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The implications of 'corporate responsibility'.

The implications of 'corporate responsibility'.

A variety of forces mean that ideas of Corporate and Social Responsibility (CSR) are now very much in the public focus. Companies were once seen as mechanisms for creating value, assigning ownership and limiting legal liability. They also became the de facto clearing ground in which many scarce resources priced themselves: capital, physical labour, land, skills and knowledge. Very large scale commerce became, therefore, the battle ground between mass labour and capital, a battle expressed in terms of how much of the profit of the company should go to wages, and how much to the shareholders. As more and more of the economy became bound up in either formal enterprises or the state, so both of these took on much wider roles than could have been envisaged a few generations earlier.

Today, commerce is firmly embedded as a separate but important sphere of activity from social life in general and, for the most part, from the state. It is both seen as the source of exciting innovations, wealth and utility; and as a power that needs to be contained. A vast array of regulation and law constrains what commerce can do. However, until recently, only a small minority questioned what it was that commerce should do. Broadly, these views fall into two camps, although there are all manner of fringe opinions that go ell beyond these positions.

One of these views holds that CSR is, in effect, a broader way of focussing on the creation of shareholder value. That is, in order to preserve the long term gain in value for the shareholder-owner, it is necessary to avoid clashes with labour, the state, consumers, suppliers and others. Friction costs money, and CSR therefore to be seen as a money-saving, opportunity-generating set of practises. As regulatory and other demands increase, so an aware and foresighted organisation can fit itself in advance for the shape of this, can negotiate with regulators to avoid the traps of ignorance and in other ways fit itself for the future. CSR is, in this view, simply applied corporate strategy, enlightened economic man.

The second view, which is increasingly prevalent in debate and set to enter legislation, sets out to dethrone the overall interest of the owner-shareholder. The owners of an enterprise are no longer to be the sole point of reference on which corporate judgements should be grounded. (Plainly, in both views, the shareholder is not well served if issues of law and regulation are not taken into account in such decisions.)

This second view takes what has been called a 'stakeholder capitalist' perspective. That is, it asserts that all agents - people, companies, organisations, living beings - which have a reasonable interest in actions of the company have a legal, absolute right to have that interest taken into account when corporate decisions are made. This right is thought to go well beyond the normal duty of care that is incumbent on company management, insofar as it requires managers to take choices that not merely avoid harming these stakeholders, but which actively advance their interests.

Let us look at an example of how these positions differ. Current employment practises are laid out under statute law by a wide range of legislation, supplemented by the right of individual employees to take legal action if they feel that they have been harmed, and subject to non-legal agreements with unions and related bodies. By contrast, a 'stakeholder' model would retain all of this and add to it a duty upon boards to think how they can improve the job security, remuneration, training and health of their staff. This creates a number of tensions, which would have to be resolved through judgements or statute law.

First and foremost, there is an ancient tension between wages and profits, as already discussed. That is, managers act on shareholders' behalf to extract the maximum that the law and their efforts permit from the factors of production: land, labour, capital and intellectual property. Their task is to increase productivity. In doing so, assets are either absorbed by growth, redeployed within the company or redeployed beyond it. This - and not capitalism, insofar as capital is far from today's limiting factor - is the primary engine of growth and competitiveness. Plainly, if productivity exceeds growth, less productive capacity will be needed: fewer people, less capital goods and so forth. Few organisations are able to maintain high levels of growth indefinitely, but all must drive continuously for productivity or they will fail. Indeed, the economy as a whole will stagnate, wages will fall and the community will not be served. The stakeholder model directly opposes this process of renewal; indeed, actively sets out to oppose it.

Second, organisations work best when they do so in a clear environment. Engineers love free standing projects - the bridge, military aerospace - where the project stands independent of all complicating factors by the laws of physics. By contrast, the stakeholder model is analogous to an urban brown-field project, such as rebuilding a railways station without interrupting its schedule. It makes every aspect of management extremely difficult, insofar as it is a maze of simultaneous equations which have to be solved to a conclusion that will truly satisfy no one interest. It politicises every aspect of the organisation. The civil service, which has naturally to work in this way, operates by laying out the evidence, pruning the decision to its essentials, and then kicking the whole thing into political touch where a political referee decides on the outcome. This approach has been tried in commerce: Russia used commissars to stand in for the political decision-takers, whilst Nazi Germany used informers and a network of influence-brokers. It cannot be said that either of these produced a system that one would wish to emulate, however green, socially-aware and well-meaning the authorities in question. The alternative to such decision-takers is, however, incessant litigation, legislation, regulation.

The first model of corporate and social responsibility has much to commend it, therefore. This is natural response to the world in which we live, and it is hard to imagine that the stakeholder and regulatory pressures will lessen as the century progresses. At issue is how this approach is best undertaken. There seem to be two central points to make about this.

Strategic planning has, traditionally, been about optimisation. On occasions, its practitioners have learned how to play off risk and reward, or various claims on scarce resources. Nevertheless, organisations have not learned how to optimise performance in a multi-dimensional space in anything like a formal way. Consider what a linear program does for - let us say - blending feedstocks so as to produce a 'best' balance of carbohydrate, fibre, protein, minerals, vitamins, cost, shelf life when making a dog food, and contrast this with the primitive tools that are available for setting 'strategic' balances. Yet this is exactly what the CSR demands, undertaken at all level in the organisation, and as a matter of reflex. THis can only be achieved through judgement, not optimisation, although it may be judgement supported by concrete tools or rules of thumb, and certainty reinforced by rewards and penalties, accountability and due reporting channels.

The issue has to be handled at three levels: first, at the level of deciding what balances are right and what these are going to cost, what human resource they need and what new processes need to be put into place. Second, as noted above, managers cannot be expected to solve complex optimisation problems without support. The absolutely central form of support is that which tells them "how a person like me ought to respond in this situation". This is done through various tools, but is essentially a process of propagating 'narratives' - stories that encapsulate appropriate choices in a tangible but qualitative way. One sees this in children's stories: how one tells friend from foe, how one deals with deception, loss, power; how much one should sacrifice for the common good. Finally, such a structure also needs formal mechanisms of checking on performance, of arbitration where there is no simple solution, of reward, enforcement, human resource development and, perhaps most important of all, of summation of what has been done and what it has done for shareholder value. (Or for competitiveness and productivity, if one prefers a more abstract benchmark.)

Such processes cannot be set in train without a clear heart. They must be genuine to their core. It is estimated that the average Western consumer is exposed to tens of thousands of advertisements every week. Research shows that we note and recall only two or three of these and, at most, we act on one a week. As individuals, therefore, we are now fitted extremely effective 'brand filters'. These work on a mixture of the relevance of the message to us, and its perceived 'truth'. The latter is particularly important to corporate branding, where omnipresent flags of a company are a part of the living environment. What is meant by 'truth' is the resonance between how the organisation presents itself and what the public perceive of its actions. One can see this in the clash between Shell's self-presentation as a green, socially-aware company and the two crises of the late Nineties - Brent Spar (environmental) and Nigeria (social issues). Neither of these would have stirred the water at all had Shell not been a prominent brand and, more to the point, one that had self-promoted in this way. Our collective sensitivity to hypocrisy is extremely strong, and poorly-executed or half-hearted attempts at corporate virtue are always going to create trouble for a company.

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