How much corporate social responsibility (CSR) is enough? How much CSR reporting is enough?

These questions start from a mistaken notion of what the responsibility of corporations is.

Former Shell director Sir Geoffrey Chandler once said of “corporate social responsibility”: “I know of no phrase which has done more damage to constructive thought or caused greater confusion. It has encouraged the belief that a company’s responsibility to society lies in voluntary philanthropic add-ons, rather than the application of principle to all its activities.” (1)

By Chandler’s light, “how much CSR” questions make no sense.

Consider PepsiCo. It derives revenues of US$35 billion mainly from things people eat and drink. Its Board Chair and CEO, Indra Nooyi, pointed out, “We believe that the world water crisis is one of the most pressing challenges of our age. As a global food and beverage company, our success depends on being responsible stewards of this limited resource.”

What percentage of that number would be enough for PepsiCo to spend on clean water supplies? Multiples, I reckon, of the $2.5 million it will spend this year just on H2O Africa.

Three words capture the fundamental understandings of our age: “globalization” and “global warming”. Both concepts assume that actions have consequences far away in space and time from the actors. CSR requires corporations to grapple openly with the nature and context of their actions and effects.

The sub-prime lending crisis has revealed compounding failures – most of them willful – to analyze the implications of business decisions. In a single institution, these might range from broadcast incitements to borrow via mortgages or credit cards, to successful lobbying for limiting bankruptcy relief for credit card debtors, to the sale of mortgage loans packages whose implications neither sellers nor buyers understood.

The spirit of the times made the commercial and personal advantage to managers of moves such as these seem irresistible. But they weren’t.

Former Unilever Chair Niall Fitzgerald has written, “Corporate social responsibility is not a soft issue. There are times when tensions between commercial opportunity and social impact involve issues that are not clear cut or straightforward, requiring tough trade-offs. CSR is a hard-edged business issue.” (2)

Coke’s CEO responded to a suggestion that the company use its distribution network to deliver humanitarian material in Africa: “We can’t do that. At the end of the day we are a commercial enterprise and we can’t do what governments do or fail to do.” (3)

Coke might not have the competence to deliver aid, but Mr. Isdell didn’t argue that. His casual rationale contradicts 35 years of corporate advocacy of market-based solutions coupled with limited government and deregulation.

Consider the comment of John Milton on his company’s efforts to license a 6,000-acre quarry in the midst of an endangered species’ dwindling habitat in the US’s most rapidly growing counties: “Florida Rock [Industries] is not an enemy of the panther. But … we don’t think it is our private mission to foot the bill for the panther’s survival.” (4)

No doubt Mr. Milton is right about Florida Rock’s private mission. But should the company be able to shift the bill to the public rather than deducting it from profits?

Mr. Milton, Florida Rock’s chief financial officer, said in the context of another controversial project, “Our goal is to be responsive environmentally.” Assuming his tongue did not slip, “responsive” is the opposite of what a company should aspire to be – which is “responsible” and in control.

Which brings us to CSR reporting. What should companies report and how much reporting is enough?

Reporting shows stakeholders management understands the environmental, social and governance issues in front of it – not off to its side. Reporting is best when pro-active rather than responsive, anticipating challenges and demonstrating thoughtfulness. Sekisui Chemical, BHP Billiton and Tokuyama Corp. are leaders in CSR reporting.

Important as CSR reporting is to stakeholders, Steve Hilton, founding partner of the UK CSR consultancy, Good Business, put it proper context: “The most effective and appropriate way of communicating [a company’s] commitment to social responsibility is not through a report at all, but through their brand, their products, their people – in other words, their core business.”

Endnotes:
(1) Sir Geoffrey Chandler, “Corporate Social Responsibility: The International Aspects”, Keynote Address, Conference on Corporate Social Responsibility and the Role of the Lawyer, Amsterdam, June 25, 2004.
(2) Niall Fitzgerald, “CSR: Rebuilding Trust in Business: a perspective on corporate social responsibility in the 21st century” (London: Unilever PLC, 2003), p. 15.
(3) “Things Go Greener With Coke: CEO Evolves Into a Poster Child For Corporate Environmental Action” (Reuters), Edmonton Journal (Canada), July 7, 2007, p. E6.
(4) Warren Richey, “Developers Squeeze Florida Big Cat” Christian Science Monitor, September 24, 2004, pp. 2, 3.

About Peter Kinder

Peter D. Kinder is President of KLD Research & Analytics, Inc., (KLD) in Boston, Massachusetts, which he co-founded in 1988. KLD’s mission is to remove barriers to socially responsible investing by providing institutional investors with social research, compliance services, benchmarks, performance analytics and consulting. The firm is best known for the Domini 400 Social Index, the first for socially screened US equity portfolios which it created in 1990. For more information on KLD, see http://www.kld.com