This
should be the best of times for the corporate social responsibility
movement. For more than a decade its proponents have been inveighing
against the evils of corporate excess, waiting for a popular backlash
that would finally legitimise their crusade for ethical business behaviour
and open the floodgates of investment dollars to more socially attuned
companies.
And then suddenly, in the United States, the moment comes! An unprecedented
series of business scandals threatens to overwhelm the most corporate
administration in history, whose senior members, including the President
and Vice-President, are trying to distance themselves from their own
past scandals. As investors clamour for the kind of ethical leadership
and corporate governance that have become buzzwords in triple bottom
line land, this should be the perfect storm for the corporate social
responsibility community.
Yet, in the United States at least, social and ethical investment
advocates have got almost no traction from these scandals and have
been almost invisible as the political process for reform has unfolded.
Why?
It’s now abundantly clear that the movement does not engage the day’s
most critical issue: what makes a corporation responsible and responsive
to its broad-range of stakeholders including customers, employees,
vendors, and investors. The central tenets of so-called ethical investing
– an opposition to arms manufacturers, tobacco production, animal
testing and bio-engineering, as well as other ideologically-loaded
notions of social propriety – have nothing to do with corporate responsibility
or ethics. There is no understanding of the importance of accounting
standards, which have devastated the lives of so many American workers
(yes, feeding one’s family is a key dimension of social responsibility).
There is only the dimmest appreciation of corporate governance issues.
How out of touch are ethical investors? Just the other day, Julie
Gorte, the director of social research at Washington-based The Calvert
Group, which oversees the largest stable of SRI funds in the US, was
asked why Calvert has never screened for accounting or governance
issues. “This is a meteor,” she said, clearly bewildered by the scandals.
“We’re still measuring the depth of the crater.”
Wake up call to Calvert, KLD (Kinder, Lyndenberg, Domini), Citizens,
and other firms that purport to research and rate the ethics of major
corporations: meteors have been hitting regularly for fifteen years.
Did the SRI community miss the huge hole left by the savings and loan
debacle of the late 1980s that devastated the lives of hundreds of
thousands of employees and investors? Or the decades-long trend of
corporations shifting assets to offshore accounts to avoid taxes?
What about the insider trading scandals that sent CEOs to jail and
shook Wall Street and led to the sentencing guideline reforms that
are the major basis for sending miscreant executives to jail?
None of those past scandals seemed to matter during the casino stock
market, least of all to the SRI community, which rode high tech and
telecom stocks to bubble gains. For years, CSR screens had focused
on social issues, what might be called “one level” screens. For example,
Levi Strauss, the jeans and clothing company, basked in a tremendous
amount of good press in the 1980s and 90s because of its ethical pronouncements
on a variety of trendy issues. Yet it made increasingly shoddy products,
treated piece workers poorly, and eventually saw its CEO mismanage
the company into the ground. It was ultimately forced to retrench,
shutter its American facilities and flee to low-wage havens. Thousands
of Levi Strauss employees no longer have jobs and the company still
has not recovered. In essence, Levi Strauss’ high-minded ethical stands
were worthless in real terms – which demonstrates the superficiality
of many SRI measures.
CSR obsessed on social notions over screens for corporate governance
and basic financial and operating performance standards. As a result,
as the bubble burst, the SRI community is not in position to reap
the political benefits and the increased clout to force positive social
change from the current crisis.
If you want to play a role in corporate reform, you have to do more
than posture about corporate ethics. For the business ethics community,
that will necessitate a sharp turn away from superficial one level
social issues to a focus on the second level of social responsibility:
the real impact of corporations on the lives and fortunes of its stakeholders,
with transparency and governance practices as the centerpiece. That
means dumping hard screens for arms manufacturing, tobacco, animal
testing, bioengineering and the like.
As long as the ethical investing movement is in the hands of social
ideologues rather than reformers, don’t expect this radical rethinking
to happen any time soon. Consider the recent article in Ethical Corporation
by Deborah Doane of the New Economics Foundation bewailing the attempt
by some SRI advocates to judge companies as “best of the baddies”
as she mockingly writes – in other words, to go beyond social scorecards
to actually judge the impact of corporate behaviour. What a radical
idea: a screen that actually encourages reform! But by Doane’s measure,
even holding one’s nose to examine the business practices of the world’s
major corporations (“Do we need oil?” she writes. “Unfortunately yes.”)
threatens to “undermin[e] [SRI’s] own principles.”
Maybe the SRI world’s increasingly reactionary principles need to
be undermined. Its advocates appear ideologically resistant to the
reality that a tiny improvement in the environmental and social practices
of corporate behemoths like British Petroleum or Unilever would improve
the lot of far more stakeholders than the creation of hundreds of
new firms that meet vague standards of ideological propriety. Do we
really want to support “principles” that demonise companies that are
critical for maintaining and improving the infrastructure of the world
economy?
By implicitly assuming that the intentions of a business can be judged
in isolation from the economic impact of a company, social and ethical
investing may promote corporate behaviour that is neither progressive
nor ethical, and may result in adverse consequences to stakeholders.
Despite problematic methodology and practice, social investing could
be an important tool for social change. After all, it has proved a
durable brand marketing concept, attracting attention far beyond its
tiny financial footprint. With higher quality research and refined
criteria, and with the introduction of corporate disclosure and accountability
standards, ethical investing could contribute to its stated goal of
identifying more ethical companies and encouraging responsive and
responsible corporate behaviour.