If we want successful ethical businesses are we looking in the right place?
Last week I chaired a debate, sponsored by Barclays bank, with the provocative title: ‘Is CSR dead?’ The chief protagonists were John Elkington fromVolans arguing for corporate social responsibility and Mark Kramer of FSG putting the case for the shared value framework that he and Michal Porter outlined in a highly influential Havard Business Review article.
As chair my fear was the focus would be on what logicians call ‘a distinction without a difference’. It was true that, on the one hand, both Elkington and Kramer were both positive about it, while on the other we could all name firms that had adopted CSR and shared values frameworks and then gone on to do some demonstrably unethical things.
But as the conversation developed with a well informed and a large audience the fault lines became much clearer. At its heart, shared value speaks to the principle of enlightened self-interest: Not only can companies pursue both profit and purpose but responding to environmental and social challenges can be a spur for enterprise.
The great strength of this approach is its potential for innovation. If companies can make money while doing good then the market can enable them to grow both their business and their benign footprint. Conversely, the weakness of companies’ ethical commitment depending on profit is that if they can’t develop the right business model they are more likely to give up trying to be good than give up trying to make money.
The CSR approach argues for an explicit commitment – through a device like the triple bottom line to meeting and being held accountable for certain non-negotiable environmental and social standards. The upside of this approach is that it should be binding, the downside is that it can present being good as a regulatory requirement, even a process of box ticking, rather than a spur to innovation.
There was also an element of evolution versus revolution to the debate. Shared value advocates are largely relaxed about the core model of the capitalist corporation while seeking to nudge it in a more ethically profitable direction. CSR advocates are more likely to identify the need for a fundamental shift in the culture and governance of companies.
Given growing public concern about big business (which forthcoming RSA research will underline) it is interesting that the 400 or so people in the room leant slightly towards CSR at the beginning but by the end were much more strongly in favour of it.
Chairing the debate I had largely to keep my opinions to myself but when it finished I had a strong sense that something important was missing.
Looking through the prism of my ‘Three Powers Theory’ (based on cultural theory), when I see a dichotomy I tend to look for a third position. As my readers will recall, the theory argues that human behaviour in groups, organisations and institutions emerges from the complex interaction of three active elements. These are the foundational sources of our ways of seeing the world, of being in the world and of seeking to change the world.
The three elements are:
- Individualism - Associated with self-interest, competition and enterprise.
- Hierarchy - The sense that there is, or needs to be, order and authority in the world. It is about making and obeying plans and rules.
- Solidarity - About belonging and believing. (Something which can inspire both altruism and trust but also tribalism and fear of change. Differs from the word ‘egalitarianism’ more often used by cultural theorists.)
These generate insight and energy, operate at every level from individual decisions to global treaties and combine and react against each other in many different ways - so understanding how they are operate in any particular context can be difficult and open to many interpretations. However, despite this complexity and despite the difficulty of achieving and maintaining balance between the elements, in most circumstances the most effective people, organisations, policies and institutions combine them.
Broadly speaking the CSR versus shared value debate pits a solidaristic (value-based) approach versus an individualistic (market innovation-based) approach. The missing ingredient is hierarchy (leadership and organisation).
When we explore bad practice in firms – like Volkswagen for example – we find that alongside issues of corporate responsibility and, perhaps, a failure to develop profitable and ethical business models, there is also evidence of profound organisational failure. Or to put it more simply: these disasters are as much about cock-up as conspiracy.
I speak to lots of companies who sense the urgency of demonstrating good business models. They have ethical codes and many are trying to meld purpose with profit but they also tend to exhibit many dysfunctional habits of large organisations. The problem is not just the intended direction of the corporate vehicle or the willingness to explore new ways of travelling but the connection between the leader’s dashboard and its many moving parts.
Many organisations with which I have engaged are in their current form simply incapable of providing the kind of leadership that goes with effective CSR and shared value. They are too big, too diffuse, too hierarchical, too bureaucratic, or riven with confused or simply bad incentives.
Good business is not just about the right intentions and an openness to innovation it has also to be about organisations that are fit for purpose in challenging times. In my experience organisational reform is not only the least acknowledged ethical challenge but also the hardest to address.
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Thank you for the article. It builds on my understanding of CSR. I agree that organizations create externalities but I am cautious of accept that the above is indeed BP’s approach to CSR.
Having worked my whole life in huge organisations (for a long spell as a Head of IR and FD) I have personally felt the pain of how hard it is to address the general cock-up-ery that arises from the complexity, confusion and bad incentivisation you reference. This will remain the case until business leaders (a) stop looking for "the thing out there" that will "fix" things (whether that's a model or consultants) and (b) truly understand the role of shareholders, financial markets and the City vis a vis the organisation's wealth creation model. In my experience there is a dangerous lack of understanding of wealth creation from board level down and next to no looking in the mirror going on.
It shouldn't be a choice between shared value and CSR; they have different but equally valid outcomes. SV is a tool for the inclusive economy, it can work to empower the bottom of the pyramid. CSR (of the type you are talking about) is about being a good (corporate) citizen, employing engaged employees and having a positive net impact on community and environments all along the value chain. Both are backed by a business case but the cases are different. Unfortunately there's another CSR which is all about ticking boxes and PR with a bit of team building thrown in for good measure. It's THAT type of CSR that should be receiving the last rites!
Matthew - insightful thoughts and interesting to get your sense of something missing here. Indeed, both CSR and Shared Value are limited and flawed ways for organisations to move forward - and will in no way prevent more organisational failures like those of recent times. At the Maturity Institute (www.maturityinstitute.com), the missing piece you identify is called mature management practice. Those few truly mature firms (large and small) understand that sustainable value and stability arise from a fundamental grasp of human governance and how their organisation must be driven by a societal value motive.