Archive Article: Corporate Social Responsibility. 13 Sep 02.
November 29, 2008

The corporate crashes in the United States, Australia and elsewhere have again focussed attention on the issue of corporate social responsibility.

I spoke recently in Brisbane at a corporate governance conference organized by the Queensland Division of the Australian Institute of Company Directors. I examined the problem of trying to define “corporate social responsibility” and I suggested an alternative approach.

“Corporate social responsibility” is now an ambiguous term. For example, at another conference organized by the Australian Institute of Company Directors there was a person wearing a Rotary badge and speaking against corporate social responsibility. This is a bit ironical in that Rotary has been pioneering corporate social responsibility among its members well before the term itself got invented. But apparently that Rotary member had a different definition of “corporate social responsibility”.

I suggest that it is necessary to reframe the debate. Let us begin with examining the problem to which corporate social responsibility is supposed to be the solution. This is partly a reaction to the excesses of the “greed is good” culture, the corporate upheavals with mergers and acquisitions, the down-sizing, out-sourcing etc with its emphasis on short-term, immediate results. There are also the downright illegal issues, such as forged financial accounts and records that have been destroyed. In short, some corporations are operating in a moral vacuum.

Therefore, I suggest a new approach: one based on “sustainability”. A company should be built to last. A look at the historical evolution of the company concept shows that governments agreed to companies being formed so that they could be something more than just for the purposes of a one-off project (such as building a canal). They were designed to last a long time.

Meanwhile, consumers want to do business with a company that is planning to stay around, if only for repeat business. They are wary of companies that are only here to make as much as money as quickly as possible. A company’s most precious asset is its relationship with its customers: what matters is not whom you know – but how you are known to them.

Workers want reassurance that the company is going to last. There is no point in having glossy PR material that the staff do not believe and whose worth can be easily eroded when staff interact cynically with clients. Being built to last boosts staff morale.

Finally, shareholders want assurance that the company is going to last. Speculators are certainly interested in quick profits. But most people (not least the mums and dads investing for their superannuation) want to own shares in companies that will be around. They do not want to be constantly and nervously checking on how the companies are doing.

Therefore, there is a major challenge to devise accounting systems for “sustainability” (what is Triple Bottom Line accounting). Sustainability and the profit motive are complementary: it is the recognition of the former that may guarantee the latter.

The post-Enron era will see a greater focus on creating a company culture based on sustainability – and directors need to be seen in the forefront of that debate.

Broadcast On Friday 13th September 2002 On Radio 2GB’s “Brian Wilshire Programme” At 9pm.