The individual and the Corporation

A few years ago a group of Harvard MBA students pledged to, on a voluntary basis of cause and under the banner of Responsible value Creation, that they as business leaders would recognize their role in society. A MBA that signed the oath recognized that his or her purpose is to lead people and manage resources to create value that no single individual can create alone. And that the MBAs decisions affect the well-being of individuals inside and outside my enterprise, today and tomorrow.

Therefore, a MBA promise that:

  • I will manage my enterprise with loyalty and care, and will not advance my personal interests at the expense of my enterprise or society.
  • I will understand and uphold, in letter and spirit, the laws and contracts governing my conduct and that of my enterprise.
  • I will refrain from corruption, unfair competition, or business practices harmful to society.
  • I will protect the human rights and dignity of all people affected by my enterprise, and I will oppose discrimination and exploitation.
  • I will protect the right of future generations to advance their standard of living and enjoy a healthy planet.
  • I will report the performance and risks of my enterprise accurately and honestly.
  • I will invest in developing myself and others, helping the management profession continue to advance and create sustainable and inclusive prosperity.

But to what extend is this oath really valid and worth the paper it is written on. One of the central questions that members of organizations and corporations alike are faced with is if their personal conviction could be in contrast to the business decisions and actions they are taking. As part of a machine bureaucracy the individual means less and less, they are just part of a system which in the end only have one aim and that is to ensure its own survival.

One might argue that even though the individual wants to do what is right and fair, he or she will always be under and held accountable to the overall purpose of business and that is to create and accumulate wealth. If we started to define the purpose of the corporation in any other way it would no longer be the same institution.

One might ask. What role does the individual really have in the machine room of corporate enterprise? And the answer might not be what we want it to be.

First of all an individual that wants to be part of any organization needs to accept and play by the rules that are embedded in its DNA. If one is unable to do so he or she will be expelled from the organization or leave on their own account. So if one does not accept that creating wealth is the purpose of business, it is very hard to stay within an organization which has this very purpose. This does not mean that it will be the only value or norm that guide corporate decision-making it just means that when corporate individuals does something it will always be with this rational as a guiding factor.

So for example when companies goes into partnership with NGOs there might on the surface be ethical reasons why such as reducing child labor or remedy some of the impacts of pollution has on the environment. But, there will also be an economic rationale behind the partnership. This could for instance be that it will hurt the company financially, if it receives negative exposure in the media or risks being a target of consumer boycott. It is not that the individual manager taking the decision about a potential partnership is not a good person or has genuine feelings about child labor or the environment, it is just that he or she will not be able to free themselves from the underlying rational of profitability.

Second, if individuals want to change an organization it needs to be done in accordance with the profitability rational in mind. In short it means that they will have to implement change that is systematic in nature, and which can be linked to the economic performance of the organization. There have been plenty of examples were corporations have been able to say one thing and do another just think of Enron and BP to name just two. So instead of pretending not to be greedy companies need to accept that it is in there nature and that it is part of “who” they are. Just like the crocodile can’t pretend not to be what it is, basically an eating machine, corporations need to accept that the accumulation of funds is central to their identity. And just like the crocodile, not because they are evil or are out to “get” somebody, but because it is so deeply rooted that it defines them.

So as an individual one have to accept that if you are part of a corporation you will also be tempted and influenced by the beast. It is not because you are a bad person, and in your private life you might be the best friend, father, mother, husband, wife etc. around, but when you take on that suit the very nature of your judgment and decision-making paradigm changes. The very nature of your existence change from being a friend, father, mother etc you become the manager, the CEO, the Supervisor, the controller and that is what guides your actions.

And when you pledge that you “will not advance my personal interests at the expense of my enterprise or society” or engage in “business practices harmful to society” you will always put your enterprise before society not because it is wrong or right but because you can’t do anything else.

Capitalism and CSR

I just read an interesting paper by Wayne Visser. He criticizes what he believes is the failure of CSR, or what he names as CSR 1.0 as it current is being practiced. He makes the comparison between CSR and the developments within the internet moving from Web 1.0 to Web 2.0. He believes that there should be five guiding principles for a new form of CSR namely: Creativity (Sustainable Business innovation), Scalability (The ability to transfer individual experience into a systematic approach), Responsiveness (meeting the needs of the community), Glocality (a rewrite of being global but acting local) and Circularity (A cradle to cradle approach)  

His article looks into some of the key areas of CSR and comes up with a DNA model for responsible business. His key point is that companies of the future that practices CSR, or CSR 2.0 as he put it, will have to include four basic “codes” into all aspects of their business. These building blocks are Value Creation, Good Governance, Societal Contribution and Environmental Integrity.

I must admit I like the approach that Visser present. Especially one point, which he includes and I think that many CSR professionals tend to miss in their argumentation, is that companies have to make a profit in order to be able to contribute the society. While Visser thinks that “our modern capitalist system is faulty at its core” and points out that it is basically a limitless system dedicated to endless consumption of our global resources. He argues that Adam Smith and his “invisible hand” were wrong and that the resource consumption of capitalism should somehow be controlled. His basic argument is that nothing lasts forever and if business continues to exploit the resources of the earth we will all suffer.

As a firm believer in both CSR and in Capitalism (faulty as they both seem to be) I have to say a few words on behalf of our current economic system.

First, capitalism is not the perfect system assuming that one’s goal is that we should have a perfect harmonious world. Actually it has disharmony as one of its central points as markets strive in the vortex between demand from those who want and the ability of business to produce in order to meet that want.

When business operates it will always try to produce at the lowest cost possible at the right quality in a timely manner. This is because we as consumers wants to buy quality at the cheapest price available and that the owners wants as much out of their investment as possible. In a globalised world we are able to produce our products in one end of the world and sell on the local market in another, at a fraction of the price it would take produce the same thing locally.

In theory all should be happy, we as consumers (because we can afford the product), workers in the developing world (because they have jobs), Society (because we all pay tax and contribute to local community) and the environment (as we disperse a possible impact).

However, we are not as happy as we could be. Because consumers lose their jobs when their place of work is moved, as the working conditions in the developing world is far from what we have come to expect, as corruption and tax schemes tend to eat up all the potential benefits that having big business do investments should come with and because there is no effective local government to enforce en environment standards. And of cause because there are evil people who are willing to make others suffer in-order to make a buck.

But as flawed as it might be it seems to be the only system that we as humans are able to make work.

Secondly, Because of these tensions in the capitalist system and the access to information that have become available through the web about the impact of global business we have invented CSR. Or rather business has invented CSR, as it is not a system that governments have promoted, actually quite to the contrary actually. Think of strategic philanthropy and how giving company products to schoolchildren. Think about the controversy this raised among the public. So, why should capitalist endorse CSR? Well they already do because they want what every business desire namely growth, prosperity and market share, and in order to do so they need to manage risk, reduces costs, be ethical, retain and attract employees, manage their stakeholder relationships, have a positive brand, innovate and learn, and not least understand their business even better than it does today.

In this context is CSR a tool that business can use to be ahead in the future. Visser claims that business thinks short term, but I do not think that this is necessarily true. What I do think is that shareholders (e.g. us, through pension funds, bank connections, unions etc.) think short term and “we” pressure companies to do the same.

Third, should we leave the market alone? No of cause not, we need to manage capitalism and we need to have some form of business control and transparency. There are plenty examples that evil and corrupt people can do real harm to the world. Just think of Enron, Lehman brothers, Arthur Andersen, etc. and one can easily se that no control is REALLY a bad thing. So systems of control need to be put in place so that the biggest impacts of global capitalism can be mediated. These systems are being formulated as hyper norms or institutionalized norms through organizations like the OECD, UN, EU etc. where politicians and professionals alike find out and not least learn how capitalism can be gently pushed in the right direction for all of us.

One last note for you to think about as one put more and more on the shoulders of companies around the world. We shouldn’t leave it to business to solve the problems that governments can’t seem to agree to solve themselves. COP 15 and for that matter COP16 showed that politicians are unable and to a large extend unwilling to solve the issues that we are all becoming victims of.