Comment: Rethinking corporate ethics and accountability

April 2002

by Jon Entine

Is the real world too complex for the nostrums of ethical investors?
asks Jon Entine

That question came to mind after my recent piece for the San Francisco Chronicle and the National Post of Canada on the use of genetically modified organisms (GMOs) in agriculture. It made the social investment community–which has become the public face of corporate social responsibility–very angry.

At issue was the “milk policy” of the American-based coffee chain Starbucks. Milk? While innocent consumers might believe that milk is good for you, social investment groups, echoing environmental activists, allege that as much as 90 percent of North American milk is “contaminated” with “pus, bacteria, and antibiotics” that results from treating cows with a protein supplement, recombinant bovine somatotropin, or rbST, to increase production. Environmental fundamentalists such as Greenpeace and Friends of the Earth brand milk one more “Frankenfood”, which serves the wider purpose of demonizing genetic engineering. The anti-GMO coalition wants Starbucks to substitute organic milk for the conventional stuff.

Like in the ongoing Israeli - Palestinian clash over the right of return, the opposing sides in the GMO debate see little room for compromise. This a religious divide, unbridgeable by reason. GMO supporters include farmers who have seen increases in yields of milk, corn, soybeans, and cotton and a reduction of deadly chemical spraying. They see bioengineering as a net plus for the environment and the developing world, which needs more and more nutritious food. Even organic stalwarts agree that there is no hard evidence that GMOs pose any more risks than traditional crossbreeding and gene-splicing that have given us such products as the tangelo and seedless grapes.

Social investment movers and shakers could have taken the high road on this complex issue by nursing along, with appropriate oversight, a promising if potentially problematic technology. Instead they are actively trying to scuttle bioengineering under the guise of supporting consumer rights.

Their tactic is to push for legislation that would require “made with GMOs” be slapped on every product linked to biotechnology. On first blush, that seems reasonable—full consumer disclosure. But it’s practical real world effect would be far more fateful. "We expect that no company would want to risk alienating their customers with labeling, so they'll eventually decide not to use any bio-stuff at all," says Michael Passoff, coordinator of the social investment campaign. Such a label would amount to "a skull and cross bones" on a product, Arianne Van Buren of the U.S. Interfaith Center on Corporate Responsibility cheerfully told me.

In other words, if ethical investors should prevail, this disingenuous ploy in the name of consumer disclosure would shut down a promising technology without debate. That would restrict consumer choice, not expand it.

The stance of ethical investors is even more disheartening because it demonstrates the ascendancy of boutique social ideology over stakeholder concerns. Bioengineering is merely the latest fad litmus test that, in the absence of nuanced analysis, lets lazy social investors sort “good” corporate citizens from “bad” ones.

Who are the bad companies? That’s any firm with links to defense production (those that developed weapons, aircraft, satellite, and communications equipment or even gas masks used in the battle against the Taliban and al-Qaida are unacceptable), nuclear power, or firms that use products or ingredients tested on animals.

The good guys? In a more innocent era–a decade ago–they were firms like Body Shop and Ben & Jerry’s that pay their high-turnover workforce near-minimum wage and sell luxury products at pricey premiums. The autocratic, narcissistic leaders that typify such organizations made names for themselves by campaigning for social justice and against global warming. The more arcane the issue and the less impact it had on direct stakeholders, it seemed, the better. On closer scrutiny, self-anointed progressive businesses are often a land of alchemy where promises are easy to make, workers are treated with indifference, and environmental reforms are window dressing. "So many socially responsible companies have noble corporate philosophies," observes Jon Lickerman, head of social research at the Calvert Group, the Washington DC-based ethical investment firm, "but mistreat their own employees, vendors, and customers."

Following the ethical implosion of these myth makers, ethical investment firms blindly touted telecommunication, technology, accounting, and financial firms. These companies offered the benefit of having business operations that were too inscrutable for ethical investment analysts to penetrate, making it easier to adjudge them ethically acceptable.

Now with the collapse of the bubble economy and the ugly ethical shenanigans unmasked in the wake of the Enron collapse, it’s becoming clear that the reliance on litmus tests to distinguish between good and bad corporate behavior just don’t work. For the most part, these screens are anachronisms that draw on notions of liberal propriety and correctness that date to the 1960s. Those truisms include the embrace of environmentalism, pacifism, human rights, animal rights, sexual rights, women's rights, and other -isms that few disagree about in principle but are problematic in the messy reality of human and coporate relations. In effect, the use of simplistic screens has devolved into a cheap marketing gimmick that caricatures the world as a battle between good vs. evil–and sadly, diverts attention away from the focus on transparency and stakeholder practices.

There is an encouraging shift in some quarters away from the vague ethical investment paradigm. In fact, some of yesterday's most vilified multinationals have quietly moved to the forefront of corporate responsibility–including Shell, Monsanto, DuPont, British Petroleum, and Gillette. By no means are these perfect companies. But they are examples of firms that offer tangible achievements for stakeholders: fair wages and benefits, impressive affirmative action practices for minorities and women, honestly engaging complex environmental issues, actively involvement in their communities, –while selling quality, competitively priced products and services. Of critical importance, they have made commitments to corporate disclosure and transparency.

It's critical to move beyond the good/bad paradigm. Social researchers or even company executives who rely on simplistic social screens belie the moral and practical complexity of the real world. In the absence of clear rationale, such criteria reflect not ethics but sentiment. The reality is that corporate social responsibility must be grounded in the actions that impact stakeholders, not on good intentions or abstract principles. Let’s hope the ethical investing community is listening.

Jon Entine is scholar-in-residence at Miami University (Ohio) and adjunct fellow with the American Enterprise Institute in Washington, DC. Jon is also an award-winning freelance journalist.

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