Can profit-making be moral?
We are setting out to explore the question that has been occupying many minds. We will go through the questions that arise in the minds when thinking about the topic. We will also point of some questions that yet remain unanswered thus prolonging the debates.
Our discussion is build around several central questions.
WHAT is the content of the conflict?
WHO are the parties involve?
WHAT are the parties saying?
WHY does the conflict persist?
HOW the companies manage the conflict?
WHEN is CSR possible? Some real life cases.
CAN we check the real picture?
IS CSR a myth? Reasons why CSR is not possible.
IS CSR a myth? Reasons why CSR is not possible.
WHERE does it take us? Conclusion.
1. WHAT is the conflict?
The era of industrialization has made it possible for the society to enjoy unprecedented improvements in quality of life. People now are enjoying things that could not even be imagined in the wildest dreams of the agrarian society.
However, as the story often goes, the good goes hand in hand with the bad. Pollution, irreversible damage to the environment, permanent damage to the public health and extinction of some of the species are now making some people doubt whether the benefits are worth it. As a result we have seen a rise of the Corporate Social Responsibility (CSR) movement.
More and more people believe that since corporations are so pervasive, since they have been allowed into every domain of a human life, it should be only natural to ask businesses to contribute some of the profits to maintaining the well-being of society. The voice of the opposition is particularly well expressed by M. Freedman, stating that ‘ the only business of business is business’. According to him, the only responsibilities that businesses have are those owned to the shareholders. Attempting to assume additional roles will bring chaos and confusion to society and unnecessary concerns to already complicated matter that running a business is. Finally, the opponents of CSR argue that it is illogical to expect moral behavior from corporations. How can we expect companies to be moral if they have no body to kick and no soul to send to eternal damnation?
Broadly we can think of CSR as the efforts corporations make above and beyond regulation to balance the needs of stakeholders with the need to make a profit (Doane, 2005). It is hard to pinpoint a single strict definition of CSR as the concept is given different meaning by different groups involved in the conflict (Campbell, 2007).
However, as the story often goes, the good goes hand in hand with the bad. Pollution, irreversible damage to the environment, permanent damage to the public health and extinction of some of the species are now making some people doubt whether the benefits are worth it. As a result we have seen a rise of the Corporate Social Responsibility (CSR) movement.
More and more people believe that since corporations are so pervasive, since they have been allowed into every domain of a human life, it should be only natural to ask businesses to contribute some of the profits to maintaining the well-being of society. The voice of the opposition is particularly well expressed by M. Freedman, stating that ‘ the only business of business is business’. According to him, the only responsibilities that businesses have are those owned to the shareholders. Attempting to assume additional roles will bring chaos and confusion to society and unnecessary concerns to already complicated matter that running a business is. Finally, the opponents of CSR argue that it is illogical to expect moral behavior from corporations. How can we expect companies to be moral if they have no body to kick and no soul to send to eternal damnation?
Broadly we can think of CSR as the efforts corporations make above and beyond regulation to balance the needs of stakeholders with the need to make a profit (Doane, 2005). It is hard to pinpoint a single strict definition of CSR as the concept is given different meaning by different groups involved in the conflict (Campbell, 2007).
2. WHO are the parties in the conflict?
Table 1:
Stakeholders in CSR conflict and their interests.
From the above table we can see the diversity of issues involved in the conflict. It is now perhaps a little clearer why it is hard to define precisely what CSR is. Each group wants the management team on behalf of the shareholders to commit to their cause.
Adding another layer of complexity, even within one group, there can be a number of diverse incompatible goals. Take the government, for instance. The objective of this group is to ensure that corporations are governed by iron fists, no laws are broken and no harm to the society is brought. On the other hand, perhaps more than anything the governments want to get elected and re-elected.
As we will show in the later sections, the government is not the only group suffering from schizophrenic pulls of interests in different directions.
Adding another layer of complexity, even within one group, there can be a number of diverse incompatible goals. Take the government, for instance. The objective of this group is to ensure that corporations are governed by iron fists, no laws are broken and no harm to the society is brought. On the other hand, perhaps more than anything the governments want to get elected and re-elected.
As we will show in the later sections, the government is not the only group suffering from schizophrenic pulls of interests in different directions.
Such diversity brings us back to the explanation why CSR cannot be defined in a straightforward manner. CSR aspects include ‘green’ or environmental friendly aspect; social responsible aspect concerned with how corporations treat their employees; broader justice perception looking into whether customers receive truthful information and fair quality and prices; supplier-factor and others. It is clear to see that depending on corporate strategy the emphasis that the companies place on each stakeholder would vary.
How do you commit to something you cannot even define? Which stakeholder to listen to? How to satisfy everyone?
3. WHY does the conflict arise?
The sources of conflict can be attributed to 6 causes (McShane, 2010):
1. Incompatible goals – few have already seen from the identification of the stakeholders interests made above just how complex and incompatible the goals are. At the very heart of the conflict lies the fact that satisfying the goal of maximizing shareholders’ value directly or indirectly violated the interests of other parties. CSR argument is intensified given that most of the issues are very sensitive and central to the stakeholders' identity and well-being.
1. Incompatible goals – few have already seen from the identification of the stakeholders interests made above just how complex and incompatible the goals are. At the very heart of the conflict lies the fact that satisfying the goal of maximizing shareholders’ value directly or indirectly violated the interests of other parties. CSR argument is intensified given that most of the issues are very sensitive and central to the stakeholders' identity and well-being.
What will the shareholders say [and more importantly do] when management team decides not to distribute dividends to shareholders and instead invest them into supporting local community?
2. Differentiation refers to differences between groups in their upbringing, training, values, beliefs and experiences. The ultimate goal – the greater good - may be similar but we define GOOD in different ways. Even in cases when a corporation can agree with other stakeholders that some profits should be invested into its environment, many questions remain unanswered, prolonging the conflict.
Where to invest? Which program to initiate? Who will be responsible for the program? Should a company collaborate with NGOs?
3. Interdependence – despite the differences and incompatible goals the parties often cannot exist without each other. Their paths are interrelated. Firm cannot live without consumer, consumer needs the firm; employees may disagree with the company, but they need the job to survive. The parties, therefore, are too invested in the conflict. Their livelihood depends on the outcome of the dispute.
4. Ambiguous rules – the ‘game’ is not clear. In addition to the differences in interests, the laws are different from country to country. The requirements of the ‘game’ are not clear. There is no end to the demands. Activists never get satisfied. Once a corporation yields to pressure and acts in accordance with the demand, the public moves to the next demand.
Is there such thing as‘achieving CSR’? When can we say that a company has fully complied with its social responsibility? Which country’s standards shall we use as a benchmark? Shall we take into account religion?
5. Poor communication - companies often are resistant to communicate with third parties. Until recently many stakeholders were not deemed to be important enough. Therefore the information released to public and even employees was limited. Even among the companies that have embraced the importance of transparency, many still view communication as a mere PR-tool.
Will the companies that honestly discuss bad news with the public be punished instead of rewarded? How can the company be transparent on the one hand and keep its trade secrets on the other?
We conclude that CSR is likely to remain an unresolved and heated topic for years to come since its origins touch upon every possible theoretical source of conflict. While clashes can be reconciled, as we will see below, some are unlikely to resolve unless the environment, in which the firms operate and humans live, changes.
3. WHY does the conflict arise?
The sources of conflict can be attributed to 5 causes (McShane, 2010):
1. Incompatible goals – few have already seen from the identification of the stakeholders interests made above just how complex and incompatible the goals are. At the very heart of the conflict lies the fact that satisfying the goal of maximizing shareholders’ value directly or indirectly violated the interests of other parties. CSR argument is intensified given that most of the issues are very sensitive and central to stakeholders’ identity and well-being.
1. Incompatible goals – few have already seen from the identification of the stakeholders interests made above just how complex and incompatible the goals are. At the very heart of the conflict lies the fact that satisfying the goal of maximizing shareholders’ value directly or indirectly violated the interests of other parties. CSR argument is intensified given that most of the issues are very sensitive and central to stakeholders’ identity and well-being.
What will the
shareholders say [and more importantly
do] when management team decides not to distribute dividends to shareholders
and instead invest them into supporting local community?
2. Differentiation refers to differences between
groups in their upbringing, training, values, beliefs and experiences. The ultimate
goal – the greater good - may be similar but we define GOOD in different ways. Even
in cases when a corporation can agree with other stakeholders that some profits
should be invested into its environment, many questions remain unanswered,
prolonging the conflict.
Where to invest? Which
program to initiate? Who will be responsible for the program? Should a company
collaborate with NGOs?
3. Interdependence – despite the differences and
incompatible goals the parties often cannot exist without each other. Their paths
are interrelated. Firm cannot live without consumer, consumer needs the firm;
employees may disagree with the company, but they need the job to survive. The
parties, therefore, are too invested in the conflict. Their livelihood depends
on the outcome of the dispute.
4. Ambiguous rules – the ‘game’ is not clear. In
addition to the differences in interests, the laws are different from country
to country. The requirements of the ‘game’ are not clear. There is no end to
the demands. Activists never get satisfied. Once a corporation yields to pressure
and acts in accordance with the demand, the public moves to the next demand.
Is there such thing as
‘achieving CSR’? When can we say that a company has fully complied with its
social responsibility? Which country’s standards shall we use as a benchmark?
Shall we take into account religion?
5. Poor communication - companies often are resistant to
communicate with third parties. Until recently many stakeholders were not
deemed to be important enough. Therefore the information released to public and
even employees was limited. Even among the companies that have embraced the
importance of transparency, many still view communication as a mere PR-tool.
Will the companies
that honestly discuss bad news with the public be punished instead of rewarded?
How can the company be transparent on the one hand and keep its trade secrets
on the other?
We conclude that CSR is likely to remain an unresolved and heated topic for years to come since its origins touch upon every possible theoretical source of conflict. While clashes can be reconciled, as we will see below, some are unlikely to resolve unless the environment, in which the firms operate and humans live, changes.
4. How do companies manage CSR conflict.
4. HOW do companies manage CSR conflict?
Unfortunately to the business gone are the days when CSR demands could be flatly ignored.
As the public gains more power, as the disagreements are more likely to snowball into protests and as individual rights are receiving more protection from the state, the cost of ignoring CSR issues becomes too high. A recent study estimates that lawsuits alone could be costing US businesses over USD 100 billion per year (U.S. Chamber Institute for Legal Reform 2010). The cost for larger, well-established companies is clearly a lot higher than that. Goldman Sachs has been estimated to lose over USD 3 billions only in one year (The Guardian 1 March 2011). One can only imagine the amount of losses born by more controversial corporations.
The way companies approach managing the conflict with the stakeholders varies. It has been suggested that the approaches used for organizational conflict resolution can be classified in the following way: (Derr, 1978).
Table 2: Conflict Management Approaches.
Table 2: Conflict Management Approaches.
Source: Derr C.B. (1978). Managing organizational conflict: Collaboration, bargaining and power approaches
As we can see, collaborative, bargaining and power play approaches vary on many accounts. In reality, organizations rarely adhere exclusively to one approach, moving instead from one to another as the conflict unravels. We will demonstrate real-life examples where one of the approaches was selected as primary.
1) Bargaining approach
Case in focus: Cathay Pacific conflict with trade union.
Little Mermaid
Airline Cathay Pacific enjoys profit margin of 15.7% (Cathay Pacific Airways Limited Annual report 2010), which is considered to be a relatively good result in the industry.
Source: http://seekingalpha.com/article/215046-airlines-set-for-record-q2-revenues
Seeing the good financial health of the airlines unions came to conclusion that Cathay employees should benefit from the remarkable profits enjoyed by the company. However, airline wishes to maintain cost efficiency in operating costs, keeping the spending on human resources on minimum levels. In addition to refusing to raise salaries, Cathay Pacific decided to optimize its hiring strategy by employing staff from developing countries to replace those in developed countries. According to the airline such measures allow the company to maintain competitiveness and spending the profits according otherwise will result in plunging margins.
There were several instances of conflicts between Cathay Pacific and its employees, including pilots, cabinet crews,
engineers and ground supporting staffs. Two cases would be discussed below:
Cathay Pacific employed flight attendants on hourly paid instead of contract since the outbreak of SARS. Cathay Pacific
claimed that such an arrangement increased their flexibility in duty
arrangement. However, polices cutting the fringe benefits were introduced in
2010 workers employed on hourly basis (Cathay Pacific Airways Flight Attendants Union, 2010). The conflict developed, involving
Cathay Pacific Airways Flight Attendants Union (CPAFAU) in representing the
hourly paid employees. CPAFAU threatened to
initiate strikes during Easter Holidays if the airline does not yield to the union's remands. A settlement could be reached only when Hong Kong Labour Department agreed to intervene as a third party arbitrator. The outcome of the negotiations was the
agreement to withdraw policies permanently.
Who won in this conflict? Is it possible to say with certainty? Does the inter-relatedness of parties mean that if one loses another one loses as well?
Who won in this conflict? Is it possible to say with certainty? Does the inter-relatedness of parties mean that if one loses another one loses as well?
In 2010, Cathay Pacific hired 140 ‘trainees’ from mainland China to provide engineering services. The conflict emerged due to fact that wages of ‘trainees’ from Mainland China were a lot lower than wages of Hong Kong employees. The trainees quickly became dissatisfied with the disparity and called for increase in wages. At the same time local Hong Kong employees were anxious they might lose their jobs. They came to believing that Cathay Pacific was seeking cheap labour from Mainland China, in a long run, the engineering services would be outsourced to Mainland China. This four-was conflict was resolved through lengthy bargaining [also involving Department of Labour]. The settlement agreement required all Mainland trainees to return back home and Cathay Pacific had to agree never to bring in Mainland employees for training in Hong Kong.
Who is the winner in this case? If the long-term competitiveness of a company is threatened by satisfying short-term interests of employees, who is the winning party?
2) Power play approach
Case in focus: The fare adjustment for the Eastern Harbor Crossing (EHC) in 2004.
Jingle Book
This is a good example of a dynamic nature of conflict resolution strategies. The parties initially approached the problem using bargaining approach, which quickly failed. Ultimately the conflict was solved through a power play, as we demonstrate below.
The EHC was built through build-operate-transfer (BOT) model with 30-year franchise. The powerful Chinese investment group CITIC Pacific controls the majority of the EHC [road part (71% stake) and 50% stake in the rail part] through New Hong Kong Tunnel Company Limited (NHKTC).
According to the initial agreement NHKTC reserved the right to raise toll fare if the revenue did not reach to the agreed level. In 2005 NHKTC announced its plans to increase the fare for EHC from HK$15 to HK$25 for private vehicles and up to 67% for other types of transport. The announcement was met with strong public resistance, arguing that NHKTC should not be guided by profit-making goals alone and instead should show some respect for society’s needs.
At the onset government announced that it has no right to interfere in the conflict, which should be settled by the owners of EHC single-handedly. Soon, however, Hong Kong government was pressured to represent the public and overtake discussion and bargaining. Different suggestions were raised initially including termination of the franchise given, buying out the EHC by the government, prolonging the franchise in return of lower fare and closing the talks altogether and raising the toll as NHKTC wishes. After no agreement could be reached, the matter was passed to a higher authority for arbitration and was settled with toll raised.
In 2010, EHC asked fare raised again from $25 to $35 for private vehicles. The Chief Executive in Council, which ruled in summer 2011 (11 March 2011) that NHKTC is not to raise the toll. Strong financial health of NHKTC and sensitivity of the issue to large number of Hong Kong citizens were cited among other reasons for the decision.
However, the argument is still continuing since NHKTC was not willing to accept the ruling and wishes to pass the case to higher authorities for arbitration.
The case clearly demonstrates that power play approach leads to a win-lose outcome with one of the parties inevitably getting disappointed. Forcefulness in implementing authority's decision will clearly affect the relationships of the parties involved and may impact the willingness to engage in future projects. as we can see the story does not end with force, the party can not accept the ruling of authority and is not seeking to overturn the decision.
Is NHKTC likely to be willing to participate in future projects aimed at developing Hong Kong infrastructure? Has the public really won? Can it be a case of winning a battle but losing the war?
3) Collaborative approach.
Case in focus: Johnson and Johnson of Tylenol.
Lion King
In 1982 people using Tylenol in Chicago were found dead. J&J immediately launched an investigation into the incident, discovering that Tylenol was deliberately contaminated with cyanide. Within one week, J&J recalled 31 mil packets of Tylenol costing the company about US$100 million. At a time this was the first major product recall in the US [New York Times, March 23, 2002]
The decision of J&J is admirable both in terms of the reaction speed as well as the content of the reaction. Even though a criminal offense was in the center of the problem, J&J nevertheless fully accepted the responsibility and sacrificed profits for great good of the public. The company had to collaborate with many stakeholders in solving the conflict situation – public announcements had to be made regularly, retailers had to be persuaded to return the medicine, authorities had to be included in the investigation and subsequent re-approval of Tylenol.
Collaborative approach to conflict paid off in a win-win situation. J&J regained 100% of pre-crisis market share and is still receiving praise and status of a hero for collaborative approach it assumed. The public regained the confidence of Tylenol and those in need of the medicine were able to use it without concerns for their life. FDA did not lose face in that it was proven that it made no mistakes in initially approving Tylenol.
Should J&J be a benchmark for dealing with faulty products? Should the companies issues unconditional recalls? Should the dangers be evaluated? How many people have to die in order for the recall to be issued?
6. WHEN do the company engage in CSR?
In order to keep generating profits companies need to ensure a steady stream of income. In most countries there are very few products remain that are difficult to obtain. Most firms experience severe competition, meaning that increasingly companies need to look for alternative ways to attract and hold customers’ attention. Shareholders interests are in fact best by scrupulous attention to the public interest and by seeking a trusting relationship with all (Hartley, 1993). Ultimately, the argument goes, businesses need change their attitudes to match the attitudes of the environment in which they operate since no firm operates in a social vacuum. Emotional intelligence has been explicitly identified to be one of the key components of building trust (Downey, Roberts & Stough, 2011). Therefore, keeping up with CSR movement can be a way of a company to stay tuned with the environment.
Lesson: Respecting opinions of others will win their trust
2) When CSR helps to lower the costs.
Little Red Riding Hood
Consider the example of McDonalds, which proudly advertises its commitment to the community through recruitment of employees with Down syndrome for low-skilled jobs (Our staff enjoy working at McDonald's, 2003). From the first glance this may appear to be an act of true compassion. On the surface it may seem that McDonalds has little to gain from this seemingly purely charitable gesture. The work efficiency of handicapped and non-handicapped workers is different. The training cost is higher for the handicapped staff and additionally more support staff may be required. At the end surely the cost of this initiative must be higher?
It is, but let us not forget about government subsidies. According to World Health Statistics Report (2009), US direct and indirect spending on healthcare are the highest in the world, where indirect spending includes, among many others, money spent on compensating organizations for hiring employees with disabilities. If we take into account the tax benefits that a company that hires employees with intellectual disabilities benefit-to-cost ration becomes 4.2-1 (Cimera, 2002). Add to the picture positive reputational effect and the picture suddenly looks very different.
Lesson: Things are not always what they seem.
3) When there is a demand for ethical product.
Co-operative Bank estimated that already in 2004 the demand for ‘responsible’ green products already reached £25 billion. Ethical consumerism or positive buying refers to consumers giving preferences to ‘ethical products’ - fair trade, cruelty-free, organic, recycled, re-used, or produced locally. GfK NOP revealed that about a third of respondents in developed countries reported to be willing to pay higher prices for ethical brands.
A few words of cautions: note that there usually is a gap between intentions and behavior, especially where money is involved. Co-operative Bank study in the UK revealed that while 83% of consumers INTENDED to act ethically, only 5% show consistent ethical and green purchase behavior.
Therefore, while farmers may be getting more under Fair trade agreements, the companies in the developed countries appear to benefit proportionally more. It appears that one of the way in which corporations are resolving the conflict is by exploiting the issues and engaging in mere window-dressing.
Lesson: Trend is your friend. To some it is the best friend.
4) When teams demand ethics
Earlier we highlighted he importance of trust in building relationships with the stakeholders in the long-run. While in the previous example we were mostly concerned with the external stakeholders, we also need to give a special mention to the fact that for corporate moral behavior is now a widely accepted talent attraction and retention tool. As more organizations are relying on teams, company's ability to build trusting commitment from its employee becomes a important competitive advantage. Hannagan (2002) suggested that the biggest success will come to those organizations where all interlocking elements work well together thus creating best possible functionality. In the modern world, employees no longer consider salary to be determinant factor of the employer choice. Forbe's list of the best companies to work for is largely based on the ethical practices of the corporations. It has been suggested that the best way to persuade someone is to show benevolence and be likable. By engaging in CSR companies are, in essence, persuading employees and other stakeholders to enter into a relationship.
Lesson: Being nice will win you friends.
5) When CSR is used as a knowledge management tool.
As the Increasingly companies are realizing that most of the critical knowledge can not be codified and documented. Instead increasingly companies’ competitive advantage rests within the minds of the employees. Attracting and retaining a knowledgeable employee is only have of the success. Organizations also need to disseminate the information throughout.
Goldman Sachs has been repeatedly named one of the best companies in terms of knowledge management skills. The firm recognizes the importance of collective intelligence, where best results emerge through collaborative effort requiring constant stimulation of information flow. According to Goldman Sachs employees, as soon as they enter the organization they are ‘programmed’ to communicate with each other and external parties as much as possible. Networking is included in everyone’s job requirements.
What has this got to do with CSR? In 2008, more than 25,000 Goldman Sachs employees, families, and friends participated in charitable programs initiated by the company. Over 20000 employees participate annually in 10 000 Women Initiative. The program has been created to train and support talented but unprivileged women in business across the globe. One of the clear benefits for Goldman Sachs is that it gets to involve employees in applying, developing and sharing their knowledge with each other. The sheer magnitude of the program requires creation and coordination of large number of teams and virtual collaborations, through which employees learn how to work together towards a common goal. By providing an opportunity to do a greater good, Goldman Sachs enjoys increased sense of satisfaction and commitment among employees, who get a chance to give back to the community, make new friends, travel and make work into something larger than just work.
GOLDMAN SACHS
Let’s not forget that Goldman Sachs is a company involved in finances. Where managing other people’s money is involved reputation and image becomes of essence. This leads us to the next reason for engaging in CSR:
Lesson: remember the tale of the sun, wind and the traveler.
6) When CSR is used to maintain and restore company image.
6) When CSR is used to maintain and restore company image.
Greyse (2009) pointed out that general public has expectations of how a corporation is to behave. When there is a gap resulting from a company not living up to these expectations, the poor corporate image will be created. When the topic is particularly sensitive or the gap is particularly large the firm’s reputation is endangered.
Below we will show how ignoring CSR can lead to disastrous loss of reputation and how, once the reputation is down, corporations can restore it by yielding to CSR pressures.
· The Story of lost reputation: HSBC
Cinderella
HSBC is a well-known global bank corporation based in UK. During 2008 HSBC experienced significant financial losses due to sub-prime mortgage crisis originating in USA. The bank was forced to initiate withdrawal from the US market and significantly reduce its manpower elsewhere. The hardship continued for several years, leading to the decision in 2011 to reorganize the entire firm. Among other initiatives change in business focus and relocation of support centers was implemented. 30000 jobs across the globe were scheduled to be cut with 3000 in Hong Kong.
Public reaction to the news were extremely negative. Critics pointed out to the fact that Asia and Hong Kong contributed the major part of the profit of HSBC. Hong Kong public was outraged by HSBC and protested, hoping to pressure the bank into keeping employees in HK as they are brining the bank so much money.
HSBC considered the issues to be a matter of internal strategy and was reluctant to see any wrongdoing in its plans. The banks chose not disclose details on the layoff details, schedules or even exact numbers. HSBC did not explain to the public why the layoffs were disproportionally high in HK compared to other regions where the bank operates.
As a result of the events, company’s reputation suffered a severe blow. Such negative publicity is detrimental to any bank, as we have already demonstrated above.
Lesson: How to lose a customer in 10 days.
- The story of rebuilt reputation – Nike.
In the 90s Nike was severely criticized for it’s the labour practices used to manufacture Nike products. In particular, several television and newspaper reports came to life revealing that in addition to impossible low wages, sweatshop workers – often underage - suffered from physical abuse and exhausting unrealistic demands. Anti-sweatshops protests swept through the US initiated by anti-globalization groups and widely supported by students of many colleges. Nike went through most of the stages of dealing with reputation crisis identified by Benoit (1997). First we observe the company trying to evade responsibility – the actions are denied, the severity of situation is downplayed and the blame is shifted to the ‘realities of market’.
Originally most of the response of CEO Phil Knight was focused around convincing the public that Nike outsources its manufacturing activities and therefore should not be blamed for the procedures and events at the factories. Unfortunately to Nike public was not pacified by such arguments and the brand was continuing to be target for criticisms. Soon it became clear that more proactive and positive approach is needed and if public outcry is to be stopped, Nike needs to adopt the attitude of the environment. Thus the company entered differentiation stage of public image restoration, whereby it organized several programs and initiatives aimed at improving working conditions in Third World Countries. The company developed a code of conduct for its suppliers, signed on with several United Nations initiatives, actively sought media attention to track their improvement process and, of course, launched inspirational advertising campaigns involving the biggest sport stars in the world. Soon Nike stopped being a synonym for ‘sweatshop’ and instead became associated with dreams, glory and the triumph of will. The only way for Nike to continue making money was to lose some in investing into complying with the public demand.
Lesson: In order to rise to the top you need to climb down.
7) When CSR is a representation of organizational culture.
We have seen above that there are people who place the concerns of society above all. It is only natural to expect that some proportion of people guided by such moral standards will end up owning or running businesses. Since a corporation is nothing more than a collection of people working together, it is ultimately the values of the workers that determine the values of the company. In so far as CEOs or business owners establish the morality code for their organizations, we will inevitably find corporations choosing to be guided by ethics as well as economics.
Indeed there is a handful of companies whose founders insist that there company must stand for more than profits. Timberland is one of the perfect examples of that. This manufacturer and retailer of outdoor wear, has made environmental responsibility and respect for employees an explicit mission of its existence.
Timberland organizes events in support of local and struggling communities; it has been repeatedly voted to be one of the best company to work for thanks to generous perks and fair treatment; the products are produced using environmentally friendly materials in a responsible ways. Whether it is the advertising, annual reporting or every-day business decisions, Timberland seems to indeed place a community above all other concerns, representing the values of the owning Swartz family.
It is easy to see that people, and by extension companies, that have a strong sense of their own true North, will be respected by others. Leveraging own values and organizational culture can help corporations in achieving harmony with stakeholders.
Lesson: Some people really walk the talk.
7. CAN we check the real picture?
Above we have seen several examples demonstrating that companies do engage in CSR. At the same time companies’ net contribution to society is not immediately clear. Is there a method to trace the real numbers behind CSR efforts? Can we go beyond the fluffy PR and instead measure what the companies are contributing to the society? How can we hold the companies accountable? There are several accountability systems available to organizations today.- Voluntary discourse
Until this day companies’ initiatives to disclose information on the web-sites or annual reports remain the dominant source of information about CSR activities. Companies from our above examples - Nike and Timberland - are not both running blog and CSR websites, where they announce the most recent achievements and initiatives, share news and enlist supporters. Increasingly more and more companies choose to include CSR activities in their annual reports.
However, an observation can be made that rarely do these voluntary reports discuss any particularly sensitive issues or problems that may have been inadequately covered by the company. Additionally, being voluntary in nature CSR reports do not get audited unlike the mandatory financial reports. As a results, companies wishing to exaggerate the truth can easily go undetected.
However, an observation can be made that rarely do these voluntary reports discuss any particularly sensitive issues or problems that may have been inadequately covered by the company. Additionally, being voluntary in nature CSR reports do not get audited unlike the mandatory financial reports. As a results, companies wishing to exaggerate the truth can easily go undetected.
- Third party ratings and reports.
Responding to public's growing interest in CSR issues many media agencies, publications and consulting companies are now publishing CSR-compaliance reports and data based on their own research results, with Forbes list of Most Ethical Companies being perhaps one of the most discussed examples. Stock Exchange Platforms across the world are diversifying into sustainability as well - US DOW Jones created the Dow Jones Sustainability Indexes, mirrored by the FTSE4Good in the UK. Finally, independent organizations are setting up collaborations with NGOs and government agencies to improve information flow about real business practices and apply organized collective pressures in particularly sensitive issues.
With growing public awareness as well as rapid improvements in technology more and more tools for tracing CSR behavior are becoming available. However, to hold someone accountable you need not only measures, but also standards.
What shall be the benchmark for organizational behaviour? Who should set these bars? Should the guidelines be universal and apply to each country uniformly or should they be adjusted from country to country? What should these adjustments take into account – GDP? Population? History? Societal preferences? Religion? Finally, who will check company’s compliance with these standards? And how will the non-compliers be punished? Should they be punished at all?
Clearly there are many questions to be answered before CSR boast solid accountability systems.
8. IS CSR a myth?
Throughout this report we have already tried to demonstrate why it is unrealistic to expect that Corporate Social Responsibility can beat profit-making objective of the companies any time soon. Below we collect the points already made and add a few more illustrating the key obstacles on the way to rapid resolution of CSR conflict.
The above discussion leads us to concluding that the advocates of CSR need to be made aware of the limitations of their demands in the same was as organizations are learning about their environment. All stakeholders need to make a conscious effort to learn about each other so that they can look at the problem from similar angles. Bigotry will not solve CSR conflict. It seems that increasing awareness is the most important step towards untangling the debate.
We now move to the final section of this report, in which we will discover more alternatives to CSR conflict resolution.
9. WHERE does it take us?
Remember the initial question? Profit-making objective be reconciled with ethical responsibility? Unfortunately the answer seems to be that unless moral behavior brings profit, companies will be unwilling to engage in CSR initiatives.
Recent writings on CSR cheerfully conclude that businesses ceased to think about WHETHER to engage in CSR and instead are now thinking about HOW to do it (Du 2007). However, we would like to point out that somewhere along the lines we got lost in the wordings. If we try to dissect the definition, we will reach the ultimate idea of responsibility – putting the society first. In this sense of the word CSR has not happened. Yes, companies engage in social activities, but they are doing so because it is profitable, as we have demonstrated above. We agree that Corporate Social Responsibility is an
worthy noble cause and that increasingly companies can not ignore
public's opinion in their business decisions.
Ultimately CSR initiatives will be supported insofar as they place
companies in better competitive position.
The most ideal solution would be the one proposed by Appreciative Inquiry advocates. This approach encourages us to step back from narrowly focusing on the problem and instead try to work together in incorporating the dreams of ideal future in reality. Following this approach, all parties in CSR conflict need to be gathered and invited to share through an open dialogue what kind of future they are imagining. The parties would then move to designing the new reality that would incorporate the dreams of each stakeholder.
How to collect all the parties together? Who will be responsible for the initiative? Should the representatives only participate? How to ensure compliance with the decisions? How to deal with disagreeing parties? Who will pay for the assembly efforts?
Given these and many other questions that will undoubtedly arise due to the sheer scale of the conflict, it seems more realistic to apply Appreciative Inquiry on company-level basis, where each company is responsible for its own transformation process. Putting our ideas into practical dimension once again, we can see that organizations will be unwilling to engage into such process unless there are either clear financial benefits or unless there are explicit regulations calling for such actions.
The most realistic suggestion seems to be increasing transparency of organizations. As mentioned before, one of the reasons why CSR conflict persists lies in the fact that there are too many unknown factors. The truth is we do not really know what goes on inside corporations. Stakeholder groups do not know if there demands are realistic. By revealing their true numbers and actions corporations may see that society will be more willing to accept the limitations of the firms and adjust their demands.In other words, all groups will see the world through the same lenses.
With that in mind we assert
that profit-making can be moral as long as morals remain profitable.
Alternatives to CSR
In light of our above conclusion it seems appropriate to search for alternative approaches to the conflict. 
The most ideal solution would be the one proposed by Appreciative Inquiry advocates. This approach encourages us to step back from narrowly focusing on the problem and instead try to work together in incorporating the dreams of ideal future in reality. Following this approach, all parties in CSR conflict need to be gathered and invited to share through an open dialogue what kind of future they are imagining. The parties would then move to designing the new reality that would incorporate the dreams of each stakeholder.
As lovely as the above solution sounds, we can anticipate the questions from the skeptics, pointing out that this approach is unfortunately unrealistic.
How to collect all the parties together? Who will be responsible for the initiative? Should the representatives only participate? How to ensure compliance with the decisions? How to deal with disagreeing parties? Who will pay for the assembly efforts?
Given these and many other questions that will undoubtedly arise due to the sheer scale of the conflict, it seems more realistic to apply Appreciative Inquiry on company-level basis, where each company is responsible for its own transformation process. Putting our ideas into practical dimension once again, we can see that organizations will be unwilling to engage into such process unless there are either clear financial benefits or unless there are explicit regulations calling for such actions.
This brings us to the second step that will be required for resolving CSR conflict - firm government interventions. Unlike corporations, by definition operating for profits, governments have sanctions from general public to resolve ethical dilemmas. If such is the will of the public, governments need to press for explicit accountability systems and, above all, for replacing fiduciary duty to shareholders with broader stakeholder duty, meaning that corporations will be required to take into account interests of all stakeholders when making decision.
How likely are governments to start constraining businesses given the power and wealth of corporate world? Will governments be willing to decline generous legal and less legal contributions? Are individual government officials concerned with own welfare of welfare of the country? The most realistic suggestion seems to be increasing transparency of organizations. As mentioned before, one of the reasons why CSR conflict persists lies in the fact that there are too many unknown factors. The truth is we do not really know what goes on inside corporations. Stakeholder groups do not know if there demands are realistic. By revealing their true numbers and actions corporations may see that society will be more willing to accept the limitations of the firms and adjust their demands.In other words, all groups will see the world through the same lenses.
Any solution that we, or anyone else, suggest will be wasted unless the society evolves into valuing the good of others above the good of self.
Will it ever happen?
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