Past Insights

The Economists Makes an About Face

Last week was an amazing time in the annals of corporate responsibility.
Bill Gates, speaking at Davos, called upon business leaders for a kinder capitalism. “We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well,” Mr. Gates told the world leaders attending the forum.
 At Walmart, CEO Lee Scott issued a Social Manifesto, saying that “we live in a time when people are losing confidence in the ability of government to solve problems.” But Walmart, he said, “does not wait for someone else to solve problems.”
And in the biggest shocker, The Economist made an about face on the value of corporate responsibility. Given that I always thought the Economist would be the last financial media outlet to see the light, it was a wonderful change of heart.

In 2005, the Economist argued that good management and corporate responsibility are mutually exclusive practices. Corporate responsibility was described as a set of practices that squanders shareholders’ money on projects that do society more harm than good. The story wrongly defined corporate responsibility as corporate giving by hapless managers eager to ease their own social conscience and placate ‘anti-capitalist’ crusaders. When it was published, the story drew various outraged responses from all quarters.

Jump ahead to the January 19th 2008 special report where the opening editorial begrudgingly acknowledges, “So the apparent triumph of CSR should prompt humility, not hubris. There is money to be made in doing good. But firms are not there to solve the world’s political problems.”

While the magazine can’t quite bring itself to leave out the “but,” the story is a far cry from the article three years ago that trashed the whole idea.

In the magazine’s new special report, one article titled “Just Good Business,” notes that, “Corporate social responsibility, once a do-gooding sideshow, is now seen as mainstream. But as yet too few companies are doing it well.” This is a criticism I absolutely agree with. The Economist also details a very compelling perspective on why corporate America has become so obsessed with CR. They cite several accurate reasons:

• Companies are having to work harder to protect their reputation

• An ever-expanding army of non-governmental organisations (NGOs) stands ready to do battle with multinational companies at the slightest sign of misbehavior.

• Myriad rankings and ratings put pressure on companies to report on their non-financial performance as robustly as on their financial results.

• And, more than ever, companies are being watched. Embarrassing news anywhere in the world—a child sewing a piece of clothing with your company’s brand name on it, say—can be captured on digital camera and published everywhere in an instant, thanks to the internet.

• Climate change, which has become the biggest single driver of growth in the CSR industry

• Investors are starting to show more interest. For example, $1 out of every $9 under professional management in America now involves an element of socially responsible investment.

• Firms are also facing strong demand for CSR from their employees, so much so that it has become a serious part of the competition for talent.

All in all, the report is a thoughtful contribution to the dialog on where corporate responsibility needs to go next to maximize its potential impact. I definitely recommend taking the time to read it.