The CSR Newsletters are a freely-available resource generated as a dynamic complement to the textbook, Strategic Corporate Social Responsibility: Sustainable Value Creation.

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Friday, December 16, 2011

Strategic CSR - Corporate Stakeholder Responsibility

This will be the last CSR Newsletter of the Fall semester.
Have a great holiday season and I will see you in January!

Some food for thought over the break:

In the article in the url below in Wednesday’s Wall Street Journal, Al Gore and David Blood (co-founders of Gore’s sustainability-focused investment fund) present “A Manifesto for Sustainable Capitalism”:

We are once again facing one of those rare turning points in history when dangerous challenges and limitless opportunities cry out for clear, long-term thinking. The disruptive threats now facing the planet are extraordinary: climate change, water scarcity, poverty, disease, growing income inequality, urbanization, massive economic volatility and more. Businesses cannot be asked to do the job of governments, but companies and investors will ultimately mobilize most of the capital needed to overcome the unprecedented challenges we now face.

Gore and Blood define “sustainable capitalism” as:

a framework that seeks to maximize long-term economic value by reforming markets to address real needs while integrating environmental, social and governance (ESG) metrics throughout the decision-making process.

While I agree with much of the sentiment and intentions underlying the authors’ arguments, I believe their effort is misguided because it continues to demand unsolicited, proactive change from corporations:

We recommend five key actions for immediate adoption by companies, investors and others to accelerate the current incremental pace of change to one that matches the urgency of the situation.

Consistently, for-profit firms have demonstrated that they are very good at reacting to market forces and economic incentives, and that they are not very good at predicting consumer trends or shifting markets in ways that counter demonstrated demand.

An alternative focus of the efforts of the CSR community that I believe will more likely lead to the meaningful change Gore and Blood would like to see is to focus on a demand-pull strategy, rather than a supply-push strategy. In particular, we need to shift the focus from firms to their stakeholders. In Strategic CSR, we define CSR  in the following way:

[CSR is] a view of the corporation and its role in society that assumes a responsibility among firms to pursue goals in addition to profit maximization and a responsibility among a firm’s stakeholders to hold the firm accountable for its actions.” (Chapter 1: What is CSR? p5)

In other words, there is a responsibility on stakeholders to hold firms to account that is equal to the responsibility on firms to act in a socially responsible manner. I believe this more balanced approach is essential for generating meaningful change. Until stakeholders begin holding firms to account (i.e., governments start regulating effectively, suppliers start choosing firms that treat them fairly, consumers start discriminating among firms based on their ability to maximize social value, etc.), we will not see a comprehensive shift to a sustainable economic model. Firms’ primary purpose is to make a profit. As such, their risk tolerance for actions that undermine that purpose is limited. If, however, stakeholders are willing to translate their values, needs, and concerns into action that punishes those firms that fail to meet those criteria and rewards those firms that exceed expectations, then CSR becomes essential to survival. Given such incentives, for-profit firms have demonstrated time and again that they are capable of rapidly changing the way they operate.

Firms are good at making a profit. It is up to a firm’s stakeholders to define the parameters of which actions are profitable and which are not.