Yesterday, the 2014-2015 MBA students at the Said Business School, Oxford were invited to the Oxford Union to attend a debate on 'Responsible Business means business first, responsibility second'. The speakers were professors at the School, and successful business women and men.
The proposition stated that the purpose of business was to do business first and be profitable. They further stated that businesses were firstly and fore mostly responsible to their stake holders, and their responsibility to wider society came second. The opposition on the other hand, stated that businesses did not operate in a vacuum but was part of society and therefore had a duty to society at large in their day-to-day operations.
In my opinion, the debate last night did not have any clear points of clash due to the ambiguity in the definition of 'responsible' and 'stakeholders'. The proposition seemed to be saying that a business had to be 'responsible' to its 'stake holders' (shareholders/customers/people affected by the business??) in order to be profitable- it didn't seem to have an ambitious definition of 'responsibility'; while the opposition provided example after example of how 'irresponsible' businesses fared far worse than other companies operating in a particular sector.
I thought that it was really the last speaker for the opposition that presented the issue as having two sides by being clear about what he meant by 'responsible business'. For one, he talked about the 'business' of prostitution and how the application of the proposition's definition of 'success' in terms of immediate profitability to this business was repugnant. He further made the point that no business operated in a vacuum. Decisions taken by businesses affect a wide section of society and therefore businesses are obligated to be responsible to society at large. Although I thought these points were interesting, I felt that the arguments made needed to be broken down further.
During the audience-question answer session an interesting point was made about how big IT companies such as CISCO were only able to give their technology away for free for a good cause (to the Government of India in order to develop the Aadhar Scheme that would enable policy makers to identify people in need of aid) BECAUSE they put profits first and therefore had the resources available to 'do good'. This begs the hypothetical question- if CISCO had given more importance to their responsibility to society, would the good/impact created be more than by giving away technology as charity? Should this question be asked? Does this CSR act as a smoke screen and divert attention away from the real rotten core of the business? Does this kind of CSR really benefit shareholders- in making investing in the company attractive? Or should a CSR strategy in keeping with the fundamental business strategy of the company be developed with the ultimate motive of increasing profitability? Do businesses need to take a larger ethical stance? Is the debate really about the rationalization and kind of Corporate Social Responsibility (CSR) that needs to develop rather than if CSR is needed per se? How should small businesses approach CSR?
When I looked up the definition of 'responsible' online, I found the following definition: 'Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.' The Organization of Responsible Business which provides this definition is very clear when it states that it is pro-business and it is essential that remaining profitable is a business' first responsibility. However, it goes on to say that profitability should not be the be-all and end-all and that the 'how' question is also vitally important. But CSR was not always rationalized in this way. An article in the Harvard Business Review implicitly defines 'responsible business' as businesses which worry about long term impact. This definition of responsibility has come a long way from where it started in the early 1900.
This article Lee(2008), traces the evolutionary history of Corporate Social Responsibility. In 1917 Henry Ford tried to defend reinvesting Ford Motor's accumulated profits on plant expansion while slashing the price of Model T vehicles, stating that 'Business is a service, not a bonanza.' This view was not received well by shareholders,or the court. 80 years later when Henry Ford's great-grandson made the same argument, he not only was NOT slapped with a law suit, but also received wide spread support from share holders. What changed?
The article suggests that in 1919 the concept of social responsibilities of a business was couched in a vaguely moral framework so that shareholders could not see how it served this served their interests. In keeping with Adam Smith's market philosophy, businesses saw no reason why they should produce public good services. Intellectuals such as Milton Friedman also strongly opposed CSR because of the danger perceived in shareholder funds being misappropriated in the name of social responsibility. Friedman also did not believe that businesses had the skills or the knowledge to be able to solve social problems.
What changed post 1919 was the rationalization of CSR in terms of the tight coupling between CSR and the financial performance of businesses. The article goes on to state that in a survey conducted by The Conference Board, nearly 90% of corporate managers reported that their companies treat CSR as a core business principle and 70% reported that their company had a corporate foundation that advocated social causes. This change happened because of the number of environmental and safety regulations that came into effect in the 1960s as well as the growth of consumer rights movements. It was in the 1970s however when a clear linkage between CSR and the financial performance of businesses was established with the growth in empirical research. It is to be noted that a greater spending on CSR does not ALWAYS correlate with a better financial performance.
Frederick(1994) posits an interesting theory of how the past morally embedded framework of CSR which led to all sorts of tough decisions ( 1) The kind of operational framework for CSR 2)The institutional mechanism of CSR, 3)Trade-off between economic and social goals and costs, 4) The inherent vagueness of the moral underpinning of CSR) has given way to something he terms as 'corporate social responsiveness' (which he terms as CSR2), where businesses respond to social pressures. This is sometimes termed as soft law. With this idealization, businesses need only worry about how far they have to give in to these pressures, the tools they can use (the micro in-firm strategy and the broader macro/institutional strategy). This thus serves to take the moral heat of businesses, and allows them to think in terms of strategy etc. Simon Zadek in an article in the Harvard Business Review cited earlier says that businesses usually go through a cycle of 'defensive measures, compliance, managerial, strategy, civil' when responding to change. Each stage of this response cycle is interesting. Sometimes businesses can 'comply' with standards and move further in the cycle in spite of the public believing a stronger commitment is required. An example of this provided in the article is the debate on what food companies need to do to tackle the problem of obesity. Michael Porter has written that the problem with this approach is that responding to societal pressure puts businesses on the defensive. This is not always a positive thing.
Clearly, however, social responsiveness is not the same as social responsibility. Some sections of society could be left behind. In addition social movements do not always result in change. This article provides 6 reasons why change is so difficult. Some of the problems lie with consumers. Consumers dont like paying more and that is something that needs to be addressed. Thus in my opinion, the usefulness of responsiveness as opposed to responsibility could have been a question around which the above debate had been framed.
Where in this debate do B-Corporations and social entrepreneurship ventures come in? B Corporations state that environmental and social goals are important to them and that profits are not their ONLY driving force. It is extremely interesting to see how they fit in, into this current debate.
The proposition stated that the purpose of business was to do business first and be profitable. They further stated that businesses were firstly and fore mostly responsible to their stake holders, and their responsibility to wider society came second. The opposition on the other hand, stated that businesses did not operate in a vacuum but was part of society and therefore had a duty to society at large in their day-to-day operations.
In my opinion, the debate last night did not have any clear points of clash due to the ambiguity in the definition of 'responsible' and 'stakeholders'. The proposition seemed to be saying that a business had to be 'responsible' to its 'stake holders' (shareholders/customers/people affected by the business??) in order to be profitable- it didn't seem to have an ambitious definition of 'responsibility'; while the opposition provided example after example of how 'irresponsible' businesses fared far worse than other companies operating in a particular sector.
I thought that it was really the last speaker for the opposition that presented the issue as having two sides by being clear about what he meant by 'responsible business'. For one, he talked about the 'business' of prostitution and how the application of the proposition's definition of 'success' in terms of immediate profitability to this business was repugnant. He further made the point that no business operated in a vacuum. Decisions taken by businesses affect a wide section of society and therefore businesses are obligated to be responsible to society at large. Although I thought these points were interesting, I felt that the arguments made needed to be broken down further.
During the audience-question answer session an interesting point was made about how big IT companies such as CISCO were only able to give their technology away for free for a good cause (to the Government of India in order to develop the Aadhar Scheme that would enable policy makers to identify people in need of aid) BECAUSE they put profits first and therefore had the resources available to 'do good'. This begs the hypothetical question- if CISCO had given more importance to their responsibility to society, would the good/impact created be more than by giving away technology as charity? Should this question be asked? Does this CSR act as a smoke screen and divert attention away from the real rotten core of the business? Does this kind of CSR really benefit shareholders- in making investing in the company attractive? Or should a CSR strategy in keeping with the fundamental business strategy of the company be developed with the ultimate motive of increasing profitability? Do businesses need to take a larger ethical stance? Is the debate really about the rationalization and kind of Corporate Social Responsibility (CSR) that needs to develop rather than if CSR is needed per se? How should small businesses approach CSR?
When I looked up the definition of 'responsible' online, I found the following definition: 'Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.' The Organization of Responsible Business which provides this definition is very clear when it states that it is pro-business and it is essential that remaining profitable is a business' first responsibility. However, it goes on to say that profitability should not be the be-all and end-all and that the 'how' question is also vitally important. But CSR was not always rationalized in this way. An article in the Harvard Business Review implicitly defines 'responsible business' as businesses which worry about long term impact. This definition of responsibility has come a long way from where it started in the early 1900.
This article Lee(2008), traces the evolutionary history of Corporate Social Responsibility. In 1917 Henry Ford tried to defend reinvesting Ford Motor's accumulated profits on plant expansion while slashing the price of Model T vehicles, stating that 'Business is a service, not a bonanza.' This view was not received well by shareholders,or the court. 80 years later when Henry Ford's great-grandson made the same argument, he not only was NOT slapped with a law suit, but also received wide spread support from share holders. What changed?
The article suggests that in 1919 the concept of social responsibilities of a business was couched in a vaguely moral framework so that shareholders could not see how it served this served their interests. In keeping with Adam Smith's market philosophy, businesses saw no reason why they should produce public good services. Intellectuals such as Milton Friedman also strongly opposed CSR because of the danger perceived in shareholder funds being misappropriated in the name of social responsibility. Friedman also did not believe that businesses had the skills or the knowledge to be able to solve social problems.
What changed post 1919 was the rationalization of CSR in terms of the tight coupling between CSR and the financial performance of businesses. The article goes on to state that in a survey conducted by The Conference Board, nearly 90% of corporate managers reported that their companies treat CSR as a core business principle and 70% reported that their company had a corporate foundation that advocated social causes. This change happened because of the number of environmental and safety regulations that came into effect in the 1960s as well as the growth of consumer rights movements. It was in the 1970s however when a clear linkage between CSR and the financial performance of businesses was established with the growth in empirical research. It is to be noted that a greater spending on CSR does not ALWAYS correlate with a better financial performance.
Frederick(1994) posits an interesting theory of how the past morally embedded framework of CSR which led to all sorts of tough decisions ( 1) The kind of operational framework for CSR 2)The institutional mechanism of CSR, 3)Trade-off between economic and social goals and costs, 4) The inherent vagueness of the moral underpinning of CSR) has given way to something he terms as 'corporate social responsiveness' (which he terms as CSR2), where businesses respond to social pressures. This is sometimes termed as soft law. With this idealization, businesses need only worry about how far they have to give in to these pressures, the tools they can use (the micro in-firm strategy and the broader macro/institutional strategy). This thus serves to take the moral heat of businesses, and allows them to think in terms of strategy etc. Simon Zadek in an article in the Harvard Business Review cited earlier says that businesses usually go through a cycle of 'defensive measures, compliance, managerial, strategy, civil' when responding to change. Each stage of this response cycle is interesting. Sometimes businesses can 'comply' with standards and move further in the cycle in spite of the public believing a stronger commitment is required. An example of this provided in the article is the debate on what food companies need to do to tackle the problem of obesity. Michael Porter has written that the problem with this approach is that responding to societal pressure puts businesses on the defensive. This is not always a positive thing.
Clearly, however, social responsiveness is not the same as social responsibility. Some sections of society could be left behind. In addition social movements do not always result in change. This article provides 6 reasons why change is so difficult. Some of the problems lie with consumers. Consumers dont like paying more and that is something that needs to be addressed. Thus in my opinion, the usefulness of responsiveness as opposed to responsibility could have been a question around which the above debate had been framed.
Where in this debate do B-Corporations and social entrepreneurship ventures come in? B Corporations state that environmental and social goals are important to them and that profits are not their ONLY driving force. It is extremely interesting to see how they fit in, into this current debate.
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