Sunday, 6 November 2011

On corporate social responsiblity...

I’ve always had something of a problem with “corporate social responsibility” – the idea that business has a wider duty beyond its purpose as a business. I have a still bigger problem with the confusing of this concept with “ethical behaviour”. Here’s Ken Costa, the man charged with finding a form of “ethical capitalism”:

“The present duty – on all boards to maximise shareholder value as the sole criteria for satisfying the return to shareholders – cannot continue... I am aware that this is a big change that will need detailed discussion, but we need to start with big ideas.  For some time and particularly during the exuberant irrationality of the last few decades, the market economy has shifted from its moral foundations with disastrous consequences. I cannot recall when public feeling worldwide has run so high, and even if only a minority takes its anger on to the streets, no one should imagine that the majority is indifferent to their cause.”

Now there’s a place for shareholders to discuss their expectations from Boards of Directors – those they appoint to represent their interests as owners of the business. It’s called the Annual General Meeting and, at that meeting, shareholders can appoint a board or directors that can take a different view that maximising the return on the investment those shareholders make. I’m pretty sure it won’t happen because the reason why shareholders invest is to secure a return on that investment – and we expect it to be the maximum possible.

The point I’m making here is that the corporation exists to serve the purposes of its owners and investors and that such activity is entirely ethical and moral. Indeed, were Directors to take it on themselves to reduce the returns to investors because of some other purpose – some wider “social responsibility” – they would be acting unethically. This is the dilemma of corporate social responsibility – if it is more than trading honestly and complying with the law, then it must be against the interests of the shareholders unless it is merely a marketing strategy or corporate positioning.

In all of this bear in mind that the owners of a business (or to be accurate 50% plus 1 of those owners) can do what they wish – including reducing financial returns in the interests of a wider social purpose.  But it would be wrong if directors acted without the approval of shareholders in taking such a course.

Ken Costa is right that many people are angry about a system they feel led to the problems the world faces right now. However, I am sure that the duty to secure returns for shareholders wasn’t the cause of those problems or the creator of some crisis in capitalism. What is central to all this debate is for us to rediscover the joy of the marketplace and to recognise that, for markets to work, people have to behave (in the strict sense of the word rather than its modern corruption) ethically. Ken Costa gets close to this concept:

Our task is thus to build up trust, both within and beyond the financial world, a slow, bottom-up, trade-by-trade business. It is to rebalance the equilibrium between risk, responsibility and reward. It is to re-embed the financial spirit, our drive to do well, with the moral spirit, our desire to do good. Above all it is to reconnect the various different silos of our humanity – economic, moral and spiritual – so that we live as whole people all the time and not simply as money-makers on weekdays and morally concerned citizens at the weekend.

For me the question is how do we have a system where the right behaviour – moral, ethical or whatever – secures the greatest reward. This isn’t about corporations or institutions but about people changing their behaviour. We cannot legislate for morality but we can educate people so moral and ethical behaviour is second nature.

Finally, we must stop seeking to condemn people for their success, good fortune or wealth – the “bash a banker” or “pillory a politician” approach. Nor should we turn our back on the idea or markets, enterprise and trade – these are fundamental elements of our humanity not some creation of mankind. Rejecting them would be as immoral as was their corrupting through the hubris that was the end to boom and bust.

Above all we must not place on corporations duties we do not place on ourselves – which is what “corporate social responsibility” means and it why it is wrong.


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