There is no catch-all “business case” for ethics, just good and bad business judgments. And always a healthy slice of luck
There is a powerful business case for most of the actions that a company might take under the label of “corporate social responsibility”. But much of what is currently offered under the heading of “business case for CSR” is tosh, and we need to wean ourselves off it.
For instance, one of the most common questions I still get asked by managers and journalists alike is for figures to show that “doing CSR” has a measurable and inevitable positive impact on a company’s share price, or on its bottom line.
It is a mirage, a distraction. Such figures that do exist are based on a fundamentally flawed premise.
There are various ratings systems that have identified the top corporate citizens, or the most sustainable companies, and from time to time we hear to what degree these companies may have outperformed their peers. These include the Innovest Global 100, the Jantzi Index, FTSE4Good, Dow Jones Group Sustainability Index, Corporate Responsibility Index, and others.
The thing that these indices all have in common is that they are all different. Not only is there no agreement about what constitutes a good, or a sustainable, company, but there is also no agreement even on how you would measure the achievement of these criteria. Let me give you an example.
Company A has policies on the environment, human rights, workplace flexibility and community involvement. It sets targets and achieves most of them. It would top some of those indices.
Company B has a dynamic and fast-moving culture. The chief executive is committed to sustainability. The company has created new products in line with this commitment and is challenging its competitors to catch up. But Company B has no time for the bureaucracy of a hundred different policies and processes – it lives by its values and expects employees to use their judgment in the light of those values. The company might win CSR awards for its innovation, but it does not appear in some of the indices.
Any process that would rate either of these companies as better corporate citizens than the other is purely a judgment call. And reading anything whatsoever into their historic financial performance as a result is a game of fluke.
This is not a theoretical issue – look at oil companies BP and Exxon Mobil.
BP, during John Browne’s stewardship, showed leadership on climate change policies and reporting – it was the first to pull out of the Global Climate Coalition and coined the “beyond petroleum” concept. Meanwhile, however, it allowed systemic failings in basic safety processes to develop at its Texas City oil refinery, leading to the deaths of 15 oil workers, and injuries to 170 others, in an explosion in 2005.
Exxon Mobil is rated by many as having the best operations of any oil giant, particularly in safety, having learned the hard lessons of the Exxon Valdez oil spill in 1989. On the other hand, the company has taken a regressive political stance on climate change that has made it a campaigners’ hate figure.
What should we read into the fact both companies are doing well, at a time when oil prices are sky high? Nothing. Let’s move on.
The case for good judgment
There is no one thing called “corporate social responsibility”. It is an umbrella label that covers a range of choices, dilemmas, principles and values. As a result, there can be no one business case that covers it – each proposed course of action requires its own rationale, will carry with it a degree of judgment, and will require skill in execution in order to achieve success.
Take Iceland, the frozen food retailer. When it became the first retailer in the UK to shun genetically modified foods in 1998, was that corporate social responsibility? It was certainly a response to a growing concern among key stakeholders. Well, it worked. The company received huge credit from customers, evidenced in a 10 per cent sales increase, and from other stakeholders alike. An obvious illustration of a business benefit.
When Iceland took its next step two years later, to go all organic, was that corporate social responsibility? It was changing product make-up to meet social criteria, so presumably it was. But on this occasion, the new strategy died a quick death – customers deserted the store in droves and the chairman lost his job. Obvious illustration of … well, what?
It was an obvious illustration of the fact that there is no alternative universe where good intentions always lead to success. You still have to make a sound judgment on the issues, understand where your customers are and whether it is an area in which they will either reward you or tolerate you. You have to execute your strategy well, and communicate it well. Oh, and if you do all that, there’s a certain amount of dumb luck that comes into play as well.
No ethical consumer revolution
It is a case worth remembering whenever you hear somebody arguing that the business case for corporate responsibility is that customers demand it. Yes, the “ethical shopper” is a growing segment of consumerism. And yes, you can actually run a successful business based purely on this segment. But any marketer worth their salt would greet such arguments with a big “so what?” and they would be right to do so.
Some campaigners will tell you that corporate social responsibility is now mainstream. Eighty-six per cent of people say that they would rather buy products from responsible companies. But do we believe them?
When Hovis, the UK bread maker, ran focus groups to rate its new bread wrappers – which carried pictures of food eaten with bread rather than the bread itself – all participants agreed that they least liked the ones with pictures of baked beans. In real life, however, these were the loaves that flew off the shelves. It seemed that nobody in the focus group wanted to admit that they gave their children beans on toast. And nor do customers want to admit that they don’t really ask or care about the ethics of the companies they buy from.
Yes, some people do care for the moral values of companies they buy from, and it is a growing trend. But it is still a niche. Marketers know it is a niche. And if it’s not the niche that customers are aiming at, pointing at it won’t persuade them.
Marketers may not believe in the ethical market niche, but the one statement that they will universally and instinctively recognise to be true is that what they most need from the customer – whether it be consumer or business – is trust. Things that damage the trust of the customer damage the company.
In an Ipsos-Mori survey last year, people said the three most important factors in trusting a company were quality, customer service and ethical behaviour. In other words, customers will meet you if you deliver on your promises. You need to understand which elements of your brand promise relate to the range of issues currently described under the term corporate social responsibility.
If you own a cool brand, you cannot be caught out using sweatshops, which is not cool. If yours is a safe brand, you cannot be seen to be using chemicals that may affect people’s health.
It is easier to see the cost of losing trust than it is to see a distinct financial return from keeping it. So, for instance, when Wal-Mart recently sought a licence to operate banking services, it met fierce resistance. It argued that it had no intention of seeking to take on or undermine the high street banks, it merely wanted to be able to offer customers similar financial mechanisms that other retailers already did. Eventually, the resistance proved to be so entrenched that the company gave up, seeing the hassle and cost of going ahead as outweighing the expected benefits. That outcome was certainly one of the costs of that loss of trust.
Some of the more robust research that has been carried out into what makes companies enduringly successful suggests that having a strong values-led culture makes a real difference. When a company can instil within its people a commitment to a purpose beyond profit, it gives staff a powerful motivation based on a common business goal, and it defends the company a little from short-term changes of leadership. Companies that fit this bill have been at the top of their industry for decades – and that kind of performance talks.
There is plenty of scope for self-deception here, though. Many of the company bosses who would swear that they have a values-driven business have no such thing. Oh, they have a values statement on the wall of their office. But if it doesn’t change the way people in the call centres make decisions, it is not a set of values; it is just words.
You don’t need fancy or original values statements. “Always do right by the customer” would do fine, so long as it is pushed over and over again through the business.
Of course, it does not have to be about an immediate impact on the bottom line in order for it to count as a business case. Many of the senior business leaders involved in corporate social responsibility become so simply because they realise you have to invest in order to get something back, and businesses depend completely on the health of society.
Businesses are not separate from society. In creating jobs and goods or services that people need, they add value to society. By creating stability, health and education services, and a range of other things, society supports businesses’ ability to operate at all.
So there is a business imperative, not just a moral imperative, to manage the company’s impact on climate change, or on local communities. The worst the impact of climate change, the higher the costs of being in business and the less stable the business environment. The poorer the state of local communities, the less likely the talented employees you want to keep will want their children growing up there.
Any company that tells you it does not need to attract and retain great people is on its way out. A phenomenon of the modern age is that great people know that they have choice – especially when they emerge blinking into the world as new graduates. All the surveys have shown that increasing numbers of them want to work for companies that share their values and they can feel proud of. Corporate responsibility can be a real differentiator for a company in terms of attracting these people.
Heads of CSR tell me that the impact on potential and existing employees is the most robust part of their business case.
Will that survive a recession if we headed back to 10 per cent levels of unemployment? Remember, we are talking about the top talent – the cream of the crop. When companies downsize in order to cut costs, that rarely stops them wanting to hold onto, and attract more of, the best talented people that will help them to find their future profits. The top people will not find themselves short of suitors in the course of a normal downturn.
How decisions get made
It is worth taking a reality check on how decisions actually get made in business.
No marketing campaign, product launch or rebrand, was decided upon because somebody was able to prove it could not fail. That degree of proof is simply not possible in most business situations.
Generally, if somebody chooses to buy from you it is because they like you, your brand, or your company and they want to buy from you. When sceptical chief executives demand a business case, it is because they do not want to buy from you and they are seeking to justify their scepticism by demanding a level of proof that is not realistically achievable.
Management guru Tom Peters talks about how everyone thinks that Field Marshal Rommel invented Blitzkreig, and then the German army used it to devastating effect in their invasion of France in the Second World War. In fact, the invasion extended past its supply lines and the high command ordered a halt, but General Guderian in the field did not get the message and kept going. Shocked by their own success, they rationalised it after the event. Peters suggests a similar process often happens in business: do something, get lucky, attribute luck to superior planning, and get medals.
Decisions in business are often made on instinct without the benefit of any strategic analysis whatsoever. The failures are quietly forgotten. The successes become masterpieces of business strategy, and get written up into case studies.
Don’t be fooled. Never believe the PR. A business case is just a reasonable rationale why a particular course of action is worth doing. When you get “proof” demanded of you, just remember that what they are saying they need, and what they really need, may be two different things.