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Date: 17 May 2008		Compiled by Mr. M. Sathya Kumar
	Does CSR work? “THE theological question—should there be CSR?—is so irrelevant today,” says John Ruggie of Harvard University's Kennedy School of Government. “Companies are doing it. It's one of the social pressures they've absorbed.” Three years ago a special report in The Economist acknowledged, with regret, that the CSR movement had won the battle of ideas. In the survey by the Economist Intelligence Unit for this report, only 4% of respondents thought that CSR was “a waste of time and money”. Clearly CSR has arrived. Mr Ruggie and others claim that the real question about corporate responsibility today is “not whether but how”. But the debate has not entirely vanished, and it is worth pausing to consider some of the arguments of those who question the whole point of it.   Within companies, the few sceptics still matter, especially since they seem to be found disproportionately at the top end of management. And from time to time the debate surfaces noisily in public. Last summer, for example, Robert Reich, a former labour secretary under Bill Clinton, now at the University of California at Berkeley, launched a broadside against CSR in his book, “Supercapitalism”. The CSR industry had learnt to shrug off criticism from free-marketeers such as Milton Friedman (whose seminal critique of the concept, “The social responsibility of business is to increase its profits,” appeared in the New York Times Magazine in 1970) or, for that matter, this newspaper. But here was a cruel cut from a Clintonite. More importantly, those who doubt whether CSR is worth having raise points that have a significant bearing on how it is done. Take three of the main objections: that it encroaches on what should be the proper business of government; that CSR is a sideshow; and that it involves playing with other people's money. Mr Reich argues that the energy spent on CSR diverts attention from establishing rules that advance the common good—rules that help to prevent oil spills, say, or protect human rights abroad. In a democracy, he says, that should be the job of elected governments, not profit-maximising companies. It is easy to see the potential for a corrupt bargain: lobby groups find it more rewarding to put pressure on corporate executives because they respond faster than governments; governments are only too happy to duck the issue or let business pick up the bill. In practice, however, it is often the absence of government rules that makes firms feel they have to fill the void—for example, by cutting carbon emissions or setting labour standards. And as businesses go global, they face a complicated patchwork of rules. Mr Ruggie, who serves as the UN secretary-general's special representative for business and human rights, is particularly concerned about parts of the world where conflict or corruption means there is no effective government to do the rule-setting. Still, it is surely right to keep a wary eye on whether the things firms do in the name of good citizenship are truly in the best interests of society as a whole. The “sideshow” objection takes issue with the assumption, all too common among executives and activists alike, that the pursuit of profitable business is not a socially responsible thing in its own right. Yet there is nothing wrong with making money: more than anything else, that is how companies do good. The welfare they create in the form of jobs, products and innovation dwarfs anything firms are likely to do explicitly in the name of CSR. In 2004-05 Oxfam, an agency devoted to poverty relief, and Unilever, an Anglo-Dutch consumer-goods company, jointly conducted a detailed study of the economic impact of Unilever's operations in Indonesia. The conclusions were eye-opening, especially for Oxfam. Unilever in Indonesia supported the equivalent of 300,000 full-time jobs across its entire business, created a total value of at least $630m and contributed $130m a year in taxes to the Indonesian government. The lesson for firms is that they have been far too defensive about their contribution to society. If efforts to do good become a distraction from the core business they may actually be downright irresponsible. After all, a socially conscious but bankrupt business is no good to anyone. Spending other people's money The most fundamental criticism of CSR is that what executives spend on it is other people's—ie, shareholders'—money. They may mean well, and it may give them satisfaction to write a cheque for hurricane victims or disadvantaged youth, but that is not what they were hired to do. Their job is to make money for shareholders. It is irresponsible for them to sacrifice profits in the (sometimes vain) pursuit of goodness. Thoughtful practitioners of CSR understand this. Executives overseeing the environmentally minded Plan A at M&S stress they are running a business, not a green charity. Marc Benioff, the boss of salesforce.com, is an evangelist for corporate philanthropy but keeps a clear sense of priorities: “First and foremost my shareholders are the most important thing.” The simple solution is that businesses should concentrate on the sweet spot where initiatives are good for both profits and social welfare. This is the sort of “win-win” situation that executives love to talk about: the smart thing to do as well as the right thing to do. Green policies currently offer lots of opportunities for win-wins, which is why so many firms are eagerly embracing them: cut fuel costs and you help both the planet and the bottom line; expand your range of organic food and increase your market share. The same logic should lead senior management, faced with a bewildering spectrum of socially worthy activities, to select those that are most relevant to their business. Yet people on both sides of the barricades tend to dismiss this argument. Sceptics say it renders CSR meaningless. If it amounts to nothing more than good management, it does not count. NGO activists, too, often look for some element of sacrifice on the part of business, if only to demonstrate a degree of moral commitment—without which, they fear, a company's worthy programmes may disappear with the next downturn. Both arguments are too narrow. If corporate antennae are more keenly tuned to social trends and sensitivities, alerting managers to risks and opportunities they might not otherwise have spotted, so much the better for business. As for the activists, they of all people should like the idea of “sustainability”: if a business benefits from a CSR initiative, it is more likely to last, and its involvement may be more dynamic and innovative too. To be fair, attitudes are changing, both in business and among NGOs. A growing number of companies are working with NGOs, especially those with operations on the ground and a commitment to getting things done. Both sides now see CSR as offering what Mr Porter calls “shared value”: benefits for both business and society. Georg Kell, the director of the UN Global Compact, says that the case for engagement has changed from a moral to a business one. On this view, the best form of corporate responsibility boils down to enlightened self-interest. And the more that firms embracing it are seen to be successful—through astutely managing risks and recognising opportunities—the more enlightened their leaders will be perceived to be. But do such policies really help to bring success? If not, the whole CSR industry has a problem. If people are no longer asking “whether” but “how”, in future they will increasingly want to know “how well”. Is CSR adding value to the business? An inconvenient truth At present few companies would be able to tell. CSR decisions rely more on instinct than on evidence. But a measurement industry of sorts is springing up. Many big firms now publish their own sustainability reports, full of targets and commitments. The Global Reporting Initiative, based in Amsterdam, aspires to provide an international standard, with 79 indicators that it encourages companies to use. This may be a useful starting point, but critics say it often amounts to little more than box-ticking; worse, it can provide a cover for poor performers. Sustainability rankings and indices of various kinds also help to concentrate corporate minds by shaming firms or helping them shine. But they also point to a problem. Two of the best-known indices—the Dow Jones Sustainability index and the FTSE4Good—underperform the market. AccountAbility, a British think-tank, admits to the inconvenient truth that its 2007 ranking of the Fortune Global 100 companies by their progress on building sustainability into their business shows no connection with their financial performance. Even so, interest in socially responsible investment (SRI) is on the rise, along with the general surge in interest in anything to do with climate change. The signs are many: more executive time spent on managing relations with SRI investors; financial institutions with over $10 trillion under management signing up for the UN's Principles for Responsible Investment; an “explosion of interest” in related research, according to Peter Kinder, the president of KLD Research & Analytics, which specialises in benchmarks for social investing. A new, exhaustive academic review of 167 studies over the past 35 years concludes that there is in fact a positive link between companies' social and financial performance—but only a weak one. Firms are not richly rewarded for CSR, it seems, but nor does it typically destroy shareholder value. Might cleverer approaches to CSR in future produce better returns? “There is no evidence that ESG [environmental, social and corporate governance] or SRI investing on their own add value,” say analysts at Goldman Sachs. But they reckon that by incorporating an ESG perspective into their long-term industry analysis they can beat the market. Their model, called GS SUSTAIN, includes ESG analysis as “a good overall proxy for the management of companies relative to their peers”, hence indicative of their chances of long-term success. But these factors need to be put into the context of companies' financial performance and the circumstances of individual industries. A company's attention to environmental, social and corporate-governance issues is only one factor among others in determining its long-term success. The Goldman Sachs model is an intriguing attempt to capture the complex interaction between social-responsibility issues and the many other things that businesses worry about in the real world. An integrated view of the role of CSR happens to be what leading companies are striving for too. "The proponents of the Economic Value Added tool argue that it is the only financial management system that provides a common language for employees across all operating and staff functions and allows all management decisions to be modelled, monitored, communicated and compensated in a consistent way — always in terms of the value added to shareholder investment. An apparently sensible approach, but there are fundamental flaws, as N. Shanmuganathan describes" Source: Jan 17th 2008, From The Economist print edition
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