nize that the nature of their work is still evolving. For example, some activists actually assist businesses by helping them to achieve deeper ties to developing markets.

The United Nations estimates that the number of transnational corporations has increased from about 37,000 in 1990 to more than 60,000 today, with 800,000 for- eign affiliates, and millions of suppliers and distributors operating through their global value chains.5If business is to sus- tain this growth rate, then new, healthy, well-governed markets must be developed.

This can only happen if there is no chasm of inequality between partners—whether that inequality is found in disparity of income or resources.

A 2005 report by the Global Corporate Citizenship Initiative of the World Economic Forum, entitled Partnering for Success, found that global CEOs are concerned about these issues:

“Promoting good governance and tackling corruption was the most com- monly listed challenge. Other issues were discovered as well—getting it right in emerging markets, newer partnerships with new types of non-traditional alliances and funding mechanisms, investing in physical infrastructure, improved access to and quality of education, better health care and affordable treatments.”

Business and public policy-makers can’t avoid each other in today’s world. Recognizing that fact, the UN’s Secretary- General launched the Global Compact (GC), a voluntary corporate citizenship initiative, five years ago. In a speech earlier in 2005, Georg Kell, Executive Director of the Compact office, stated, “Business cannot thrive if societies fail. It cannot grow, if the public sector is lacking capacity or willingness to provide for sta- bility, the rule of law and incentives that reward entrepreneurship.”

Learning through policy dialogue and partnership, 2,000 of some of the best- known brands in the world have joined the Global Compact, including DaimlerChrysler, Deutsche Bank, British Telecommunications and Unilever. Because business issues are often affected by politically sensitive questions, participants in the Compact have been unafraid to confront tough dilemmas. This is evident in the recent GC report Embedding Human Rights in Business Practice, which poses some thorny questions such as: What is a company’s sphere of influence in any particular country? What is a company’s responsi- bility for the protection of human rights? What actions by a company could consti- tute complicity in human rights abuses? Is there any way for a company to ensure that its payments to the government do not provide material support for the com- mission of human rights violations?

Another particular conundrum in our day and age is the role of corporations that find themselves in a zone of conflict—a circumstance that may become more commonplace, if incidents of terrorism continue.

“The aggregate evidence is over- whelming: there are armed conflicts in over a dozen countries, civil war or near civil war conditions in about 30, and according to Transparency International, corruption is systemic in approximately 60 countries. The resulting conditions define not only much of what human suf- fering is about, they also inhibit business growth, increase barriers for investments and undermine market development. CSR has real meaning in such conditions.”

The Way Ahead

Far from the days when “tree huggers” were simply committed, the present crop of global advocates for corporate citizenship is not only committed, but also connected— to business, to governments, to universities and, just as importantly, to civil society.

The London think-tank SustainAbility notes that waves of CSR activity are typi- cally followed by periods of consolidation, as new ideas are integrated, measured and verified by performance metrics. Given the recent energy of CSR conferences, courses and conversations, one would expect a quieter period in which to reflect and absorb information to be imminent.

At this juncture, we need to ask important questions:
• Will the new CSR take a pause to address the answers of those who, with some justification, complain that we are becoming “compliance weary” and “coded out”?
• Are CSR initiatives an expense or an investment, when it comes to the balance sheet?
• With new, cross-societal partnerships, could government, civil society and business get their signals mixed, creating confusion in the ranks?

However, questions shouldn’t stop us from exploring an enhanced role for business in contemporary society. Today’s challenges, such as climate change and international terrorism, require corporations,
government and NGOs to work together.

We know our resources are not always renewable. We know that our own health- care system is not sustainable in its present form. The status quo may not be good enough, but it is clear that no one has all the answers. Many of those answers need to come from objective, intensive academic research.

For a very long time, business research was narrowly focused on economic per- formance; little attention was paid to the effect of corporate behaviour on social needs or the effect of corporations on other actors in society. Today, business schools are rethinking their attitude to student training, which does not mean that they are taking their eye off the “profit” ball, but rather that they are including other balls, as well. Even the venerable Harvard Business School is offering a new course entitled “CSR: Strategies to Create Business and Social Value.” For the next few years, the Centre of Business and Government at Harvard’s Kennedy School of Government will divide CSR studies into six areas: leadership, public policy, the media, the financial sector, supply-chain management and strategic research. INSEAD, the highly respected international business school with campuses in Europe and Asia, lists “business, society and the environment” as one of several themes of study on its website.
Public policy-makers have also become actively engaged in CSR. The controversial debate about the Kyoto Protocol has, at the very least, given global society a much- needed jolt, which has seen governments reacting in innovative ways.

While a pause in the intensity of CSR activity may be welcome, emerging issues continue to push the envelope. The latest debate concerns the lobbying practices of corporations. In addition, new organiza- tions are still springing up. For example, The Council for Responsible Jewellery Practices was launched on July 5, 2005. Founding members include Cartier and Tiffany’s. Furthermore, more global CSR advocates are popping up in unlikely places.

For example, Bono, the rock star of U2 fame, and his wife have just launched a new fashion line called Edun, a brand that will place ethical values at the heart of its operations. Creative partnerships continue to emerge. The World Wildlife Fund has teamed up with Allianz, an international financial services provider, to examine carbon risks in banking, asset manage- ment and insurance.
Lastly, even with the sophistication and connection many CSR advocates have today, there will be times when the need for activism is reactivated, as in the case of the Arctic National Wildlife Refuge debate.

As the world seeks to find new envi- ronmental and governance compasses, Canada is also poised to re-brand itself.

While we take great pride in our identity as a peaceful, compassionate society, we must expand that reputation to include a Canadian corporate reputation for smart, savvy and sophisticated corporate citizen- ship. We must prove that we can simulta- neously maintain our inherent values, such as environmental protection, while fearlessly competing against the world’s best, in whatever sectors we choose to operate. Yet, in an increasingly global world of partnerships and collaborative governance, our identity must be bold.

Our business leaders need to “be out there,” with our politicians and educators, staking out turf, trumpeting our nation and talking about much more than the traditional bottom line. The courageous “tree huggers” of the past inspired many of us; let’s live up to their standards by protecting the future.