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Development of a Corporate Social Responsibility Culture in a Globalised Economy

1.0          Introduction

In the recent years the term “Corporate Social Responsibility (CSR)” became an important buzz word for marketeers and an integral part of their marketing strategies. The unfortunate thing is that very few marketeers and corporate strategists really understand the real meaning of CSR.  It goes much more beyond the occasional support to a humanistic initiative. If an organisation really wishes to make a sounding difference within the society it serves, it must embrace CSR as its corporate culture. Anything less will be simply part of the organisation’s marketing and public relations strategy

In the late 1960s Martin Luther King was not only talking on issues of race but also on social class, foreign policy and the Vietnam War. Exactly a year before his assassination he delivered an important speech in which he outlines his visionary idea of a fair and just business, build solidly on Corporate Social Responsibility. In my opinion this visionary speech is the most fitting introduction to CSR, by far much better than the standard text book definition.

“This is a role our nation has taken. The role of those make peaceful revolution impossible by refusing to give up the privileges and pleasures that come from immense profits of overseas investments. I’m convinced that we are to get on the right side of the world revolution, we as a nation must undergo a radical revolution of values. We must rapidly begin to shift from a thing-oriented society to a person-oriented society. When machines and computers, profit motives and property rights are considered more important than people, the giant triplets of racism, militarism, and economic exploitation are incapable of being conquered. A true revolution of values will soon cause us to question the fairness and justice of many of our present policies. True compassion is more than flinging a coin to a beggar. A true revolution of values will soon look uneasily upon the glaring contrast of poverty and wealth with righteous indignation. It will look across the seas and see individual capitalists of the West invest huge sums of money in Asia, Africa, and South America only to take the profits out with no concern for the social betterment of the countries, and say ‘this is not just’.”

These visionary words were said by the Rev. Martin Luther King JR, on April 4 1967, during a meeting of the Clergy and Laity Concerned at the Riverside Church in New York City. One year – to the day – after giving this address in New York City, Martin Luther King Jr. was assassinated in Memphis.

2.0          The Material and Spiritual Forces within Society.

In 2002 Pope John Paul II urged delegates at a major U.N. summit on sustainable growth on Sunday to pursue development that protects the environment and social justice. He said “In a world ever more interdependent, peace, justice, and the safekeeping of creation cannot but be the fruit of a joint commitment of all in pursuing the common good.” Pope John Paul II continued his speech by emphasising that God had put humans on Earth to be his administrators of the land, “to cultivate it and take care of it.”

As our civilisation celebrates great achievements in science, technology and economic growth it is evident that we were not able to replicate this success in the understanding between societies and nations. This resulted in huge imbalances in the distribution of global economic wealth with nations benefiting economically at the expense of others. The distribution imbalance is also reflected at a national economic level.

In his paper “Business Ethics, Corporate Social Responsibility and Globalisation,” Kamran Mofid (2002) points out that leading philosophers and theologians agree that there are two forces at work in society: the material and the spiritual. If one forces supercedes the other, an imbalance is created and “society will inevitably becomes fragmentedm divisions and rifts will manifest themselves….we have a situation of disequilibruim and disharmony.”

Mofid insists that physical wealth must go in hand with spiritual, moral and ethical wealth. If the global business community succeeds in the reawakening of the human spirit, of love and compassion, will save the world from unethical business philosophies and practices.

From a spiritual perspective, pure market capitalism creates greed and delusion. In fact these negative consequences are considered to be the benefits of the neo-liberal globalisation that we are living in. It is purely based on individualism and self-interest. Other fundamental values that are considered to form a solid foundation for a compassionate society, such as faith, spirituality, justice, love, sympathy, empathy and cooperation have been completed neglected by the business powers.

2.1          Neo-Liberalism and Democracy

Democracy is based on the concept of equality with even human person in a society having the right to vote and express his/her opinion irrespective of status, education, colour, religion or nationality. It does not consider if the human person is knowledgable and well informed or not. He/she has the same rights and obligations as the most talented person in society. In contrast to the democracy concept, neo-liberalism rewards solely the most-talented and successful members of society.

Individualism and self-centredness of neo-liberalism do not match the principles of community and society. In a corporate business world governed by neo-liberalism, success is measured through the  maximisation of individualistic well being and enjoyment and no attention is given to the effective distribution of economic wealth.

Such a reality indicates that the modern globalised culture is in desperate search for the revival of moral and ethical values. If economic organisations, both public and private, embrace respect to the human person and solidarity, the world can still have a globalised economic environment based on market economy principles. Implementing these values do not mean that an economy cannot embrace the market economy principles.

2.2          The Language of Religions

In his book “Global Responsibility”, Hans Kung, the controversial Catholic Swiss theologian stresses that business ethics are to be firmly rooted in religion. Given that religions all abide with the concept of respect for life, they can speak with one voice on ethical issues.

Both economics and religion are pursuing the goal of human happiness. Different roads will lead us to this common goal. Whilst religion promotes love, compassion and selfless service, economics promotes the production and exchange of goods and services. Striking the right balance between the two will help every economy to develop solid economic growth for a just and peaceful society. The ethical and spiritual teachings of all religions and their striving for the common good provides us with a clear guidline for moral behaviour in both our personal lives and in our business interactions.

In the Jewish religion and tradition there is a clear effort to balance economic efficiency with ideals of interpersonal equity and social justice. Even the Christian and Islamic traditions provide a lot of concern towards the human dignity and solidarity. These shows the clear similarities in the foundations of these 3 major religions practiced in the Western and Middle Eastern Worlds.

The religions of East are founded on humility and patience. This is the Hindu view of economic life. On the other hand compassion is the basis of Buddishm. These religions promote steady economic growth through the virtues of humility and patience.

Mofid points out that whilst the past economic life was regarded as a branch of the moral life of the whole community, today the same economic life is a moral-free area. He insists that the marketplace is not just an economic sphere but it is a “region of the human spirit”.

Peter Milward, Jesuit priest and scholar observes that spiritual alienation of a society’s own greatest minds is the price every civilisation has to pay for losing its religious foundations and get hijacked by material success. “The great civilisations of the world do not produce the great religions as a kind of cultural by-product; in a very real sense, the great religions are the foundations on which the great civilisations rest. A society which has lost its religion and its spirituality becomes a society which has lost its culture and sooner or later it will fail to exist.”

2.3          The Acquisitive Society

As the globalised world is still reeling from the financial recession, economists have been left to consider if this recession was the result of the economic shifts and technological change or else it could be the result of a morally deficient society. The result is very clear – the economic recession is the result of greed and desire for rapid growth in wealth and the expense of long-term sustainability of the global economy.

The British economic historian R.H. Tawney described our society as acquisitive with the whole preoccupation being the acquistion of wealth. In this society the rights are divorced from the duties and there is a relentless pursuit for self-interest. The individuals who are part of this society lool after their self interests. It sets the individual at the centre of the universe.

In an acquisitive society there is no room for the creator and no proper relationship between the creator and creation. Tawney states “We should not forget that our most important economic resources owe nothing to human labour and ordering, nothing to economic factors in general.The land, the air, the sea, the sun and vital natural resources such as oil, gas and coal are all God’s gifts: they should be for the benefit of all God’s creation.” Mofid points out that agression, selfishness and greed, disrespect for the common good is a reflection of an economic style which lacks any true religious foundation and it is purely materialistic in the name of economic progress.

3.0          Implementing “Justice” in the Business world through Corporate Social Responsibility

It is now very evident that neo-liberalist philosophy must change so as to build a brighter and sustainable economic future. If Corporate Social Responsibility is used beyond the marketing and public relations tool, then CSR can help us achieve the culture change. The ad hoc CSR initatives inspired for marketing exposure can be the “seeds” to instill this mentality. But in order to achieve a culture change based on respect to the human being and the “common good” CSR has to be developed into a tool that will promote social and economic justice.

Justice is a concept that integrates law and morality. Laws can be used for the benefit of a nation state and its citizens. If a national law or economic activty supports the nation’s citizens and create social harmony within society, then that law or activity is considered as being just. In this paper we will introduce the egalitarian theory of Business justice with a focus on the business function of transaction activity. The way an organisation manages this critical function will determine if its business culture is just and ethical.

3.1  Egalitarianism and Theory of Justice

Strict egalitarianism is based on the concept of moral equality of the human person with persons  possessing the same basic rights with equal concern and respect. The equality treatment is valid for both the satisfaction of needs and preferences. Whilst no specific definition is given to needs and preferences, there is an understanding that there are human needs that are more important than others.

On the other hand the moderate egalitarianism approach allows the distinguishing of those goods that have to be distributed equally from those that can be distributed unequally. Rawls’ Theory of Justice is considered as moderate egalitarianism. Whilst insisting on equal distribution of basic rights and liberties, Rawls permits the unequal distribution in economic and social goods so long as these inequalities are attached0 to offices and positions open to all under conditions of fair equality of opportunity, and are to the greatese benefit of the least advantaged group in society.

John Rawl’s concept for justice based on “A Theory of Justice”. Rawl’s is considered to be a liberal politicial philosopher with a strong belief that every citizen deserves the same opportunities to succeed as every other citizen. He uses the social contract theory to generate principles of justice in an effort to assign basic rights and duties whilst also determining the division of social benefits in society.

3.2          Transaction Activity and Justice

Strict egalitarianism is based on the benefits approach theory. It requests that any transaction activity done by a business is to be just on the basis that there is a close equality of benefit between the two parties involved in the activity. If there is inequality of benefit between the two parties then it is essential that the transaction terms are to be adjusted in order to achieve an equality of benefit.

James Gordley in his “Equality in Exchange” points out that this equality benefit concept has been the basis of trade since the ancient times. According to Gordley it is only with the introduction of “laissez faire” ideas in the 19th century that this principle of equality in exchange was put aside. On the other hand one can argue that a big proportion of transactions done today meet the criteria requested by the principle of equality. At face value transactions might look to be just and fair but the underlying conditions of sale, the restrictions imposed by one party on the other could transform a just transaction into an unjust one. This can happen at both ends of the transaction activity, in order words both by the buyer and the seller.

A complete different approach is presented through the consent theory. It is based on the principle that if the transaction was genuinely consented by both parties, the transaction is just, irrespective how detrimental it is to the parties’ interest. This approach contrasts extensively to the benefits approach explained above. Transactions are just unless some consent-vitiating factor is present. Consent theories vary according to the nature consent-vitiating factors being considered. These factors can vary from fraud and duress to undue influence, misrepresentation, and  imposition of positive duties such as duties of disclosure.

Consent theory can only be justifiable on the assumption that a rational human person acts in his own self interest and is fully competent to protect and advance his or her own interests. Consent theorists argue that no one would consent to something that goes again his or her own benefit. Unfortunately this argument ignores the fact that in reality there are factors that are less obvious than the consent-vitiating factors  but are still detrimental to the fairness of the transaction activity. Inequality of knowledge, experience, negotiating skills, entrepreneurial ability, marketing resources and organisational strength or domination are clear examples of factors that are not considered as consent-vitiating but can still create the same effect on the just/fair level of a transaction. One justification could be that this all part of the business game. But is this acceptable to any commercial organisation that is ready to endorse itself as an ethical organisation and splash its “philosophy” in its corporate marketing literature?

The financial meltdown experienced in the last recession was brought about by the financial institutions “successfully” exploiting the above mentioned factors to the detriment of their own customer. The winners are solely the short-term shareholder whose objective is simply to maximise shareholder value in the least possible time. This can only be done through the short term maximisation of profit.

3.3 Replacing the Profit Maximisation Principle with the Social Benefit Principle.

Marjorie Kelly in her paper “Not Just for Profit” (2009) presented emerging alternatives to the shareholder-centric organisational model that promoted massive governance power on short-term shareholders to the detriment of the external community.

In his book Creating a World without Poverty: Social Business and the Future of Capitalism) (Public Affairs, 2007) Nobel Prize Winner Muhammad Yunus presents a social business that is profit making but managed by a larger mission. Grameen Danone Foods Limited was formed through the collaborative joint venture between Groupe Danone, the multi-national yogurt manufacturer and Grameen companies Yunus had co-founded. He proved that the entrepeneurship drive and energy of the private sector can be combined with the social benefit principle instead of the profit-maximisation principle.

The mission of Grameen Danone Foods Limited is to provide affordable nutrition to malnourished children in Bangladesh with a yogurt product branded as Shokti Doi. In the Bengali language it means “Yogurt for Power”. The organisation was able to create a new organisational structure which is considered to be a hybrid between nonprofit and for-profit. Such an organisation will still be required to cover all of its fixed and operating costs but rather than drive the business to maximise profit and therefore shareholder value, its investors will receive a low annual dividend and the remaining retained earnings are reinvested into the business. The overall mission of this venture was to create social benefits for those whose lives are influenced by the company’s business. It was able to provide employment opportunities to the Bangladeshi people whilst also providing improved nutrition.

There are more emerging models being created and there is no reason for them not to be as profitable as the conventional designed companies. They will still be adapt at pursuing high value goals. Only the objective has changed but the overall outcome in non-monetary benefit is bigger and more rewarding. Google.org is a new creation coming out of Google that embodies the for-profit philantrophy values.

3.4 Avoiding another Financial Meltdown – New Ownership Design

The financial crisis that came to life in 2008 was a direct result of the pursuit to short-term shareholder gain instigated by the investment bankers and financial institutions. They disregarded the long-term impact of their corporate actions on the customers, on the national economies, the organisation itself and its employees. One might argue that the best way to avoid a repetition of this crisis is to apply control methods such as regulation and criminalisation for abusive behaviour. On the other hand Marjorie Kelly recommends that the real solution will be for corporate ownership and governance design to evolve.

Richard Nelson, an economics professor at Columbia University states that social systems evolve because of two kinds of innovation: a) development in physical technologies primarily new environmental and energy technologies and b) development in social technologies which are reflected in the new forms of organisation ownership. These two types of innovation developments are interlinked and can have enormous positive impact on society.

TransForms Corporation based in North Carolina USA is a US$ 2 million wall decorations manufacturer which has adopted the for-benefit enterprise concept. It represents a hybrid between the traditional for-profit structure and the traditional non-profit structure. It employs people with disabilities and invests heavily in developing its workforce. Its structure elements including ownership, governance, capitalisation and compensation policues have been designed to escape the pressure to maximise short-term profits and fulfill its purpose to meet human needs and meets life expectations. This is what makes a just business.

3.5  A Company controlled by a Mission

Take Interface Inc is a Fortune 1000 flooring company with revenues reaching US$ 1.1 billion is well placed to reach “Mission Zero by 2020” whereby the company will be entirely dependent on renewable energy. For its CEO Ray Anderson, Take Interface will show the business community “what sustainability is in all its dimensions”.

Other companies have tried to implement similar environmental or social commitments but had to reduce it due to influence from the stock market. On the other hand Take Interface has adopted a dual class governance structure giving super-voting shares in the hands of the CEO and other top executives giving them control of 72% of the votes for the board even though they own much less than a majority of publicly traded shares. This allows the organisation to be a mission-controlled enterprise with a just business strategy at heart.

It is important to highlight that profile organisations such as the family owned New York Times Company, the foundation-controlled Novo Nordisk A/S, Grupo Nueva SA in Chile and the most recent adopter Google are all mission-controlled architecture organisations. When Google went public in 2004 it adopted a two-tier stock configuration, vesting power with its founders.

Novo Nordisk, the Danish pharmaceutical company introduced an important commitment to mission in its company charter and its mission control was further strengthened through the design of its governance procedures. Its commitment is to ensure that all products and services “make a significant difference in improving the way people live and work.” Every year the company board must report to the foundation board on how it is ensuring that its operations are “economically viable, environmentally sound and socially fair.”

This mission-controlled architecture can be seen as a long-term solution to the challenge that such socially responsible companies face in their struggle to keep their mission alive. The biggest challenge would arise when the original founders of the organisation depart or sell their shareholding.

3.6 Corporate Social Responsiblity at the centre of Corporate Strategy

The real life examples of corporates that have embraced Corporate Social Responsibility as a crucial part of their Corporate strategy show clearly the way forward to make an impact within society. The strategy was not adopted simply for marketing and public relations mileage but because there is an unlimited commitment to achieve social economic justice.

The government has a critical role in promoting this valuable strategic philosophy. Whilst one might automatically think about tax credits or other finanical incentives to instigate entreprenuers, education is the vehicle that will help the business community embrace CSR. If you upcoming business executives are taught only the neo-liberal ideology, which is completely divorced from spirituality, from respect for a power greater than themselves, then we cannot expect them to accept and implement CSR in their organisations.

Successful and ethical business should be continuously congratulated for their good work, and encouraged to play a fuller role in ensuring the good of the community.

4.0          Conclusion

In 2009 and 2010 we have experienced the downfall of established organisations that succumbed not to the economic recession but unfortunately to the short-term pressures of the shareholder community and capital markets. They allowed speculation and greed to overcome the more traditional functions of the business that make it humane. In this paper we have shown that there is life after the profit maximisation principle.

Alternative enterprises best serve their community, customers and most importantly their social mission by keeping their profits low but still do not undermine the long-term sustainability of the organisation. They can still be very competitive. In their paper “Foundation Ownership and Financial Performance: Do Companies Need Owners?” Steen Thomsen and Caspar Rose of the Copenhagen Business School prove that foundation-owned firms, perform no worse than the traditional companies. They can even do better. The only difference is that these companies do not separate their profit making objective from the fulfillment of their social missions. Profit is there for a purpose – long-term sustainability of the company but there is no pressure to increase exponentially the shareholder value.

These alternative designed companies can offer important lessons in how corporate ownership and governance can evolve in order to survive the cultural and ecological demands of the future. We could have thought that there is a choice between making a profit and fulfilling other social missions. This is false. If the business community does not succeed in getting its priorities right it can even be endangering its own survival.

References

Asad Ghalib, Farhad Hossain and Thankom Arun (2009). Social Responsibility, Business Strategy and Development: The Case of Grameen-Danone Foods Limited. The Australian Accounting Business and Finance Journal. Vol 3, No. 4

Gordley James (1981). Equality in Exchange. California Law Review

Kamran Mofid (2003). Business Ethics, Corporate Social Responsibility and Globalisation for the Common Good.

Kelly Marjorie and White Allen (2007). Corporate Design: The Missing Business and Public Policy Issue of our Time. Tellus Institute

Kelly Marjorie (2009) Not Just for Profit. Booz&Co.

Rawls, J. (1971). A Theory of Justice. Cambridge, MA: Harvard University Press

Thomsen Steen and Rose Caspar (2002). Foundation Ownership and Financial Performance: Do Companies Need Owners? Copenhagen Business School

Wood David (1984). Business Justice: Transactions, Resources and Organisations. Journal of Business Ethics, Vol 13, 481-486