CSR makes a move

AUTHOR: Deborah Tarrant   DATE: 14.12.06   ISSUE 2, 2006

Corporate social responsibility (CSR) is one of the wickedest of problems facing organisations today. A damned-if-you-do and damned-if-you-don’t issue, its validity is commonly rejected by economic rationalists, debated by sceptics and preached by passionate devotees.

As corporations globally have underscored their intention to be around for the long term by embracing the concept of sustainability, CSR has gained traction. Indices that gauge the socially responsible activities of businesses have been created, as consideration of multiple stakeholders has been increasingly factored in. Triple bottom lines abound.

Awareness of CSR can be seen in the growth of social and ethical investment funds, voluntary codes of corporate conduct and corporations' self-reporting on socially responsible practices. More companies are looking to their reputations as good corporate citizens as employers, in the environment, the wider community and across international boundaries.

The social context of business is playing a far greater role in business than ever before.

Illustration: Gregory Baldwin

CSR has a place in business. Exactly where, how and how much are outstanding questions for governments, NGOs, regulators and, most pressingly, for individual businesses and the business schools that serve them. Just as business continues to grapple with the big issues of CSR, along with the paramount demands to continue to make profits and deliver shareholder value, business schools also contemplate effective ways to deliver thought leadership, research and relevant courses to an emerging market for CSR education.

According to former AGSM Dean and Director Rob McLean, the social context of business is playing a far greater role in business than ever before. Consequently, it demands a serious amount of attention in management development. “We need to be equipping future business leaders with how to operate in a social context,” he says.

Today’s 360 degree view of a corporation from the perspectives of consumers, employees, NGOs and shareholders is seeing big global players, such as Nike, overhauling their labour practices and mining giant Rio Tinto focussing on its impact in indigenous communities. Some consumer goods companies are starting to confront the obesity epidemic and, more recently, a not-for-profit organisation told the world that every litre of Coca-Cola used 2.7 litres of water.

Consumer social responsibility is all around civil regulation where people vote with their preferences through their behaviour.

Locally and internationally, as business awakens its social conscience, it is becoming obvious such broad and important issues can’t be “pushed away or simply given to human resources or corporate affairs departments,” suggests Mr McLean. “The social context of business is now part of what all leaders have to deal with, and what winning is all about,” he says.

“As we train and seek to develop people in our programs, we want them to be exposed to and to recognise that winning is no longer simply about winning in the product market space or winning in the regulatory space. It is going to take this full 360 degree view of changing social context.” CSR is indeed a “wicked problem” – the term was originally coined by designer Horst Rittell more than 30 years ago to describe problems that are socially so complex they don’t have straightforward answers and for which the past does not prove to be a reliable predictor of the future. (The topic of Wicked Problems is taught at AGSM by Dr James Carlopio.)

As with all wicked problems, the issue of CSR has no readymade, one-size-fits-all solution. While CSR has permeated business and, in some cases, powered change, its significance also has grown through the work of AGSM researchers and teachers. In the province of research and the focus of faculty members, the social context of business finds its way into the classroom, says Mr McLean.

In effect, CSR has been woven through the curriculum making its way into mainstream areas such as strategy, marketing, finance, economics, corporate governance, organisational behaviour and ethics.

“We are complementing the typical mainstream business school areas of leadership and success by weaving in the social context – and many of the hard problems today sit in that social context.”

The integrated approach is a way of “getting real” about CSR that, in effect, mirrors its recent move into the wider business community. While idealists may like to think that “corporations are just a group of good guys looking for new and exciting social and environmental problems to solve, there’s a middle ground between romanticised nonsense and a world that has fundamentally changed,” insists Mr McLean. The role of academics is to debate and research its ambiguities.

There’s no right or wrong in ethical decision making, although there are choices that violate the law, says Professor Marks who explores areas of “ethical murkiness”.

Faculty in the frontline

Food for corporate consideration is in studies into ethical consumerism by AGSM’s Professor Timothy Devinney and Dr Giana Eckhardt, which explore one of the great unresolved issues in the CSR domain – people who claim to have an interest in environmental issues but who don’t put their money where their mouth is.

In their paper, The Other CSR: Consumer Social Responsibility, Devinney and Eckhardt joined with Pat Augur of Melbourne Business School and Thomas Birchnell of Sydney University’s Centre for The Mind, to delve into the disconnect between consumer and corporate behaviour.

High-profile initiatives that launch direct assaults on large companies’ social responsibilities in manufacturing, retail and spending and purport to satisfy a huge public demand for ethical products are a case in point. A current example is Project Red, spearheaded by U2’s Bono and Bobby Shriver, in which companies such as Gap and Giorgio Armani have rebranded products to support AIDS.

Such initiatives hide the effectiveness and limited uptake of products with ethical dimensions, and leave “many company executives expressing private uncertainty about the efficacy of ethical consumerism and the role of their customers in sharing social obligations to social ethics,” argue the paper’s authors.

CSR has serious limitations without consumer buy in, the researchers point out, suggesting in conclusion a number of ways companies can bridge the disconnect, including highlighting the benefits of ethical products to the individual rather than society as a whole.

Previous research by Dr Eckhardt surveyed the attitudes of consumers in eight countries and the justifications that they use for making unethical purchasing decisions and considered the consequences for organisations looking to better their reputations through implementing CSR practices.

Professor Grahame Dowling who teaches in the area of corporate reputation believes CSR is, indeed, a moving target for 21st century executives. He concurs with Devinney and Eckhardt that “the first CSR will probably only win if consumer social responsibility gets traction”.

“Consumer social responsibility is all around civil regulation where people vote with their preferences through their behaviour; what they buy, who they work for, what they invest in and who they’ll oppose on the street. The first CSR is a niche strategy for companies hounded by critics,” says Professor Dowling, adding that consumers are quite savvy about bandaid solutions. A recent Australian survey showed that despite well-highlighted CSR practices, banks ranked poorly for levels of trust in the community. Why? Because they make much of their money from nuisance fees, suggests Professor Dowling.

Nonetheless, he says, corporate reputation generally does benefit from companies engaging in socially responsible practices. “It’s politically incorrect to be against CSR, but a lot of companies are still uncomfortable about it.” However, apart from the net social benefits – less pollution, discrimination and exploitation of workforces – some of the recent biggest corporate failures in history indicate that “infectious greed is still running as hot as ever,” Professor Dowling points out.

Real change won’t emanate from corporate affairs departments but from adjusting the way managers and executives are measured to factor in CSR. “People do what’s inspected in preference to what’s expected,” he says. “Key performance indicators, budgets, working protocols and controls are set at the heart of the company.”

In their paper, The Other CSR: Consumer Social Responsibility, Professor Timothy Devinney and his colleagues delve into the disconnect between consumer and corporate behaviour.

If the shoe fits…
Examples of consumer power and companies responding to their critics by determinedly introducing CSR practices are found in the big name sports shoe and clothing manufacturers, Nike, Adidas and Reebok, who license manufacturing offshore. Under consumer pressure, these companies have signed codes of conduct with large US consumer purchasing organisations guaranteeing they will not use sweatshop labour.

AGSM’s Associate Professor Elizabeth George has been involved in their CSR efforts. Initially, she was invited by Adidas to run human resources management workshops for inspectors – commonly engineers and lawyers – employed to monitor conditions of hygiene, safety and security in its factories in southern China, Indonesia and Vietnam. Later, in a combined initiative from Nike, Adidas and Reebok, Professor George ran workshops on HR Best Practice for top management from the Asian factories.

Her experience cast light on some perplexing CSR questions for multinationals, she says. For example: is it right to impose expensive best practices on companies in other countries to suit the standards of Western consumers? “In Vietnam and China, factories are providing work, often to young women who are empowered by the employment opportunity, so it’s hard to come from the outside and say these factories’ practices are good or bad,” says Professor George.

Professor Steve Frenkel, an organisational behaviour specialist whose work focuses on employee rights and the dynamics between management and labour, also took his HR expertise on the CSR path to Asia to deliver a series of lectures to factory managers in Cambodia on behalf of the International Labour Organisation. Along the way, he visited textile and clothing factories and spoke about practical implementation of better labour practices. Cambodia faces tough competition from China on world markets.

“My argument was that the firms needed to improve efficiency to meet labour standards…I was suggesting that labour needs to be seen not only as a cost, but something to invest in. Firms that help people build capability and motivation can lower labour turnover and have better quality work and they can do this by instituting fair and efficient systems of human resource management.”

Professor Frenkel sees CSR as part of a bigger picture, and points to Europe and Japan for examples of social partnership where corporate managers are seen as caretakers of society, so they "are answerable to a wider range of stakeholders, not just to shareholders".

Professor Steve Frenkel sees CSR as part of a bigger picture, while Professor Grahame Dowling who teaches in the area of corporate reputation believes CSR is a moving target for 21st century executives.

Exploring ethics

Ethics are relevant to all aspects of business, although there’s nothing new about ethical dilemmas, says Professor Robert Marks who teaches AGSM’s one-week intensive interdisciplinary program on business ethics, with Associate Professor Damien Grace from the University of New South Wales’ School of Philosophy.

What’s changed in recent times is the pressure under which managers – and others – have to make decisions. Juggling with conflicting loyalties too fast and without using ethical decision making frameworks may lead to regrets with the wisdom of hindsight. One such dilemma is the choice between short- and long-term results from a decision maker who’s squeezed by institutional investors who want to see good returns every quarter.

The long and the short of it is, there’s no simple right or wrong in ethical decision-making, although there may be choices that violate the law, says Professor Marks, who explores areas of “ethical murkiness”. “Lying, for example, is an ethical failure but there are instances when it could be argued that it’s justified,” he says.

Under the wide umbrella of CSR, the business ethics course gives students frameworks to enable them to weigh their options. “Everyone has their own values and conscience,” says Professor Marks. “We expose students to issues where there’s no clear right answer. There are ambiguities. We give them frameworks and ask them to choose. They’re not marked on the decision they made, but how they reached it.”

Professor Marks and Professor Murali Chandrashekaran are leading a project funded by the Commonwealth Department of Environment and Heritage, through the ARIES (Australian Research Institute in Education for Sustainability) program, aimed at heightening the emphasis on CSR and education about sustainability in MBA programs. AGSM is one of four business schools participating in the project.

The social context of business is playing a far greater role in business than ever before.

Professor Chandrashekaran has run AGSM’s dedicated elective course in Corporate Social Responsibility in recent years. However, one of his aims at the outset of the ARIES program was to increase the integrative focus so “sustainability is seen as a philosophy of doing business rather than as an elective”.

Immediate impact is seen in finance classes with greater discussion of ethical investing and the triple bottom line, and in marketing. Increased awareness has also led to the introduction of a CSR student club. In the marketing discipline, Professor Chandrashekaran invites students to look at the pressures of the marketplace and takes a balanced approach to aspects of CSR in big markets. “It’s about making profits but minimising social risk. It’s not philanthropy. It makes good business sense,” he says.

Discussions and debates exploring the gap between hype and reality in CSR with industry players such as Cisco, ABN Amro, AGL and Zurich Financial also have piqued student interest. One of the challenges facing educators, believes Professor Marks, is that there’s greater interest and awareness of sustainability issues at the top of companies, at CEO and board level where strategy is discussed, but not so much among students.

This is one of the reasons why AGSM has adopted a different tack, concludes Mr McLean. Dedicated courses – while important – reach a limited few, tending to attract people who are already passionate about CSR.

“In a separate course in corporate sustainability, about 20 percent of the class will sign up,” says Mr McLean who points out that several US schools claim to have 30 percent of students enrolling in CSR-specific courses – but that’s still 70 percent that aren’t getting the CSR message.

The social context of business is bigger, broader and far too complex a wicked problem to limit knowledge to a self-selected few.