French, John,

I’d like to get the ball rolling based upon your prediction:

By 2009, corporate social responsibility (CSR) will be a higher board- and executive-level priority than regulatory compliance.

I am concerned whenever I see recommendations pertaining to efforts supporting “quality of life” goals, improving living standards and so on. Whose standards and definitions are employed to determine which CSR goals are worthy of pursuing? Do you foresee a scenario in which a well-meaning company pursuing Western-based ethical goals may unknowingly conflict with the local ethos of a community that finds those goals unsuitable?

Also, how do clients avoid the appearance of being disingenuous? If it were not for some financial gain, would CSR be pursued with the same vigor? I am not saying such pursuits are not worthy, I am merely asking if your prediction would come true with as much certainty if few or no financial rewards were waiting at the end of the rainbow.

Surely you have encountered sincere and well-meaning executives who are getting on the bandwagon, but what percentage of the Global 2000 are such altruistic people?

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Ken --

You raise an excellent point about standards and definitions. I agree completely that Western-based ethical goals are not the answer. To borrow a thought from a wise politician: "All CSR, like politics, is always local." Senior management will need to embrace those values and community standards that not only support and sustain the local economy and environment, but also contribute to enterprise growth and operations.

I recently completed a two-week tour of four countries in Asia, and I was amazed at the explosive growth and prosperity that could be seen everywhere. There was a buzz expressed by all clients that there was great opportunity, and they just needed the time and resources to capitalize on it. I found this spirit in stark contrast to the tour I did in 2005 of a dozen U.S. cities during which I met with clients on the same subject: compliance. In the U.S., the thoughts focused on regulations that are too complicated and expensive, labor and healthcare costs that are too high, and that there is pressure to produce quarterly profits to meet Wall Street expectations.

Many of the Asian clients I met with are facing similar requirements as painful as Sarbanes-Oxley, but they view this as a chance to improve their controls and governance structure, as well as increase transparency. They also realize they are competing for talent and other natural resources, and if they develop a reputation of poor stewardship in these areas, they will be shunned — if not ostracized — by the community where they reside. They have a very long-term view of what must be done.

Returning from that trip, I couldn’t help but wonder if I was not witnessing a shift in the center of gravity for business. For most of the 20th century, there was no doubt that Wall Street was the center. However, given what I have seen and heard, I wonder if the new center of gravity is actually somewhere in Asia.

Good answer, John, except for the hanging half-question at the end. Who cares where the center of gravity of business is? It is where people are willing to produce value and earn profits for the value they produce.

French, My comment about center of gravity of business was to suggest that in Asia, CSR appears to be a more top-of-mind issue with both management and stakeholders, which may be a contributing factor as to why there may be so much growth and prosperity there.

John, CSR can be looked as the gap between what is legally required and enforced, and what actions go above and beyond the minimum legally required that companies are doing. In Asian countries, that gap could be larger because their environmental and labor laws lag the West, so companies trying to attract Western business could be trying to meet Western standards on environmental and labor issues. So what is a legal requirement here becomes CSR there.

"Self-inflicted compliance" again!

John, Yes, but I was trying to make the point that Asian companies are not necessarily more enlightened about CSR than their Western counterparts.

French,

Point taken. However, it could also work the other way if some of these countries mandate issues such as carbon trading as requirements to access labor markets or natural resources, in which case we could see a lot more companies “go green” quicker.

John,

Thoughtful answers, indeed.

With regard to your center-of-gravity issue, I interviewed Alvin Toffler this week and he makes it clear that the center is moving to Asia.

Do you see or foresee companies pursuing issues such as offering education for employees to fill gaps left by local authorities? Will they actually find schools? I know this is already being done, but will it become widespread?.

Also, what are the major categories of activities where we likely will see CSR unfold most commonly: education, environment, medicine, other? Which endeavors do you believe will be the most common CSR goals?

Ken,

As a student of history, I start by looking at where the roots of CSR are firmly planted with the needs of the commercial enterprise. For example, George Pullman built company housing and maintained corporate-subsidized stores on Chicago’s South Side to attract and retain a skilled workforce to build his famous railroad cars. Henry Ford, known mostly as the inventor of the assembly line, also embraced CSR principally as a way to build a competitive advantage in Detroit and other communities where they did business by developing a strong social contract with the company’s many stakeholders.

Thomas J, Watson, Sr., the founder of International Business Machines Corporation, was quoted as believing, “A company can grow only in a community where it citizens understand who we are and what we stand for.” Fifty years later, Watson’s son and IBM's chairman of the board still echoed that view. In his book, A Business and Its Beliefs, the Watson Jr. wrote:

“Ultimately we are held accountable to [public interest]. We exist at its tolerance. We are bound by its laws. In planning for the future of our own particular interest, we must recognize the rights and requirements of the public and the millions of individuals who make it up.” (page 80)

Where and in what form will we see CSR take seed and flourish? My bet would be in those areas where there is not an old, significant and costly infrastructure; whether that be energy, environment, healthcare or education. To me, it’s almost like those developing countries that can create their telecommunications infrastructure by leapfrogging to cellular and satellite because they don’t have tons of copper hanging on millions of telephone poles.

Ken, I totally disagree with John. He misinterprets the interest in CSR in developing countries as evidence that they will practice a more-advanced CSR agenda.

In developing countries, the lack of infrastructure is certainly a spur for CSR initiatives, but those CSR goals are always much simpler and more directly aligned with profit motives. For example, a beverage company needs to expand its market, so it works with local authorities to build a clean-water supply for a town where it wants to locate its production. Why? Because it needs clean water to produce its product — while the town's residents also benefit from the availability of better water. An oil company needs trained workers in a remote site, so it builds housing for them and their families. This kind of thing will be touted as CSR but is directly tied to the ability to produce — and is a much more direct link than in Western societies where CSR initiatives may be aimed more indirectly at the intangible "license to operate," which indirectly links to production and profit.

French, I don’t think we disagree at all. That’s exactly what I am saying and your examples back me up. CSR will manifest itself in developing countries — somewhere other than West — because the needs of society are so closely tied with what you call “profit motives.”

Observing this discussion from afar, I am uncertain whether you two are in disagreement not so much about the outcome but with regard to the initial motive behind CSR efforts.

The history of business has many, many examples of CSR cases such as Pullman, Ford and Watson. We can safely assume that for most companies, the profit motive was the first motive in this implied "which came first, the chicken or the egg?" question.

But I wonder how many other examples, such as Ben and Jerry’s, and Kenneth Cole’s, are exhibiting sincere CSR efforts born from their underlying philosophy of wanting to do good. I witnessed Avaya executives this year truly concerned about seeking ways to help communities and companies prepare for a possible Avian influenza outbreak. I concluded their concerns were sincere, and I was genuinely impressed.

So I go back to my first question: Can companies pursue CSR without skeptics and doubters criticizing them for showing concern just to make money?

Ken, Your question implies that it's wrong to pursue CSR to make money. It's not. Executives need to consider the source of the profits, or their profits will be short term indeed, which is a disservice to investors.

However, it's inappropriate for an executive to spend company time on CSR agendas that do not relate to the business of the company. The exec should do that on his own time.

Cordially, French

As a card-carrying capitalist, I fully embrace Milton Friedman’s famous statement: “There is one and only one responsibility of business — to use its resources and engage in activities designed to increase its profits.” But be aware that this quote was tied only to a discussion of a firm’s production function. Friedman went on to add an important qualifier to making money: [That it should be done] “while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom.” ("The Social Responsibility of Business Is to Increase Its Profits," New York Times Magazine, 13 September 1970).

Thirty-two years later, Harvard Business School professor Lynn Sharp Paine has done extensive research and expanded on the full quote in her book, Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance (McGraw-Hill, 2003). Our prediction can be summarized in part by this Paine quote: [There is an] “emerging new standard of corporate performance, one that encompasses both moral and financial dimensions.”

So Ken, to answer your basic question: Can companies pursue CSR without skeptics and doubters criticizing them for showing concern just to make money?

They will have to learn how, because as that 1960s folk singer put it, “The times, they are a-changing!”

The prediction, however desirable, is very unlikely. I think it boils down to the tragedy of the commons: It is in everyone’s collective interest to be socially responsible, but it is in the interest of every individual company and its shareholders that somebody _else_ do it. There will be exceptions, but in general the vested stakeholders are not going to demand it. Quarterly returns trump any long term benefit of building a better world. There may well be increased attention to spinning enlightened self-interest, but it will not exceed the attention devoted to keeping regulators at bay. Arm’s-length investors are not buying enlightenment.