As far back as 1970, the highly influential Nobel prize-winning economist Milton Friedman argued that for the benefit of society as a whole, the primary concern of business should be business, not social responsibility.
It is perhaps unsurprising that free-market economists such as Friedman and Smith would be dismissive of corporate social responsibility. What is interesting is that the ethical concern that may appear to be a contemporary phenomenon is in fact not a new consideration.
What has changed is the attention that it is getting. With NGO campaigns unveiling unethical business practices, and social and environmental concerns becoming important factors in consumer choice, corporations can no longer afford to dismiss their duty to the community.
The World Bank Group defines corporate social responsibility (CSR) as: ‘The commitment of businesses to contribute to sustainable economic development by working with employees, their families, the local community and society at large to improve their lives in ways that are good for business and for development.’
This extends beyond statutory obligations to comply with legislation. It also assumes that companies are accountable to the whole of society and not just to their stockholders.
A major motivating factor behind the recently heightened interest in corporate social responsibility has been the increase in consumer awareness and the emerging focus on the origins of products.
‘Fair trade’, ‘organic’, ‘sustainably sourced’, ‘ethically produced,’ ‘carbon footprint’: accreditations are multiplying and labels and packaging offer an increasing amount of information about how products are made and where they come from.
Books like The Rough Guide to Ethical Living and Oxfam’s The Good Shopping Guide provide detailed information on what brands to buy, which shops to shop in, which services to use, and, more importantly, which to avoid.
Corporations are aware of this increased interest: they want to avoid being pariahs like Nike or Wal-Mart, and they have also realised that having an ethical reputation is itself of commercial worth. Indeed, companies such as The Body Shop and Starbucks have built their brands (and client-bases) around their ethical practices.
Over the years, The Body Shop has initiated campaigns for women’s rights, fair trade, and HIV awareness, and against animal testing among other things. One of Starbucks’ guiding principles is to ‘contribute positively to our communities and our environment.’
It is impossible to enter a branch of either of these companies without being made aware that they take their social responsibility seriously.
This kind of ethical marketing is very much aimed at a lucrative, elite niche: affluent, educated, urban Westerners. Doug Holt, Professor of Marketing at the Saïd Business School, points out that this ethical focus is absent in business-to-business marketing, or in products aimed at consumers of lower socioeconomic standing.
During a recent talk Professor Holt argued that as well as buying into an ‘ethical experience’, consumers are also realising that ‘corporations have become the most powerful actors in society, so they need to believe that they are somehow constrained or doing good.’
Aside from influencing companies to adopt ethical practices to attract customers, the value of having this sort of reputation has also given NGOs leverage, which they can use to shape the behaviour and decisions of large corporations.
In a dispute over the trademarking of premium coffee, Starbuacks was forced to concede victory to the Ethiopian government in May 2007. Trying to trademark three types of coffee native to their country to improve coffee farmers’ revenue, the Ethiopian government ran up against the powerful coffee retailers’ lobby in the US.
These coffees were part of Starbucks’ premium line. Professor Holt assisted the campaign waged by Oxfam to aid the Ethiopian government, as he explained: ‘Starbucks had built up their brand into an ethical myth, but then they were doing something that could blow up in their face.’
By framing the case as an investor issue, with the negative coverage potentially destroying Starbucks’ ethical equity and thus putting the entire brand at risk, Oxfam and Holt managed to get the coffee retailer to back down. The Ethiopian government got its trademarks.
Of course public attention and consumer preferences affect only a very narrow slice of business. While consumers can choose to patronise a different coffee shop or buy a certain body lotion, they don’t choose between different types of copper based on the social responsibility of the mining company. Yet here, again, business incentives can push these companies to operate responsibly.
The NGO Earthwatch helps companies develop environmentally -sustainable practices, working with corporations such as Cadbury Schweppes, British American Tobacco and Newmont Ghana Gold. Whether or not the companies partnering with Earthwatch are genuinely seeking to be socially responsible, self-interested motives remain important.
Companies that work in tourism or natural resources are dependent on the environment and its resources to stay in business. They therefore have a clearly vested interest in the sustainability of their practices. Investing in developing sustainable practices can also be lucrative in an unexpected way, as there is now a market to sell such innovative techniques to other companies.
A number of companies that Earthwatch works with also invest in conservation capacity-building in developing countries where they operate. By building up the skills and knowledge of members of the communities where they mine, grow or extract they are contributing to their long-term prospects in those areas.
Furthermore,in certain other sectors, such as construction, companies known for respecting and surpassing environmental regulations are awarded contracts by planning commissions.
Claire Lippold, of Earthwatch, explained that her NGO works with even the most controversial companies as they are the most important ones to push into adopting sustainable practices.
More importantly, their partnership with Earthwatch isn’t merely ‘Greenwashing’: ‘We have very strict screening process and companies have to prove they are serious about their commitment before we get involved with them.’
Indeed to get the full commercial benefits of social responsibility, corporations cannot simply pay lip-service to ethical practices. Both the FTSE and the Dow Jones have sustainability indexes with which they track the financial performance and social responsibility records of ‘sustainably driven’ companies.
This serves to facilitate investment in these companies and to set a model for other businesses hoping to improve their scores.
While Milton Friedman may have dismissed corporate social responsibility as a form of socialism, what he seems to have missed is that in many cases ethical practices are not merely altruistic but also make sound business sense.
To quote his own words: ‘The most important single central fact about a free market is that no exchange takes place unless both parties benefit.’ This is perhaps the idea that provides the most hope for corporate social responsibility.
That businesses will eventually see that being ethical is to their benefit.
