Issue 3.5 | February 2012

In this Article: how corporate social irresponsibility drives the destruction of value.

by Jonathan Wilson 

If Canada has any prophets, Stephen Lewis is one of them.  Like the ancient biblical prophets, Lewis is a fierce moral critic and, like those indignant rhetoricians of old, he has a way with words.  Recently, Lewis – known in particular for his work as the United Nations’ special envoy for HIV/AIDS in Africa (2001-2006), a concern that he continues to address through his own foundation – levelled his righteous and eloquent fury at the corporate world in, of all places, the Ted Rogers School of Management at Ryerson University in Toronto.  Lewis had been invited to speak on Corporate Social Responsibility.  Drawing on a series of his own unhappy experiences when he attempted, through interactions with one corporate entity or another, to achieve a socially positive outcome, Lewis concluded that, on the whole, “corporations make a fetish out of corporate irresponsibility” (emphasis mine).

As he spoke, Lewis took pains to point out the positive initiatives of a given company.  But even when he could do so, the counterpoints he raised appeared, on first blush at least, to throw the scales off completely.  Here’s an example.  Case Study 1: Barrick Gold has apparently taken considerable initiative to prevent the abuse (including rape) by its security services of locals scavenging from its mines in Malawi.  Case Study 2: Barrick Gold’s iconic founder and chairman, Peter Munk, told Lewis he wanted nothing to do with backing the cause of HIV/AIDS in Africa, a continent that had given him, it seems, “nothing but trouble.”

While Lewis was long on critique, he was, perhaps unsurprisingly, short on solution.  His clearest action point for corporations came as a question: why have no corporate executives publicly criticized the export from Canada of asbestos, when it is a fact that the end user will be killed by exposure to it?  I came away from this informative and genuinely inspiring talk with one conclusion: Stephen Lewis understands righteousness, but he doesn’t understand business.  It is not that the corporate executive shouldn’t be vocal about injustice: the quietness of business leaders about such matters is, well, disquieting.  But the root of social irresponsibility is not a lack of advocacy by corporations, but the failure, in the first place, to do good business.

It is my observation that whenever social responsibility is a struggle for business it is precisely because we have falsely separated the task of the corporation from the task of being human.  We have identified social responsibility as something to be considered as secondary to the pursuit of profits.  Milton Friedman’s now famous argument that “the social responsibility of business is to increase its profits” is specious precisely because it divorces from profitability the very thing that drives it: the creation of value.

Value increases, I believe, when our products and services are not just socially responsible (a negative term that suggests compliance) but socially creative, and in three specific ways.

  • Firstly, our offerings truly improve the life condition and experience of the customer, rather than pander to the human tendency to take the shortest cut to gratification.
  • Secondly, our offerings manifest the very best we have to offer from within the insights, abilities and resources of our companies.
  • Thirdly, our offerings account for the various ways they can impact the customer and the customer’s context – for if the customer’s social and environmental context is degraded, the customer has ultimately been done a disservice, whether or not they recognize it.

The greatest tragedy (and irony) is when business, driven perhaps by the pressure of the quarterly, thinks it is creating value when it is in fact destroying it.  The cause, again ironically, is that particular dynamic that Adam Smith deemed crucial to the success of Capitalism: self-interest.

The Economist has just published “The Proust Index”, which uses seven economic indicators (such as real wages, per-capita GDP and house values) to measure time lost in economic progress.  While critics of the index argue about what constitutes progress or the usefulness of the indicators, the fact remains that the self-serving behaviour of corporations brings about a tremendous destruction of value.  From 2008 to the present, The Proust Index tells us, America has regressed ten years (i.e. the average of the seven indicators places it back where it was in 2001).  The UK has regressed eight years.  Greece has regressed twelve (although Greek stocks have lost twenty years – a total destruction of value for those who invested for the sake of their future livelihood).

Some of the corporations at fault, such as the Lehman Brothers, self-destructed as a result of their self-interested behaviour.  Others survived and continue to behave in the same manner, if with increased internal sophistication and external sophistry.  They may think, even now, that they are creating value, in terms of profitability.  But the historic outcomes of self-interested behaviour would suggest they are not.  They are steadily destroying it.

For business to be socially responsible it has to get its head around the fact that social responsibility is not an additional burden to business, it is a direct result of good business.  If value lasts, it is because it has offered the best of who we are, to address the genuine need of the customer, in a way that truthfully accounts for larger systemic implications.  To do so, self-interest has to be actively countered.  If it wishes to create value, the corporation has to understand itself as a servant.  Even if it is publicly held, it cannot serve its shareholders without first serving the customer and, by extension, the customer’s world.  Anything else, so the numbers tell us, will bring value destruction.

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