Press Responses: June 27, 2008

The Globe and Mail - Report on Business

The Kindness of Corporations

From the World Economic Forum to undergrad business courses, corporate social responsibility is now a priority. There are just two problems. CSR can be disingenuous. And it’s dangerous


June 27, 2008

The bone-chilling realities of winter on York University’s windswept campus at Toronto’s northern edge have not deterred about 50 business undergrads from rolling out of their dorms at dawn on a Saturday to listen to lectures about good deeds. The highlight of this day-long conference on corporate social responsibility is a case-study competition involving two teams from York and another from the University of Alberta. Their assignment: Devise a CSR strategy for EnCana, the Calgary-based oil and gas giant that happens to be the main sponsor of the event.

Armed with polished PowerPoint presentations, each team delivers a pitch about why even an oil-patch profit-gusher such as EnCana needs advice on how to conduct its business. One urges it to transform “black gold into green profits.” Another throws in a hockey metaphor. The winning team evokes Easter Island, starkly reminding EnCana that a failure to embrace environmentalism would--in the manner of the soon-extinct inhabitants who deforested the South Pacific isle--eventually put it out of business.

The undergrads could be forgiven if their pitches sounded gimmicky; there’s lots of that in the metastasizing field of CSR, where consultants and public relations experts have recast corporations as champions of social progress and protectors of the planet. The language of CSR--including alternative rubrics such as corporate citizenship, sustainability or simply corporate responsibility--now permeates business discourse. The corporation, we are led to believe, has morphed from an entity with a single purpose--profit--into a quasi-government that processes all social needs and demands.

Every big company these days professes to have obligations to employees, communities, the environment--and humankind in general--that go well beyond making money. Annual reports, with their yawn-inducing financial statements, have been superceded by earnest CSR and sustainability reports. It’s a long way from Milton Friedman, who in 1970 called business supporters of corporate social responsibility “unwitting puppets of the intellectual forces that have been undermining the basis of a free society.” Would any Top 1000 CEO dare side--in public anyway--with Friedman today? Not likely.

We’re led to believe that this trend is a good thing, that the evolving role of the corporation puts a more human face on capitalism and renders it more acceptable in parts of the world where it’s still suspect. Yet the crux of Friedman’s argument--he called CSR “a fundamentally subversive doctrine”—is as salient today as it was four decades ago, if not more so. When corporations take on a social role, often at the urging of elected officials themselves, it relieves governments of their responsibilities to mediate social demands. It removes policy-making from its proper forum. Put plainly, CSR is undemocratic.

It is also naive. Corporations, no matter how virtuous they claim to be, still have a hierarchy of self-interest. Practitioners of CSR may claim to attend to a “triple bottom line”--putting economic, social and environmental objectives on equal footing. But who really believes that profits, short-term ones at that, still do not take precedence in boardroom decisions?

Should, or could, it be any other way? In this country, the Canada Business Corporations Act obliges directors and officers to “act honestly and in good faith with a view to the best interests of the corporation.” Courts seem to be taking an increasingly expansive view about what this means, concluding that “best interests” are not limited exclusively to those of shareholders. The interests of creditors, employees, clients, communities and the environment are all, courts have suggested, legitimate factors to weigh in any board decision. Critics of this view suggest that, by attempting to satisfy too many (usually competing) constituencies, the corporation will end up satisfying none of them. But that critique is still purely theoretical for one simple reason: There is still little evidence to suggest that shareholder interests come anything but first in the minds of directors and CEOs. Indeed, their jobs depend on it. And any company that did not put shareholders first could itself be subject to legal retaliation.

What is CSR, then? That it is more theory than reality perhaps explains why it has enjoyed such a sweeping consensus: Not just corporations and the courts but also governments, the media and business schools all subscribe. In other words, it’s an entrenched ideology.

In some cases, CSR is little more than a tool for green-washing and PR. Take BP. It had rebranded itself as a progressive, renewable-energy company—out with British Petroleum and in with Beyond Petroleum--long before safety shortfalls led to a 2005 explosion at its refinery in Texas. The disaster, which killed 15 people and injured 180, exposed BP as CSR’s Potemkin village. In 2006, BP gave itself another black eye when its poorly maintained pipelines in Alaska caused deadly oil spills in Prudhoe Bay. The company pleaded guilty to felony violations and last year agreed to pay fines totalling $373 million (U.S.) in relation to the Texas and Alaska accidents and price-fixing charges. This did not stop Fortune magazine from ranking BP as the world’s most “accountable” company, praising it for investing in renewables--even though they represent a sliver of the company’s overall expenditure on traditional oil and gas exploration—and for “replacing several executives” involved in the accidents. Is that all it takes to be number one?

An impressionable public and the absence of measurable objectives have given CSR an easy ride. Without mandatory, consistent and transparent reporting--hurdles not cleared by countless so-called independent scorecards such as the Global 100 Most Sustainable Corporations in the World (which, thankfully, does not include BP)--it’s impossible to sort out the deliberate CSR fakes from the truly well-intentioned.

EnCana is no BP. But that doesn’t mean its annual CSR report is the whole story of its social and environmental record, either. The 2006 version, on display at the York event, highlights EnCana’s efforts to engage native communities and develop carbon sequestration technologies. “Acting in a conscientious and reliable manner is as important to sustaining our business as the profits we earn,” CEO Randy Eresman asserts in the report. Conscientious and reliable? Late last year, EnCana sent a menacing letter to non-profit groups and charities in Colorado. It warned they risked losing its financial support if they failed to speak out in EnCana’s favour at public consultations on oil and gas drilling. Tougher state rules, the letter indicated, might adversely affect “the company’s ability to partner with organizations such as yours that meet the needs of the community on a daily basis.” The groups took the letter as an ultimatum: Support our lobbying efforts or lose your grants. Somehow, this bit of power politics didn’t end up in EnCana’s CSR report. Such contradictions can be found everywhere among the CSR-practising flock.

Still, even if every CSR strategy is part PR, it is overly simplistic to dismiss CSR as pure posturing. There is now simply too much evidence that it is changing the nature of the corporation--perhaps not at its core, but at least substantially enough at the margins to make a difference. Even Wal-Mart, long considered one of capitalism’s ugliest practitioners, has become a disciple. It has moved to force suppliers to go green, arguably effecting more positive change than any government. “For a substantial amount of time, I was probably more of a CSR cynic. But in the last few years, I’ve become more of a CSR optimist,” says Andrew Crane, a professor of business ethics at York’s Schulich School of Business. “I’ve been surprised by some of the investments companies have made in CSR and sustainability with no clear return for shareholders.”

Any corporation still questioning whether it needs to get serious about CSR need look no further than the York undergrads. Increasingly, it’s not enough to offer upper-five-figure salaries to freshly minted MBAs. They want proof the job has a missionary component.

After all, how can you feel good going to work if your company is exploiting migrant farm workers or contributing to a global obesity crisis? U.S. junk food giant PepsiCo clued into this morale killer a few years back and dramatically switched gears. Of course, it still produces Doritos, Fritos, Cheetos and Ruffles, not to mention a high-fructose corn syrup concoction under the Aunt Jemima label. But unlike most companies that make CSR claims, PepsiCo sets measurable CSR performance goals for itself--with objectives for expanding potable water initiatives in the developing world, recycling more materials and working to reduce childhood obesity by promoting its healthier snacks. It claims to take its CSR goals just as seriously as its return-on-equity targets. Indeed, PepsiCo’s corporate sustainability report sets out a strikingly idealistic vision for the company: “PepsiCo’s responsibility is to continually improve all aspects of the world in which we operate--environment, social, economic--creating a better tomorrow than today.”

PepsiCo has a committed and charismatic CSR messenger in Indian-born CEO Indra K. Nooyi. I watched Nooyi, via the miracle of YouTube, as she explained--without notes, before an audience at this year’s World Economic Forum--her company’s early 2007 adoption of a new CSR strategy called Performance with Purpose. “It has unleashed the emotions of everybody in the company, and a group of people who already loved coming to work now say they are proud to come to work because we are going to make a difference in society,” explained Nooyi, a diminutive 52-year-old ranked by Fortune as the world’s most powerful woman in business for two years running.

It is no coincidence that this is all happening now. “CSR is deeply embedded in globalization, deregulation and a free-market economy,” notes Andrew Crane. Margaret Thatcher and Ronald Reagan marked the world in ways that cannot be undone. “Critics of CSR on the right and the left use the same argument. They say government and elected representatives should decide on the broader well-being of society,” adds Crane’s Schulich colleague Dirk Matten. (Schulich is the Canadian leader in CSR, earning an overall third-place spot on the latest Beyond Grey Pinstripes survey that ranks business schools around the world on their “integration of issues concerning social and environmental stewardship” into their curriculums.) “The left,” continues Matten,” argues that delegating this into the realm of corporations is undemocratic, while the right says government should make the rules and business should make profits. The fundamental problem with that idea is the neat separation between what governments do and what corporations do no longer exists.”

When I ask Crane, a British native, whether he thinks corporate social responsibility is just a ruse cooked up by business to pre-empt government regulation, he responds: “Or is CSR an attempt by governments to minimize the necessity for them to regulate?”

This is a chicken-and-egg debate. When companies relocate far more willingly than people, there are limits to how far governments can or will go beyond basic labour standards and environmental rules. Co-ordinated global efforts have proven largely ineffective, too. It’s not just that China and India have been given a free pass by the Kyoto Protocol mandating reductions in greenhouse gases; even a full-fledged Kyoto signatory like Canada won’t enforce them. “We live in a time when people are losing confidence in the ability of governments to solve problems,” Wal-Mart CEO Lee Scott Jr. told the company’s 7,000 U.S. store managers in January. “I am talking to you about issues like international trade, climate change, water shortages, social and economic inequities, infrastructure and foreign oil....Wal-Mart can take a leadership role, get out in front of the future, and make a difference that is good for our business and the world.”

There is something just a little too Shakespearean about such corporate proclamations of virtue. They protest too much, resorting to tortuous declarations of magnanimity to legitimize their creeping takeover of democracy.

In this, corporations sometimes have the most unlikely of helpmates. When environmental and other activist groups, electing themselves to act on behalf of the public, use pressure tactics to force their ideas on law-abiding corporations, they are in effect making public policy--a domain that is properly the purview of governments. Corporations make concessions to NGOs in the name of CSR; it’s quicker than the political process, goes over well with the public, and sometimes the changes required are merely cosmetic. The pressure group gets to declare a “win” and the corporation gets a monkey off its back. But neither democracy nor the planet really comes out ahead.

The World Economic Forum (WEF) in Davos, Switzerland, is ground zero of the CSR movement. It was there, in 1999, that the United Nations Global Compact was launched. The corporations that signed it agreed to adhere to 10 basic principles regarding human rights, labour standards, the environment and corruption in every country in which they operate. There were no Canadian companies among the initial signatories. But since then, several dozen have come into the fold, including Barrick Gold, Bombardier, Petro-Canada and Talisman Energy--the latter signing on after pulling out of war-torn Sudan in 2003.

Davos also moved CSR closer to the mainstream in 2002 with a manifesto, called Global Corporate Citizenship, signed by 46 of the world’s leading CEOs. The group recognized that “the frameworks we adopt for being a responsible business must move beyond philanthropy and be integrated into core business strategy and practice.” Just before this year’s meeting, WEF founder and executive chairman Klaus Schwab went even further in Foreign Affairs: “Global corporate citizenship...entails focusing on ‘the global space,’ which is increasingly shaped by forces beyond the control of nation-states. Global corporations have not only a licence to operate in this arena but also a civic duty to contribute to sustaining the world’s well-being in co-operation with governments and civil society.”

The multinationals that have signed the various WEF-sponsored agreements claim they are going beyond what is legally required of them in many countries where they operate. But they’re also acting to pre-empt legislators in their home jurisdictions from regulating their activities abroad.

It appears to be working. Canada’s mining companies, which together conduct about 40% of global mineral exploration, have increasingly been a target of aid organizations and human rights groups. Activists have repeatedly called on the Canadian government to regulate the activities of our mining companies abroad, particularly in countries with weak governments, extreme poverty, lax environmental standards, military dictatorships, rampant corruption, or some or all of the above. In 2005, the then Liberal federal government set up an advisory group called the National Roundtables on Corporate Social Responsibility and the Canadian Extractive Industry in Developing Countries. The group’s report, delivered to the Harper government in March, 2007, calls on Ottawa to establish CSR guidelines for Canadian-based mining companies operating abroad, require mandatory reporting on companies’ CSR strategies in developing countries and create an ombudsman’s office to handle complaints. The Harper government has yet to follow through on those recommendations.

That’s likely because it feels there’s little need to, when companies such as Barrick are already committed to the Global Compact. In Tanzania, a relatively stable and democratic African nation where corruption nevertheless is widespread, Barrick funds projects to provide clean water to communities around its Bulyanhulu gold mine. It’s financing transmission lines in a country where only 10% of the 38 million inhabitants have access to electricity. Its Tanzanian employees get free health care at Barrick’s medical clinics, which specialize in the treatment of HIV/AIDS, and the company distributes free anti-retroviral drugs to employees and their dependants. Barrick has teamed up with CARE International to build schools and train teachers near Bulyanhulu, claiming that primary school enrolment in the region has increased 75%, and secondary school attendance 50%, thanks to the initiative.

Barrick, which adopted its own Corporate Social Responsibility Charter in 2004, has also signed on to the Extractive Industries Transparency Initiative, a coalition of corporations and NGOs that aims to reduce corruption in the mining industry by getting firms to disclose all payments made in developing countries and reconciling those amounts with government revenues. “CSR is part of our business strategy and there is a strong business case to be made for it,” explains Barrick senior vice-president Vince Borg. “Being socially and environmentally responsible translates into fewer operational disruptions, more community support, and governments that know our reputation is solid.”

But if CSR is good for business, is it a good bargain for society? “Mining and oil and gas development can have severe environmental and social impacts. People are increasingly dissatisfied with companies’ activities, so the companies are responding with CSR. But if companies are making windfall profits, and they give four scholarships and build three clinics, is that enough to make it a fair deal?” asks Karyn Keenan, program officer at the Halifax Initiative, a coalition of human rights, labour and church groups calling on Ottawa to regulate the foreign activities of Canadian miners.

“Why aren’t tax monies being channelled through the central government to be spent on schools and clinics? That is what I think of as development.”

Some troubling precedents get established in the name of CSR. For instance, in Guinea, an impoverished semi-dictatorship in Africa, Canada’s Rio Tinto Alcan joined with the United Nations Development Programme to fund a project “to strengthen the planning capacity of elected officials and civil servants” in a region where the company is partnering in bauxite mining with the government. Put aside the question of whether it is up to corporations to help teach public administration in developing countries. Once they are, can they do it in anything but a self-interested manner?

Guinea, where Alcan has operated for decades, is estimated to hold between a quarter and a third of the world’s bauxite, the raw mineral from which aluminum is refined. The former French colony remains near the bottom of Transparency International’s rankings of world’s most corrupt nations--168th out of 179. Its president, Lasana Conté, heads a tiny military and political elite that has gotten rich off the country’s resources while most of Guinea’s nine million inhabitants live in abject poverty. During a general strike in early 2007, the military shot down scores of protesters.

Rio Tinto Alcan’s participation in the UN project is supposed to aid local officials in drawing up plans aimed at helping the country attain the UN Millennium Development Goals on reducing global poverty. The company will also “help elected officials identify financial partners that can provide rural communities with assistance in implementing their plans in areas such as health, education and income-generating activities.” It all sounds laudable enough. But the initiatives also appear to ensure Conté’s grip on power and provide Alcan with a measure of political stability, both of which are key to its continued access to a vital raw material.

It could be worse, of course. Multinationals are more accountable than ever regarding their activities in developing nations. But it could be better, too--or at least more transparent--were elected governments to reseize the initiative. It’s a cop-out to use the globalization argument as a pretext for inaction. Appealing to the “enlightened self-interest” of multinationals is a poor substitute for good policy. Many corporations might even welcome more guidance--even binding rules--from governments regarding their broader social and environmental obligations.

Until they exist, we have a right to know which corporations are trying to avoid government regulation--and how. The bare-bones requirements of Canada’s lobby registry are hardly sufficient. “It’s striking that [CSR reports] have no information about companies’ political or lobbying activities,” notes Wayne Norman, a professor of business ethics at North Carolina’s Duke University. Though the language of CSR is imbued with notions of corporate citizenship, the Canadian-born Norman adds, “it’s a very depoliticized view of citizenship. If corporations are using this language to enhance their profile as members of the community, then it’s only fair to use this language to shed light where they may not always want it. What we should be looking for is a parallel amount of transparency about [their] political activities.”

It may be impossible to return to the time when a neat separation existed between the profit-making duties of corporations and the society-building ones of governments. But if democracy is to mean anything, corporations must answer to governments, not the other way around. That balance has gotten out of whack. It’s not good for democracy, or for capitalism.