The Hindu Business Line : The emergence of corporate responsibility

When Enron collapsed, the waves of public indignation, shock and disbelief generated were significant. This reaction did not have to occur. But it did. And this is what is important and has to be taken note of. Business disasters and misconduct even beyond the scale of Enron have occurred before. The reaction to Enron's collapse perhaps signals that we are transitioning into a very different era of business. Corporate Responsibility (CR) sheds light on this very different era of business.

In relatively recent history, corporations were created to fulfil specific needs of society. They existed for specific purposes and for specific periods of time after which they were dissolved. Subsequent legal rulings gave corporations more rights and in several respects corporations became more like individuals. The corporation had the right to exist indefinitely, the right to make independent purchases and the freedom to pursue any path of activity that it chose to. With the rise of shareholderism there was further freedom that corporations acquired — in effect, the right to exist beyond obligation to environment and society, with their only accountability being reasonable and timely pay back to shareholders.

Such rulings have separated the institution of business from society, and at its core CR is about the reintegration of these artificially separated realms into a whole that must be effectively managed as a whole. The effects of business action on society and environment are fast becoming irreversible and an increasing number of critical externalities have been created in its wake. A multitude of recent reports points to the short window of time to reverse externalities on the environmental front.

Witness WWF's recent `Living Planet Report' that indicates that the demand we are placing on bio-regions has begun to exceed the possible supply. We are utilising resources from the earth at a rate that is 25 per cent more than the earth's capacity to recreate those resources on an annual basis. Project this trend out a few years and the implications are ominous — depleting forests, scarcity of potable water, scarcity of energy and scarcity of fresh air to mention the basics. Compound this with unmanageable climate change as a result of the aggressive burning of fossil fuels, and we arrive at an unviable scenario that results in destruction that will exceed the effect of the most devastating wars we have experienced in our history!

The externalities on the environmental front are in itself enough to warrant a radical change in strategy on the part of business. A voice of objectivity in not only questioning, but in effectively ensuring that corporations play the business game in a manner that will ensure that there will be a sustainable game to be played in the future is the need of the hour. This voice of objectivity is the responsibility of the corporate CR function.

But there are other externalities that must also be managed to create truly vibrant local, national and global economies. These range from the effects that corporations have on the individuals they employ to consumers and bystanders in communities within which they operate, to regional and national cultures to mention the obvious. Some will argue that the management of these externalities is the role of government. That may be true, but the management must still take place by engaging life dynamically.

This means that the chief players at the local, regional, national and global levels, who are most assertive in their grappling with life — whether through acquiring resources from or returning by products to the environment, responding to and shaping the needs and desires of citizens through creating and moving product and service or organising and overseeing human assets to effect all of this — must be held accountable by government to well thought out local, regional, national and global frameworks that effectively create the sustainable environment and society that allows for true human progress to occur. Infants and children ageing prematurely, for example, as a result of excessive exposure to hormones in cosmetics, foods and beverages as a recent New York Times article points out, and a host of similar effects of business action, is clearly unacceptable.

There are several implications for corporate CR. The corporate CR function must hold the corporation accountable for maintaining an effective homeostasis with environment — acquiring, replenishing and recycling resources and assets effectively; designing products and services that efficiently utilise resources and assets with minimal waste; designing optimal manufacturing and distribution processes that build rather than deplete the capital of the earth.

The corporate CR function must hold the corporation accountable for effective homeostasis with society — ensuring that the corporation is well governed and ethical; that human beings employed in the creation and delivery of products and services are treated with every right and respect that is due to human beings; that there is zero tolerance for destructive side effects of the type pointed out in the ageing example above; that local cultures are not wiped out by the often sweeping standardising effects of global business.

Often, stakeholders at the local, regional and national levels will provide the stimulus to manage the multiple equations of homeostasis that need to be managed. But the responsibility to effectively tap into and leverage knowledge and insights that stakeholder groups provide rests squarely on the shoulders of the business corporation — the entity engaged at the most dynamic foci of life. The corporate CR function remains the primary actor in this.

If one were to step back and ask why these problems or externalities exist in the first place, one sees that it is ultimately due to the paucity of human awareness and ability. There is often insufficiency in the ability of the human to perceive the dynamics of the whole, and as though this is not enough, there is often inadequate power in the human's ability to effectively act on the right knowledge. Only a fundamental shift in these aspects of consciousness — knowledge and will — is sufficient to remove the host of externalities that business action creates in its wake. So long as this consciousness does not advance, CR will perhaps even be required to be primary amongst business functions in the immediate future.

The scope of CR action itself can proceed along three fundamental lines: that of assuring corporate compliance in the face of an increasing array of regulations along the human, social, and environmental dimensions; that of more actively integrating human, social, and environmental "responsibilities" into the very stuff of business so that the nature in which business engages life changes from the inside out; and that of innovating along the human, social, and environmental dimensions so that business proactively reinvents itself to perhaps even become the well deserved leader in the advance of life.

Today, there is a preponderance of the first type of action, prevalent in the creation of corporate and industry `Codes of Conduct'. A smaller number of corporations are exploring integration of aspects of CR into doing business as usual. Wal-Mart through its creation of `Sustainability Networks' is an example of this type of action. Only very few corporations are engaged in the third type of action. General Electric's `Ecomagination' falls into this category. From a business point of view, the ROI is clearly highest in the third type of action, but it is also the most difficult and comprehensive to engineer.

Climate change, adverse and sometimes perverse side effects on consumers and loss of objectivity as in the case of Enron, are some examples of what can happen when business is run as usual. CR is a necessary corrective in ensuring that business as embryo recognises that it is wholly dependant on the mother that surrounds and nourishes it. Such recognition remains critical to the future of humanity.

(The writer is Managing Director of advisory service at Business for Social Responsibility (BSR). The views here are the writer's own and do not necessarily reflect those of BSR or its member companies)

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