INSIDE OUT: My main objection to the whole corporate responsibility craze is that it makes for bad business decisions and bad morality

INSIDE OUT: My main objection to the whole corporate responsibility craze is that it makes for bad business decisions and bad morality - The fashionable view in the City, Westminster and even in the boardroom is that companies are the institutional equiva

by ROBERT PESTON, editorial director of Quest (www.csquest.com);e-mail: rpeston@csquest.com
Last Updated: 31 Aug 2010

The fashionable view in the City, Westminster and even in the boardroom is that companies are the institutional equivalent of naughty children. They will misbehave unless forced to promise to be good.

Boiled down, this is what underpins their obsession with making statements about what marvellous corporate citizens they are. Along with mercifully truncated statements in their annual reports about how good they are, they also publish huge glossy documents detailing their commitment to the environment, to following decent working practices in less developed countries, to 'supporting' the communities in which their plants are located.

The implication is that they would instinctively employ eight-year-olds in South Asia to make training shoes or would pump pathogens into rivers teeming with fish unless they cross-their-hearts-hope-to-die that they will not. None of which is terribly edifying.

As you can tell, I'm not very impressed with the explosion of company resources devoted to corporate social responsibility (CSR). I think good companies could and should be ethical, but it is just wrong to have any involvement in the employment of minors or to poison people in the pursuit of profit.

So the pragmatic justification of ethical conduct seems to me inappropriate and unnecessary. Yet I cannot tell you the number of CEOs and assorted PR consultants who have lectured me on how following some basic moral precepts is good for business. It helps them recruit the idealistic young people, who just happen to be highly productive, they say. It gives their staff a sense of purpose. The brand is damaged when Greenpeace or Christian Aid attack the firm. And so on.

Quite an industry has grown up, as an adjunct to public relations and advertising, that earns considerable fees from advising companies on ethical behaviour, how to exploit it for profit, and how to make a big noise about how wonderful they are. Every big company has its in-house CSR expert.

Which brings me to my main objections to the whole CSR craze: it makes for bad business decisions and bad morality.

It is almost impossible to justify a community spending programme - on adult literacy, or computers for schools or cleaning up water in the third world - in terms of cashflow returns to the sponsoring firm. A business like Body Shop is the exception that proves the rule. For most companies, their unique selling point cannot be that they are holier than thou.

This does not mean firms should eschew community programmes. But they should carry them out on the basis of an internal code detailing the rights and responsibilities of corporate citizens, not endeavour to justify them in conventional business terms.

Once a company starts to view this sort of programme as a sensible 'business' investment, it is on a slippery slope towards justifying all sorts of other 'investments' as somehow adding to the corporate lustre, with little regard to future earnings. Buying a corporate jet or a few race-horses or debenture seats at Wimbledon is good for executive morale. So why not use shareholders' funds on those essentials?

But my greater reservation is that the perception of ethical behaviour as being good for business ultimately leads to unethical behaviour. If the basis of supporting a local school or refusing to employ Thai eight-year-olds is that it improves the brand image, then the corollary also holds true: if it is utterly impossible that anyone will find out that GoodWorks plc is in fact laundering money for the Medellin Cocaine cartel, there is no harm in doing it.

As far as possible, boards should make separate moral and commercial assessments of business initiatives. And they should not be over-zealous in the ethical evaluation, because an obsession with morality can lead to inactivity.

What is required is greater transparency in the way that more difficult judgments are made. For that reason, I do not think institutional shareholders are wrong to ask companies for social and environmental audits, for all my scorn about their present content.

On that basis, I am not terribly impressed with the way BAE Systems handled itself during the recent furore over a contract to sell a dollars 40 million radar system to Tanzania.

Now BAE publishes a glossy annual 'Community Review', in which John Weston, the CEO, extols 'the calibre of our people' who work 'to ensure that BAE Systems remains a good corporate citizen'. If these are more than words, then the fact that the high cost of the radar system squeezes out vital anti-poverty measures in the African country should matter to it.

Why was this concern not an overwhelming factor against pressing ahead with the deal? I can think of many reasons, but I do not recall hearing much on all this from BAE. To retain the confidence of shareholders, employees, customers and the wider community, BAE should have explained its actions in detail. The good corporate citizen stands up when the going gets tough, and not just when it wants to show how lovely and cuddly it is.

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