MHCi MONTHLY FEATURE:

November 2003

Corporate Social Responsibility:

An Exit Strategy

[with comment by Sir Geoffrey Chandler and apology to Phillip Rudolph]

Slings and arrows – the Conference season

The conference season on CSR seems to be a continuum. This shows that the concept has well and truly arrived. But also allows its critics to gather pace and space in attacking a larger target. In MHCi’s Monthly Features on CSR we have defined CSR as treating stakeholders of a corporation or institution in a socially responsible manner where stakeholders cover those both internal and external to the company, cialis and exist across the social, economic and environmental spectrum. Or in other words, as elegantly phrased by Will Hutton in The Observer:

Capitalism US-style may have its virtues but at heart it’s a financial engineering rather than a business-building culture – and in the long-term, creating great businesses and international brands will pay off. German managers are passionate about the superiority of their system which has created great wealth-creating machines, companies that are as attentive to their workers, customers, technology and supply chains as they are to their shareholders. They even believe in co-determination, where unions and managers talk about strategy, as a means of enlisting their workers’ engagement and loyalty.

Returning to our quick overview of some quirks from the conference season, some critics have come up with curiouser and curiouser concepts:

· Sir Geoffrey Chandler talks about the ‘curse’ of CSR in an article that is more sensible than its title.

· Some Washington lawyers now argue that ‘savvy’ corporate executives should be aware of ten ways to undermine your CSR programs highlighting the notion that key stakeholders should be ignored.

· The little known UN agency on social development, UNRISD, commissions a major work on business partnerships and concludes that no amount of effort in the UN’s attempt at CSR through its Global Compact and its specific business-public partnerships can compensate for the negative development impact caused by the current global and national economic policy regimes that are heavily promoted by transnational corporations (TNCs).

Phew!

Our own experiences in the CSR conference continuum over the past few months stretch from a conference on the Americas to one on the Triple Bottom Line and to one by the BBC: all these showed that CSR issues are alive and well.

However a string of oil conferences attended by hard bitten oil executives and hosted by MHC International Ltd’s joint venture partner, Global Pacific, showed CSR is not much of an issue on the front line of oil exploration and development. Many of the companies represented – oil majors, large oil independents, smaller national oil companies especially from Africa – had corporate sustainability departments but their frontline people had only a passing interest in CSR. According to one oil executive, what counts is to get the oil out of the ground, make a buck and satisfy world demand. The fact that few, if any, single resource economies have ever successfully developed their single resource and created sustainable development was of little interest to the assembled throngs. Indeed, one of the national oil companies who are one of the leaders in CSR, the Norwegian company Statoil, was suffering the loss of its CEO resulting from a corruption scandal in Iran. Further, even virtuous companies such as Shell can have a diluted message: a Shell senior operations manager in The Hague stated that CSR is really seen as a policy thing for Shell, London.

Outrageous Fortune – profits can’t be sacrificed of course

Obviously, one cannot expect corporations to operate without being profitable. The case can be stated simply: it is not profits per se that is the issue but how profits are made. This latter notion implies that as companies increasingly take on board notions of CSR, albeit in all sorts of sizes, shapes and perceptions, there are limits to CSR. Also we cannot expect business to be a direct agent of government – this is outside their remit – but they can and will be political, lobbying for change and leveraging for advantage. Business can also not dedicate 100% of its profits to philanthropy – this is an unsustainable model both for the business and for the recipient. The business would be unable to invest in its own future development and for the recipient of the philanthropy, who might well become dependent on the flow of funds, would be unable to survive should the flow be turned off. We would go even further and have argued, elsewhere, that a company could score highly on CSR yet have a zero philanthropy budget!

Take arms against a sea of troubles… What are the limits of CSR?

So what are the limits of CSR? CSR is accepted by a number of companies as an integral part of their mid to long-term strategy; in other companies CSR may already be alive in some parts of the organisation (in the corporate governance, HR or marketing departments) and may take some time to be embedded completely throughout the company, as the case of Shell illustrates above. Further, we also maintain that CSR is something that can be initiated and bring first results in 100 days (again, we have argued this elsewhere) as a taster for the unconvinced or as the first sparks of a brush fire for the more committed.

The idea to treat stakeholders responsibly is well accepted, but what depth is meant by the word ‘responsibly’? To date this is new ground and we don’t know the limits. Companies will decide probably through closely watching their competitors and monitoring legal directives that come their way – the EU CSR initiatives for instance.

And by opposing end them?

Is there such a thing as a CSR exit strategy? Clearly, companies will be more interested to pursue CSR if they can see some positive gains down the line. It makes sense to talk about an exit strategy for CSR, simply to give corporations an idea that there are limits to CSR and that it is not a continuous stream of future costs without benefits. We can think of four key steps down this route:

· First, of course, there must be an entry strategy and we can see that many corporations have now a strategy to deal with CSR even if, in many cases, this is mainly lip service.

· Second, as CSR becomes more and more embedded within a company’s core strategy, talk about CSR as a burden or external nuisance will wane. At such a point, CSR will be regularly monitored within the company, and social, economic and environmental results will be available regularly in company reports.

· Third, companies will know in detail their costs and the benefits of CSR.

· Fourth, an exit strategy with a planning horizon of, say, ten years will be incorporated into company strategy. This will not mean an ‘exit’ from CSR issues, simply that CSR will now be part and parcel of a company’s operations and that major efforts in the CSR field will no longer be necessary.

CSR should not be part of a “to be or not to be” soul searching debate, but part of a company’s daily activity. Many companies are like Hamlet, taking their time to take action. Their reluctance to engage with CSR is based primarily on fear of the unknown and fear of the potential costs: much of MHCi advisory work to companies, and institutions, strives to assuage such fears and provide a potential cap on the costs.

Thou livest: report me and my cause aright

To the unsatisfied

Hamlet, V ii 339 – 40

For unsatisfied, read uninformed.

[Contributed by Michael Hopkins with comments and Hamlet quotes from Ivor Hopkins]

Comment by Sir Geoffrey Chandler

Many thanks. I read this with interest. Also with dismay. The fact that you can talk of an ‘exit strategy’ implies you define CSR not as core principles embedded in all operations (which I thought you were saying at the beginning), but as a series of add-ons. This is precisely the ‘curse’ of CSR which appears to have descended on you too!

There are of course limits to company responsibilities, but they are not reached until companies have accepted their full responsibilities to all their stakeholders, which most have yet to do.

Sorry to read about your oil conference. Neanderthalism and recidivism appear to have prevailed!

Reply by Michael Hopkins

Many thanks for your comment. In other Monthly Features we have been clear that we see CSR as a total concept and in that concur with most of the points in your article. I reiterate the point of our exit strategy and that is that should CSR be sufficiently embedded in time that therein lies the exits strategy i.e. no need to focus on CSR since it is part and parcel of company strategy. However, my reference to your article that surprised me was not the content but the title. Maybe I missed something but I just didn’t see from your article how adopting CSR was a curse? Indeed, the title would help companies to avoid CSR – not something that either of us want?

Additional Response by Sir Geoffrey Chandler

Many thanks for your response, though I confess I find it somewhat disingenuous. As a former journalist I am aware that titles attract readers which indeed this did. Another pious title on the virtues of ‘CSR’ would get one nowhere. Moreover, I believe it justified. The ‘curse, as I elaborate in my article, is the prevalent interpretation that ‘CSR’ is simply a voluntary add-on giving competitive advantage. This is NOT the total concept of corporate responsibility which I (and you) believe to be the necessary basis for corporate success and survival in the 21st century. The curse, incidentally, has yet to run itself out: the misinterpretation of ‘CSR’ is a continuing diversion for companies from the reality that regulation has throughout corporate history been necessary to get the corporate world to fulfil its non-monetary responsibilities. ‘CSR’ is giving employment to many and has raised the profile of debate. Its impact in practice has been to divert attention from what is fundamentally required.

Apology to Phillip Rudolph

Phillip Rudolph wrote ‘Ten Ways to Undermine Your CSR Program’ and after correspondence with him I realise that I did, indeed, read Philip’s article too quickly and missed his substantive main point that, as he wrote to me: ‘effective [CSR] programs require effort, communication and coordination — things that corporations and businesses often talk about improving upon but rarely succeed in improving upon. My goal was to provide something of a primer on how to move in this direction.’ His article is very well worth reading and he has kindly agreed to make it available – e-mail him on Phillip Rudolph.