CSR and Beyond - A Nordic Perspective: Utdrag

Foreword Atle Midttun and his colleagues have written a timely and comprehensive book.

We need such a thorough analysis of the idea of corporate social responsibility (CSR) at a time when our whole system of business and capitalism has been called into question through the events of the global financial crisis. The view developed here, that CSR and its allied concepts from stakeholder theory to sustainability is part of a long term project to “civilize capitalism”, is wise. I would suggest that it is indeed a way to make business fit for human beings.

Despite the invective of so-called “free market” ideologues, free markets are themselves set in society. They are best understood as promoting political, social, personal, and economic freedom, rather than being based on them. Value creation and trade are the ways that free people cooperate together. And, if we are not responsible for the effects of our actions on others, then we must default to a Hobbesian world where the state becomes oppressive. Seeing businesses as an important actor responsible for building the good society, is a sensible and deeply powerful idea. It cuts through the left-right political stalemate that threatens to hamstring many societies, as business itself becomes more global.

While my own preference is to think of CSR as “corporate (or business) stakeholder responsibility”, Midttun and his colleagues develop their idea of CSR in a broad way to be inclusive of much of the academic literature that has emerged in the last half century. They contribute to a new narrative about business that sets business firmly within society, rather than separate from society. Some CSR theorists see CSR as necessary because the basic idea of business is somehow morally questionable. The authors here eschew this interpretation while remaining on critical alert for companies and business thinkers who overstate their case for responsible behavior. In particular they argue that we need to push CSR “all the way down” in our theories of business. We need to understand how CSR can be relevant to theories of finance, marketing, operations, strategy and the other disciplines of business. Making it a “bolt on” to the standard story of

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16 foreword business is not enough, and it even leads to a self-satisfied view that nothing further remains to be done.

However you use this book, be sure to read the debate at the end of the book.

Here you will find much insightful commentary on the issues of CSR in our current situation.

While much of the book takes its empirical basis from the North Countries, it is far from only a book about Nordic business. Many of the ideas in the book are being realized all over the world. Recently, John Mackey and Raj Sisodiai have catalogued a movement called “Conscious Capitalism” that includes companies such as Whole Foods Market in the US and POSCO, an integrated steel manufacturer in South Korea, who are making the idea of responsible business come alive. Conscious businesses are just those who are aware of the effects of their actions on a broader society as well as on the stakeholders of the business. What Midttun and his colleagues point out is that the Nordic countries have been developing these ideas for a long time. They do not, for the most part, engage in what I have elsewhere called, “the separation fallacy”, separating “business” from “society”.ii The scholars here have given us a gift: a comprehensive approach and analysis of one of the most important intellectual trends of the day. They and hundreds of other scholars around the world are producing a new narrative of business, one that is worthy of the 21st Century. And, I am happy to report that there are literally thousands of executives, employees, and entrepreneurs that are bringing this vision to life. Truly, there is much hope for our future, especially if we commit to building a better and more free society with a narrative about business that recognizes whole human beings.

R. Edward Freeman Charlottesville, Virginia, USA 11 May 2013

i ii

Mackey, John & Sisodia Rajendra (2013): Conscious Capitalism: Liberating the Heroic Spirit of Business Harvard Business Review Press, Harvard Freeman, R.E (1994): “The Politics of Stakeholder Theory: Some Future Directions” Business Ethics Quarterly, 4: 409-421

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[start kap]

Chapter 1

Civilising Capitalism – Introduction Atle Midttun On my way to a meeting with the UN Global Compact shortly after its foundation in 2000, I had to go through the unavoidable US customs hurdle. A nice customs officer inspected me, and we engaged in a cordial conversation that even included a compliment on my tie. Then she asked me the usual question: What is your business in the US? I told her that I was visiting the UN for a meeting at the Global Compact. She asked me what the Global Compact was all about, and I told her that this was Secretary General Kofi Annan’s club for multinational companies that were pledging social and environmental responsibility in order to help him foster a better world. Until this moment she had treated me as a normal intelligent human being, but now she looked at me with mistrust. “Do you really believe in that crap?”, she asked. In her eyes I had apparently fallen to the level of utter stupidity. I hastily justified myself with a few remarks on the possibility of driving development in the right direction, but I could see that her respect for me was gone. She had apparently placed me in the category of naive idealistic academics who did not know what the real world was all about. Or in a slightly more hopeful category of sly professorial business consultants, who had some sense of reality, but who were part of the window dressing masquerade.

This anecdote may illustrate a pattern found in many struggles for just causes.1 It took time – many decades, even a century – to abolish slavery (Drescher 2009), 1.

I am grateful to Nina Witoszek for suggesting that there may be similarities between diffusion of CSR and other instances of cultural and value change.

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18 chapter 1 or to establish gender equality (Tierney 1999). It involved setbacks and many delays, and the process was very tormenting. At first these efforts were met with incredulity. Their proponents were seen as surrealistic outliers who confused the world for a promised land, or who in some other way had gone astray. The next stage is usually mockery. When the initiative gets a bit more concrete, it is fended off by negative reviews, and rejected as contrarian behaviour. Thereafter – if the initiative gains some momentum among frontrunner pioneers – there may come a period of active opposition and argumentative rejection. If further progress is made, however, actors may start paying lip service to the idea and the greenwashing process starts. This is the phase of hypocrisy where vice pays tribute to virtue. At this point there is the move towards serious implementation. Idealistic rhetoric is caught by its own promise and the initiative is finally mainstreamed in practical life.

CSR, as I see it, is thus part of a long-term process of “civilising capitalism”, or reclaiming social and environmental responsibility for business in the global market economy. As such, it reveals many parallels with previous struggles for just, but initially scorned causes such as the abolition of slavery and women’s emancipation. It also, as I shall argue, reveals parallels with creation and diffusion of technological innovation. Here – as in most social change and innovation processes – the final outcome is not known. However, there are visions, ideas and initiatives that are gradually materialising into new practices, with learning adjustment as they move along.

CSR: A Megatrend with Divergent Interpretations The awareness of and concern with business’ societal dimension is as old as business itself, and the functional detachment of business from persons, families and social groups is a modern phenomenon. With respect to the modern term “corporate social responsibility” historians generally agree that the concept emerged in the 1930s and 1940s. In an overview article, Archie Carroll (1999) points to the 1950s as initiating the “modern era” of CSR in the USA. He designates Howard Bowen’s (1953) book Social Responsibilities of the Businessman as a salient CSR landmark during this period and bestows on Bowen the appellation of “Father of Corporate Social Responsibility”. Since then, increasing literature has refined the concept, but also broadened out to alternative themes such as stakeholder theory, business ethics theory, CSP and corporate citizenship (Carroll 1999). In the Nordic countries, corporate social and environmental

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civilising capitalism – introduction 19

responsibility has been intimately tied to work life democracy and negotiated agreements between labour, industry and the state (Schmitter 1981, Rhenman 1964, Thorsrud & Emergy 1969).

CSR saw a boom in the late 1990s and early 2000s. Following the neoliberal turn in the 1980s, leading global companies and business organisations have adopted social and environmental agendas on an unprecedented scale. Distancing themselves from the doctrine of profit maximisation constrained only by public regulation, they have established an influential trend in business through adoption of the doctrine of corporate social and environmental responsibility (CSR). This trend is clearly reflected in the press, where CSR related articles saw a boom in the early 2000s (Figure 1.1).

The perceptions of what this megatrend represents have varied from greenwashing and legitimation of big business to visions of a new era of civilised capitalism: According to the “greenwashing thesis”, firms have been suspected of meeting the new challenges of the media society with advanced communication divisions. This has been done by recruiting advanced communication experts, along with their tricks, as well as experienced ex-journalists and ex-politicians who have been bought over to the “other side”. These divisions, it is argued, see

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Figure 1.1 CSR in international media

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20 chapter 1 to it that crude work conditions, exploitation of the natural environment and outsourced corruption are veiled by enchanting ethical declarations, selective reporting of good performance and carefully managed spin.

Proponents of the “civilised capitalism” thesis, and business consultants in particular, have argued that there is a so-called “business case” for CSR where environmentally and socially benign business strategies are driven by self-interest. The best illustration is eco-efficiency, where more efficient use of resources reduces expenses and increases profit. The same argument is made for improved work conditions, where workers, in return for job safety and more respectful treatment, engage constructively in productivity improvement.

A third, “critical CSR” position, concurs with the greenwashing critique, but is founded on the belief that civic engagement and media pressure may be sufficiently powerful to counteract misleading corporate PR and force industrial change. Its proponents argue that, as civil society organisations reach out and acquire moral bargaining rights through media, their exposure of unacceptable behaviour and demands made on industry to stand by its CSR promises often lead to improvement. Brand-sensitive industry, which is particularly vulnerable to business reputation loss, is especially exposed to morally justified, critical media campaigns.

The three positions on CSR might be seen to represent expectations at different stages of CSR evolution. The greenwashing thesis, which clearly indicates the “mockery stage”, reflects general opposition and scepticism. However, it indicates that the new business outlook had gained a certain momentum. The civilised-capitalism thesis envisages a further development, where CSR becomes a viable force and leads ahead to concrete practice. The critical position, also leading beyond “mockery”, makes CSR tangible by the involvement of critical stakeholders rather than reliance on initiatives from within the firm itself.

Liberalisation and Globalisation The CSR boom in the late 1990s and early 2000s is not incidental. It came in the wake of two decades of privatisation and deregulation, when liberalisation and internationalisation rolled back tariff barriers and other forms of political control and boosted business and markets. In Europe, the opening of the internal market for goods and services, followed by the dismantling of public management of infrastructure services, greatly expanded the competitive pressure. State protection of “national corporate champions” in return for national solidarity in

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civilising capitalism – introduction 21

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employment and contracting strategies was gradually dismantled and replaced by internationalisation and market control. This coincided with an impressive boom in the economy. The 1980s and 1990s saw value creation booming in North-Western economies at growth rates paralleled only in post-war periods (Figure 1.2).

Bowen’s early corporate responsibility initiatives were far outside the radar of the bullish 1980s. Witness Milton Friedman’s herostratic condemnation of CSR in The New York Times Magazine in September 1970: “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game”. The same position was echoed by Gordon Gecco – the protagonist in the 1987 film “Wall Street” – in his famous statement “Greed is Good”. But “Wall Street” went a step further, assuming that rules did not matter, or perhaps that they had been deregulated away?

Towards the end of two decades of liberal bonanza, the lack of social, environmental and governance constraints became increasingly clear. As Western nation states reduced their immediate engagement in the economy – under Reaganomics and Thatcher’s privatisation – they moved out of their role as direct guarantors of employment and industrial development. The liberalist idea was to replace direct state engagement with regulation. However, in the rapidly globalising market economy, the institutional basis for deregulation was often not in place. This left a governance deficit in the globalising economy.2 As the boom of the 1980s and 1990s evolved into economic volatility, crises and some major business scandals in the early 2000s, the neoliberal programme attracted widespread criticism. Given the globalised markets and the neo-liberal

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In Europe, the EU commission provided some degree of cross-national commercial regulation.

However, its restricted mandate in social- and employment policy, as well as its very limited budget resources, implied that the EU could not fill the broader role of the nation state. Furthermore, deregulation extended far beyond EU boundaries, into a global arena with very weak institutional control.

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22 chapter 1 rollback of the state public reactions were increasingly directed outside regular political channels, at markets and at industry itself. Under public scrutiny, industry progressively had to respond and justify its role in society and explain its wider contribution to the public good. This need for explanation expanded as companies increased in scale, visibility and market positions across continents.

CSR thus evolved in response to a regulatory vacuum. As markets expanded and the scope for commercial strategising increased, national regulation weakened, and international regulation lagged behind. A concept that was buried under neoliberal “hubris” in the 80s and 90s was thus revived to become a new central business agenda and to bridge the gap between business and society; “greed”, after Enron, World Com, Tyco, Arthur Anderson, and later the Lehman Brothers scandals – was no longer seen to be “good”.

CSR, Media and Civic Voice While stimulated by the governance deficit, the new CSR trend has also been driven by digitalisation and the new media. Both of these lowered information gathering costs (Internet search) and communication costs, and thereby facilitated the introduction of alternative perspectives and agendas. Specialised forums, such as Norwatch, Human Rights Watch, Transparency international, etc., publish critical overviews that provide information for civic campaigns and regulatory intervention.

The new media also drastically reduced the costs of mobilisation and organisation and thereby enabled strategic implementation of the civic CSR challenge. In cases like the Forest Stewardship Council, the Extractive Industries’ Transparency Initiative (EITI)/Publish What You Pay Initiative (PWYP), and the Ethical Trading Initiative (ETI), virtual civic communities were established across geographical boundaries and helped mobilise pressure on the official regulatory forums. Orchestrated by strategically focused Civil Society Organisations (CSOs), new media have also been used to facilitate and activate “old” mass media in broader mobilisation of public opinion to bring pressure on established governance elites. The establishment of the ETI was inspired by a series of newspaper articles and TV programmes that exposed shocking work conditions in the supply chain of Western multinationals, particularly in the garment and food industries. The PWYP campaign and FSC engagement also made extensive use of traditional mass media to influence public opinion and place pressure on industry and regulatory authorities.

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