The Economist

Just good business
A special report on corporate social responsibility

January 19th 2008
The Economist January 19th 2008 A special report on corporate social responsibility 1
Just good business

Also in this section
The feelgood factor

Helping others to help yourself. Page 3
The next question

Does CSR work? Page 4
A stitch in time
How companies manage risks to their
reputation. Page 6
A change in climate
The greening of corporate responsibility.
Page 8
The good consumer

Buying ethical is not as straightforward as it Corporate social responsibility, once a do-gooding sideshow, is now
seems. Page 9 seen as mainstream. But as yet too few companies are doing it well,
says Daniel Franklin
Going global
CSR is spreading around the world, but in
dierent guises. Page 11 I N THE lobby at the London headquarters
of Marks & Spencer, one of Britain’s lead-
ing retailers, the words scroll relentlessly
erly, from helping the poor to saving the
planet. With such a fuzzy, wide-ranging
subject, many companies nd it hard to
across a giant electronic ticker. They de- know what to focus on.
Do it right scribe progress against Plan A, a set of Third, the M&S ticker demonstrates that
Corporate responsibility is largely a matter of 100 worthy targets over ve years. The CSR is booming. Whether through elec-
enlightened self-interest. Page 13 company will help to give 15,000 children tronic screens, posters or glossy reports,
in Uganda a better education; it is saving big companies want to tell the world about
55,000 tonnes of CO2 in a year; it has recy- their good citizenship. They are pushing
cled 48m clothes hangers; it is tripling sales out the message on their websites and in
of organic food; it aims to convert over advertising campaigns. Their chief execu-
20m garments to Fairtrade cotton; every tives queue up to speak at conferences to
store has a dedicated Plan A champion. explain their passion for the community
The M&S ticker says a lot about the cur- or their new-found commitment to mak-
rent state of what is commonly known as ing their company carbon-neutral. A sur-
corporate social responsibility (CSR). First, vey carried out for this report by the Econ-
nobody much likes the CSR label. A year omist Intelligence Unit, a sister company
ago M&S launched not a CSR plan but Plan of The Economist, shows corporate respon-
Acknowledgments
In addition to the people named in this report, the author A (because there is no Plan B). The chief sibility rising sharply in global executives’
would like to thank the following for their help: Jim Aisner, executive’s committee that monitors this priorities (see chart 1, next page).
Mike Barry, Richard Batten, C.B. Bhattacharya, Rosanne plan is called the How We Do Business None of this means that CSR has sud-
Bonanno, Sheila Bonino, Richard Brophy, Ann Cairns,
Richard Cellini, Suzanne Chase, Richard Clarke, David Cur- Committee. Other companies prefer to denly become a great idea. This newspa-
ran, Ian Davis, Michael Evans, Steve Garnett, Lisa ter Haar, describe this kind of thing as corporate per has argued that it is often misguided, or
Carin ten Hage, Ajay Khanna, Isabel Kelly, C.S. Kiang, Paul responsibility (dropping the social as worse. But in practice few big companies
Lewis, Simon Lewis, Ernst Ligteringen, Stanley Litow, Dan-
iel Litvin, Gareth Lofthouse, Joshua Margolis, Richard too narrow), or corporate citizenship, or can now aord to ignore it.
Mills, Charles Moore, Laura Moustakerski, Dambisa Moyo, building a sustainable business. One Beyond the corporate world, CSR is pro-
Andrew Newbery, Jeremy Oppenheim, Amon Rappoport, Nordic executive glories in the job title of viding fertile ground for think-tanks and
Yvonne Ryan, Jerey Sachs, Jat Sahota, Susanne Stormer,
Jerey Sturchio, Jerey Swartz, Sandra Taylor and Michael director, accountability and triple-bottom- consultancies. Governments are taking an
Toel. line leadership. All this is convoluted code ever keener interest: in Britain, for exam-
for something simple: companies mean- ple, the 2006 Companies Act introduced a
A list of sources is at ing (or seeming) to be good. requirement for public companies to re-
www.economist.com/specialreports Second, the scrolling list shows what a port on social and environmental matters.
vast range of activities now comes under And the United Nations promotes cor-
the doing-good umbrella. It spans every- porate responsibility around the world
An audio interview with the author is at
thing from volunteering in the local com- through a New York-based group called
www.economist.com/audio munity to looking after employees prop- the Global Compact. 1
2 A special report on corporate social responsibility The Economist January 19th 2008
responsibilities than it did ve years ago. ing industry, companies like Nike and Gap
The big issue 1
Investors too are starting to show more came under attack for use of child labour.
Degree of priority given to corporate responsibility, % interest. For example, $1 out of every $9 Food companies face a backlash over
Very high Moderate Very low under professional management in Amer- growing obesity. And Don’t be evil as a
High Low Don’t know
ica now involves an element of socially corporate motto oers no immunity: Goo-
responsible investment, according to gle was one of several American technol-
100
Georey Heal of Columbia Business ogy titans hauled before Congress to be
80 School. Some of the big banks, including grilled about their behaviour in China.
Goldman Sachs and UBS, have started to So, often belatedly, companies respond
60 integrate environmental, social and gover- by trying to manage the risks. They talk to
nance issues in some of their equity re- NGOs and to governments, create codes of
40 search. True, the nance industry sends conduct and commit themselves to more
mixed signals: it demands good nancial transparency in their operations. Increas-
20
results above all else, and in parts of the - ingly, too, they get together with their com-
0 nancial worldnotably the private-equity petitors in the same industry in an eort to
Three years Today Three years partscepticism on CSR still runs deep. But set common rules, spread the risk and
ago hence private equity itself is having to respond to shape opinion.
Source: Economist Intelligence Unit, Global Business Barometer,
an online survey of 1,192 global executives, Nov-Dec 2007
public pressure by agreeing to voluntary All this is largely defensive, but compa-
codes of transparency. nies like to stress that there are also oppor-
As well as these external pressures, tunities to be had for those that get ahead
2 Business schools, for their part, are add- rms are also facing strong demand for of the game. The emphasis on opportunity
ing courses and specialised departments CSR from their employees, so much so that is the third and trendiest layer of CSR: the
to keep their MBA students happy. De- it has become a serious part of the compe- idea that it can help to create value. In De-
mand for CSR activities has just soared in tition for talent. Ask almost any large com- cember 2006 the Harvard Business Review
the past three years, says Thomas Cooley, pany about the business rationale for its published a paper by Michael Porter and
the dean of New York University’s Stern CSR eorts and you will be told that they Mark Kramer on how, if approached in a
Business School. Bookshelves groan with help to motivate, attract and retain sta. strategic way, CSR could become part of a
titles such as Corporation Be Good, Be- People want to work at a company where company’s competitive advantage.
yond Good Company and The A to Z of they share the values and the ethos, says That is just the sort of thing chief execu-
Corporate Responsibility. Mike Kelly, head of CSR at the European tives like to hear. Doing well by doing
Why the boom? For a number of rea- arm of KPMG, an accounting rm. good has become a fashionable mantra.
sons, companies are having to work Businesses have eagerly adopted the jar-
harder to protect their reputationand, by Too much of a good thing? gon of embedding CSR in the core of
extension, the environment in which they Since there is so much CSR about, you their operations, making it part of the cor-
do business. Scandals at Enron, World- might think big companies would by now porate DNA so that it inuences decisions
Com and elsewhere undermined trust in be getting rather good at it. A few are, but across the company.
big business and led to heavy-handed gov- most are struggling. With a few interesting exceptions, the
ernment regulation. An ever-expanding CSR is now made up of three broad lay- rhetoric falls well short of the reality. It
army of non-governmental organisations ers, one on top of the other. The most basic doesn’t go very deep yet, says Bradley
(NGOs) stands ready to do battle with is traditional corporate philanthropy. Googins, executive director of the Boston
multinational companies at the slightest Companies typically allocate about 1% of College for Corporate Citizenship. His cen-
sign of misbehaviour. Myriad rankings pre-tax prots to worthy causes because tre’s latest survey on the state of play in 1
and ratings put pressure on companies to giving something back to the community
report on their non-nancial performance seems the right thing to do. But many
If only 2
as well as on their nancial results. And, companies now feel that arm’s-length phi-
more than ever, companies are being lanthropysimply writing cheques to What should your company do to address
watched. Embarrassing news anywhere in charitiesis no longer enough. Sharehold- environmental, social and governance issues?, %
the worlda child working on a piece of ers want to know that their money is being What respondents What they say their
clothing with your company’s brand on it, put to good use, and employees want to be say their companies companies actually do
should do
saycan be captured on camera and pub- actively involved in good works. Performance gap,
Fully embed these percentage points
lished everywhere in an instant, thanks to Money alone is not the answer when issues into:
the internet. companies come under attack for their be- 0 20 40 60 80
Now comes concern over climate haviour. Hence the second layer of CSR, Strategy and 22
operations
change, probably the biggest single driver which is a branch of risk management.
Strategies and
of growth in the CSR industry of late. The Starting in the 1980s, with environmental operations of 27
great green awakening is making company disasters such as the explosion at the Bho- subsidiaries
after company take a serious look at its pal pesticide factory and the Exxon Valdez Investor-relations
20
strategy
own impact on the environment. It is no oil spill, industry after industry has suf-
Global
surprise, therefore, that 95% of CEOs sur- fered blows to its reputation. Big pharma supply-chain 32
veyed last year by McKinsey, a consul- was hit by its refusal to make antiretroviral management
tancy, said that society now has higher drugs available cheaply for HIV/AIDS suf- Source: McKinsey, February-April 2007 survey
of CEOs participating in UN Global Compact
expectations of business taking on public ferers in developing countries. In the cloth-
2 America is called Time to Get Real. companies’ aspirations and their actions ecutives with dicult questions. Can you
There is, to be fair, some evidence that (see chart 2, previous page). And even cor- measure CSR performance? Should you be
companies’ eorts are moving in a more porate aspirations in the rich world lag far co-operating with NGOs, and with your
strategic direction. The Committee Encour- behind how much the public expects busi- competitors? Is there really competitive
aging Corporate Philanthropy, a New ness to contribute to society. advantage to be had from a green strategy?
York-based business association, reports According to Mr Porter, despite a surge How will the rise of companies from
that the share of corporate giving with a of interest in CSR, in most cases it remains China, India and other emerging markets
strategic motivation jumped from 38% in too unfocused, too shotgun, too many change the game?
2004 to 48% in 2006. But too often cor- supporting someone’s pet project with no This special report will look in detail at
porate strategy is not properly joined up. real connection to the business. Dutch how companies are implementing CSR. It
In the car industry, Toyota has led the way Leonard, like Mr Porter at Harvard Busi- will conclude that, done badly, it is often
in championing green, responsible motor- ness School, describes the value-building just a gleaf and can be positively harmful.
ing with its Prius hybrid model, but it has type of CSR as an act of faith, almost a fan- Done well, though, it is not some separate
lobbied with others in the industry against tasy. There are very few examples. activity that companies do on the side, a
a tough fuel-economy standard in Amer- Perhaps that is not surprising. The busi- corner of corporate life reserved for virtue:
ica. Surveys point to a big gap between ness of trying to be good is confronting ex- it is just good business. 7
The feelgood factor Helping others to help yourself
W HEN catastrophic oods hit Bangla-

desh last November, TNT’s emer-
gency-response team was ready. The
Dow Jones Sustainability Index.
TNT’s experience illustrates several
trends in corporate philanthropy. First,
only to make a dierence on the ground,
but also to develop managers who under-
stand how the wider world works.
logistics giant, with headquarters in collaboration is in, especially with NGOs. Third, once a formal programme is in
Amsterdam, has 50 people on standby to Companies try to pick partners with place, it becomes hard to stop. Indeed, it
intervene anywhere in the world at 48 some relevance to their business. For tends to grow, not least because employ-
hours’ notice. This is part of a ve-year- TNT, the food programme is a good t be- ees are keen. In 1996 KPMG allowed its
old partnership with the World Food Pro- cause hunger is in part a logistical pro- sta in Britain to spend two hours a
gramme (WFP), the UN’s agency that blem. Standard Chartered, a bank, is month of their paid-for time on work for
ghts hunger. The team has attended to working with the Bangladesh Rural Ad- the community. Crucially for an accoun-
some two dozen emergencies, including vancement Committee on micronance tancy rm, the work was given a time
the Asian tsunami in 2004. We’re just and with other NGOs on a campaign to code. After a while it came to be seen as a
faster, says Ludo Oelrich, the director of help 10m blind people. business benet. The programme has ex-
TNT’s Moving the World programme. Coca-Cola has identied water con- panded to half a day a month and now
Emergency help is not TNT’s only of- servation as critical to its future as the adds up to 40,000 donated hours a year.
fering. Volunteers do stints around the world’s largest drinks company. Last June And increasingly it is not only inputs that
world on secondment to WFP and sta it announced an ambitious collaboration are being measured but outputs as well.
are encouraged to raise money for the with WWF, a global environmental orga- Salesforce.com, a software rm, tries to
programme (they generated 2.5m last nisation, to conserve seven major fresh- measure the impact of its volunteer pro-
year). There is knowledge transfer, too: water river basins. It is also working with grammes, which involved 85% of its em-
TNT recently improved the school-food Greenpeace to eliminate carbon emis- ployees last year.
supply chain in Liberia, increasing WFP’s sions from coolers and vending ma- All this has meant that straightforward
eciency by 15-20%, and plans to do the chines. The co-operation is strictly cash donations have become less impor-
same in Congo. non-nancial, but marks a change in out- tant. At IBM, in 1993 cash accounted for as
look. Ten years ago you couldn’t get much as 95% of total philanthropic giving;
Balm for the soul Coca-Cola and Greenpeace in the same now it makes up only about 35%. But cash
Why does TNT do these things? People room, says Neville Isdell, its CEO. still matters. When Hank Paulson, now
feel this is a company that does more than Second, what used to be local commu- America’s treasury secretary, was boss of
take care of the bottom line, says Mr Oel- nity work is increasingly becoming global Goldman Sachs, he was persuaded to
rich. It’s providing a soul to TNT. In a community work. In the mid-1990s raise the amount that the rm chipped in
2006 sta survey, 68% said the pro-bono nearly all IBM’s philanthropic spending to boost employees’ charitable dona-
activities made them prouder to work at was in America; now 60% is outside. Part tions. Now it is starting a philanthropy
the company. It also helps with recruit- of this involves a corporate version of the fund aiming for $1 billion to which the
ment: three out of four graduates who ap- peace corps: young sta get one-month partners will be encouraged to contribute
ply for jobs mention the WFP connection. assignments in the developing world to a share of their pay. No doubt that is good
Last year the company came top in the work on worthy projects. The idea is not for the bank’s soul.
The next question

Does CSR work?
T HE theological questionshould
there be CSR?is so irrelevant to-
day, says John Ruggie of Harvard Univer-
free-marketeers such as Milton Friedman
(whose seminal critique of the concept,
The social responsibility of business is to
rms feel they have to ll the voidfor ex-
ample, by cutting carbon emissions or set-
ting labour standards. And as businesses
sity’s Kennedy School of Government. increase its prots, appeared in the New go global, they face a complicated patch-
Companies are doing it. It’s one of the so- York Times Magazine in 1970) or, for that work of rules. Mr Ruggie, who serves as
cial pressures they’ve absorbed. Three matter, this newspaper. But here was a the UN secretary-general’s special repre-
years ago a special report in The Economist cruel cut from a Clintonite. sentative for business and human rights, is
acknowledged, with regret, that the CSR More importantly, those who doubt particularly concerned about parts of the
movement had won the battle of ideas. In whether CSR is worth having raise points world where conict or corruption means
the survey by the Economist Intelligence that have a signicant bearing on how it is there is no eective government to do the
Unit for this report, only 4% of respon- done. Take three of the main objections: rule-setting. Still, it is surely right to keep a
dents thought that CSR was a waste of that it encroaches on what should be the wary eye on whether the things rms do in
time and money. Clearly CSR has arrived. proper business of government; that CSR the name of good citizenship are truly in
Mr Ruggie and others claim that the real is a sideshow; and that it involves playing the best interests of society as a whole.
question about corporate responsibility with other people’s money. The sideshow objection takes issue
today is not whether but how. But the Mr Reich argues that the energy spent with the assumption, all too common
debate has not entirely vanished, and it is on CSR diverts attention from establishing among executives and activists alike, that
worth pausing to consider some of the ar- rules that advance the common good the pursuit of protable business is not a
guments of those who question the whole rules that help to prevent oil spills, say, or socially responsible thing in its own right.
point of it. protect human rights abroad. In a democ- Yet there is nothing wrong with making
Within companies, the few sceptics still racy, he says, that should be the job of money: more than anything else, that is
matter, especially since they seem to be elected governments, not prot-maximis- how companies do good. The welfare they
found disproportionately at the top end of ing companies. It is easy to see the poten- create in the form of jobs, products and in-
management. And from time to time the tial for a corrupt bargain: lobby groups nd novation dwarfs anything rms are likely
debate surfaces noisily in public. Last sum- it more rewarding to put pressure on cor- to do explicitly in the name of CSR.
mer, for example, Robert Reich, a former porate executives because they respond In 2004-05 Oxfam, an agency devoted
labour secretary under Bill Clinton, now at faster than governments; governments are to poverty relief, and Unilever, an Anglo-
the University of California at Berkeley, only too happy to duck the issue or let Dutch consumer-goods company, jointly
launched a broadside against CSR in his business pick up the bill. conducted a detailed study of the econ-
book, Supercapitalism. The CSR indus- In practice, however, it is often the ab- omic impact of Unilever’s operations in In-
try had learnt to shrug o criticism from sence of government rules that makes donesia. The conclusions were eye-open-
ing, especially for Oxfam. Unilever in
Indonesia supported the equivalent of
300,000 full-time jobs across its entire
business, created a total value of at least
$630m and contributed $130m a year in
taxes to the Indonesian government. The
lesson for rms is that they have been far
too defensive about their contribution to
society. If eorts to do good become a dis-
traction from the core business they may
actually be downright irresponsible. After
all, a socially conscious but bankrupt busi-
ness is no good to anyone.
Spending other people’s money

The most fundamental criticism of CSR is
that what executives spend on it is other
people’sie, shareholders’money. They
may mean well, and it may give them satis-
faction to write a cheque for hurricane vic-
tims or disadvantaged youth, but that is
not what they were hired to do. Their job is
to make money for shareholders. It is irre- 1
idea of sustainability: if a business bene- Sustainability rankings and indices of

Pros and cons 3
ts from a CSR initiative, it is more likely to various kinds also help to concentrate cor-
Which of the following do you agree with?, % last, and its involvement may be more dy- porate minds by shaming rms or helping
namic and innovative too. them shine. But they also point to a pro-
Corporate
responsibility... 0 20 40 60 To be fair, attitudes are changing, both blem. Two of the best-known indicesthe
...is a necessary cost
in business and among NGOs. A growing Dow Jones Sustainability index and the
of doing business number of companies are working with FTSE4Goodunderperform the market.
NGOs, especially those with operations AccountAbility, a British think-tank, ad-
...gives us a distinctive
position in the market on the ground and a commitment to get- mits to the inconvenient truth that its 2007
...is meaningless if it includes ting things done. Both sides now see CSR ranking of the Fortune Global 100 compa-
things that companies as oering what Mr Porter calls shared nies by their progress on building sustain-
would do anyway value: benets for both business and soci- ability into their business shows no con-
...is a waste of time ety. Georg Kell, the director of the UN nection with their nancial performance.
and money
Global Compact, says that the case for en- Even so, interest in socially responsible
Source: Economist Intelligence Unit
gagement has changed from a moral to a investment (SRI) is on the rise, along with
business one. the general surge in interest in anything to
2 sponsible for them to sacrice prots in the On this view, the best form of cor- do with climate change. The signs are
(sometimes vain) pursuit of goodness. porate responsibility boils down to en- many: more executive time spent on man-
Thoughtful practitioners of CSR under- lightened self-interest. And the more that aging relations with SRI investors; nan-
stand this. Executives overseeing the envi- rms embracing it are seen to be success- cial institutions with over $10 trillion un-
ronmentally minded Plan A at M&S stress fulthrough astutely managing risks and der management signing up for the UN’s
they are running a business, not a green recognising opportunitiesthe more en- Principles for Responsible Investment; an
charity. Marc Benio, the boss of sales- lightened their leaders will be perceived to explosion of interest in related research,
force.com, is an evangelist for corporate be. But do such policies really help to bring according to Peter Kinder, the president of
philanthropy but keeps a clear sense of success? If not, the whole CSR industry KLD Research & Analytics, which special-
priorities: First and foremost my share- has a problem. If people are no longer ask- ises in benchmarks for social investing.
holders are the most important thing. ing whether but how, in future they A new, exhaustive academic review of
The simple solution is that businesses will increasingly want to know how 167 studies over the past 35 years con-
should concentrate on the sweet spot well. Is CSR adding value to the business? cludes that there is in fact a positive link be-
where initiatives are good for both prots tween companies’ social and nancial
and social welfare. This is the sort of win- An inconvenient truth performancebut only a weak one. Firms
win situation that executives love to talk At present few companies would be able are not richly rewarded for CSR, it seems,
about: the smart thing to do as well as the to tell. CSR decisions rely more on instinct but nor does it typically destroy share-
right thing to do. Green policies currently than on evidence. But a measurement in- holder value. Might cleverer approaches to
oer lots of opportunities for win-wins, dustry of sorts is springing up. Many big CSR in future produce better returns?
which is why so many rms are eagerly rms now publish their own sustainabil- There is no evidence that ESG [envi-
embracing them: cut fuel costs and you ity reports, full of targets and commit- ronmental, social and corporate gover-
help both the planet and the bottom line; ments. The Global Reporting Initiative, nance] or SRI investing on their own add
expand your range of organic food and in- based in Amsterdam, aspires to provide an value, say analysts at Goldman Sachs. But
crease your market share. The same logic international standard, with 79 indicators they reckon that by incorporating an ESG
should lead senior management, faced that it encourages companies to use. This perspective into their long-term industry
with a bewildering spectrum of socially may be a useful starting point, but critics analysis they can beat the market. Their
worthy activities, to select those that are say it often amounts to little more than model, called GS SUSTAIN, includes ESG
most relevant to their business. box-ticking; worse, it can provide a cover analysis as a good overall proxy for the
Yet people on both sides of the barri- for poor performers. management of companies relative to
cades tend to dismiss this argument. Scep- their peers, hence indicative of their
tics say it renders CSR meaningless. If it chances of long-term success. But these
The price of virtue 4
amounts to nothing more than good man- factors need to be put into the context of
agement, it does not count. NGO activists, Share prices, January 1st 2003=100 companies’ nancial performance and the
too, often look for some element of sacri- circumstances of individual industries. A
ce on the part of business, if only to dem- 225 company’s attention to environmental, so-
onstrate a degree of moral commitment MSCI World index cial and corporate-governance issues is
200
without which, they fear, a company’s Dow Jones only one factor among others in determin-
Sustainability index
worthy programmes may disappear with FTSE4Good index
175 ing its long-term success.
the next downturn. 150 The Goldman Sachs model is an in-
Both arguments are too narrow. If cor- triguing attempt to capture the complex in-
porate antennae are more keenly tuned to 125 teraction between social-responsibility is-
social trends and sensitivities, alerting 100 sues and the many other things that
managers to risks and opportunities they businesses worry about in the real world.
might not otherwise have spotted, so 75 An integrated view of the role of CSR hap-
2003 04 05 06 07
much the better for business. As for the ac- pens to be what leading companies are
Source: Thomson Datastream
tivists, they of all people should like the striving for too. 7
A stitch in time
How companies manage risks to their reputation
B USINESS leaders embrace corporate

responsibility for a number of reasons.
Lee Scott, the CEO of Wal-Mart, was con-
trial, this can be embarrassing and costly
for companies.
Three years ago Unocal, a Californian
companies manage these risks better (and,
if they are lucky, grasp some opportunities
too). Much of the work we do is to get big
verted to it by the aftermath of Hurricane oil company, settled out of court (report- incumbents to recognise a dierent fu-
Katrina (which showed his company’s full edly for some $30m) over allegations of ture, says John Elkington of SustainAbil-
potential to serve not just our customers complicity in abuses by government sol- ity, a consultancy.
but our communities, our countries and diers against villagers in Burma during the What might the next wave of trouble
even the world). Others are lured by the construction of a pipeline in the 1990s. be? Corporate corruption, perhaps, specu-
glamour of making pledges at the Clinton However, the company denied any lates Toby Webb, the editor of Ethical Cor-
Global Initiative. For some, though, it is responsibility. Another oil company, Talis- poration magazine. In South Africa, for ex-
public embarrassment and lawsuits that man Energy, discovered that being Cana- ample, corruption is very much part of the
concentrate the mind. dian was no protection against a legal CSR agenda. At two of Germany’s biggest
Take Yahoo!, a technology company claim in the United States. It was facing a companies, Siemens and Volkswagen,
that ran into diculties over the jailing of lawsuit by the Presbyterian Church of Su- heads have rolled because of corruption
two Chinese dissidents after the company dan alleging complicity in genocide in Su- scandals. Mr Webb reckons this could be-
handed data on them to the Chinese dan, where Talisman had invested in the come a much bigger trend over the next
authorities. In November Yahoo!’s chief Greater Nile Oil Projecteven though Tal- couple of years.
executive, Jerry Yang, and its top lawyer isman, under pressure from human-rights
had to listen to Tom Lantos, a congress- groups, had sold its stake back in 2002. Chain reaction
man, denounce them as technology giants Time and again companies fail to see For the moment, though, the biggest pro-
but moral pygmies. The following week the problems coming. Only once they blem many companies have to deal with is
Yahoo! reached an out-of-court settlement have had to deal with, say, a lawsuit or something that has sprung from rapid
with the families of the jailed men. strong public pressure do they start to globalisation. It is the risks associated with
Trouble seems to come in waves, change their thinking. The CSR industry managing supply chains that spread
pounding industry after industry, each believes that a broader understanding of around the world, stretching deep into
time for a dierent reason. It has hit the oil the world in which they operate can help China, India and elsewhere. For some, this
business because of spills and explosions. is a challenge on a grand scale: Nike’s con-
Mining companies have come under at- tractor network, for example, involves
tack for collusion with corrupt govern- some 800,000 workers.
ments. Clothing companies have faced Firms can set standards of behaviour
scandals over the use of sweatshop or for suppliers, but they do not nd it easy to
child labour. The petfood industry was pil- enforce them. Unscrupulous suppliers
loried after cats were killed by tainted im- may cheat, keeping two sets of records,
ports from China. Mattel and other makers one for show, one for real. Others, under
had to recall millions of toys made in intense pressure to keep costs low, may cut
China on safety grounds. cornersallowing unpaid overtime, for ex-
Most of the rhetoric on CSR may be ample, or subcontracting work to other
about doing the right thing and trumping rms that escape scrutiny.
competitors, but much of the reality is And on top of the need to guarantee la-
plain risk management. It involves limit- bour standards and product safety across
ing the damage to the brand and the bot- an extended network, a new demand is
tom line that can be inicted by a bad press starting to emerge: companies have to con-
and consumer boycotts, as well as dealing sider the environmental sustainability
with the threat of legal action. of their suppliers too. So inspection re-
In America, the legal instrument of gimes are set to intensify, at a time when
choice (as in the Yahoo! case) is the Alien audit fatigue has already become a pro-
Tort Claims Act, which allows companies blem for suppliers. Surveys suggest that a
to be taken to court in America for violat- typical garment factory may expect to be
ing human rights abroad. Under interna- inspected 25 times a year. Levi Strauss,
tional law only states can be held responsi- Timberland and others in the industry are
ble for violating human rights, but starting to collaborate on inspections to re-
allegations of complicity in state abuse duce the burden on suppliers.
can provide a hook for legal claims against Each industry has its own specic is-
companies. Even if it does not get as far as a sues, but there are some common themes 1
2 in how rms are approaching the risk- with governments, UN agencies and
The business case 5
management side of CSR. One is to put in NGOs. This has become one of the most
place proper systems for monitoring risk What are the main business benefits to striking recent trends in CSR.
across the supply chain, including listing your organisation of having a defined The mining industry, for example, has
corporate-responsibility policy?*, %
who the suppliers are, having well-estab- joined with governments in the Extractive
lished channels of communicating with 0 10 20 30 40 50 60
Industries Transparency Initiative (EITI),
them and auditing their compliance with launched in 2002 by Tony Blair, then Brit-
ethics codes. Basic as it sounds, even many Having a better ain’s prime minister, to tackle the problem
brand reputation
big companies fail to do this: 60% of the of government corruption in resource-rich
2,000 large companies surveyed recently Making decisions that countries. Britain, America, Norway and
are better for our
by Integrity Interactive, a risk consultancy, business in the long term the Netherlands, together with a number
said they did not require suppliers to en- Being more attractive of NGOs and big energy and mining com-
force a code of conduct. Only 42% regularly to potential and existing panies, have signed up to a set of Volun-
employees
assessed ethics risk in the supply chain, tary Principles on Security and Human
and just 12% had a web-based portal for Meeting ethical standards Rights. The nance industry has adopted
required by customers
their suppliers. the Equator Principles, a benchmark for
Beyond the basics, prudent companies Having better relations managing social and environmental is-
with regulators and
include a CSR perspective when consider- lawmakers sues in project nancing.
ing new projects. In such cases CSR is not a There’s more. Diamond producers en-
Our revenue is higher than
public-relations exercise but part of sys- it would otherwise be couraged the Kimberley Process, a certi-
tematic due diligence for new invest- cation scheme to combat trade in blood
Source: Economist Intelligence Unit *Up to 3 could be selected
ments. The social and economic impact of diamonds. The Forest Stewardship Coun-
the rm’s existing operations is also cil provides certication for the forestry in-
closely monitored to reduce the risk of a novative partnership to ght AIDS with dustry and its products. A group of compa-
backlash from local communities, activists the Bill & Melinda Gates Foundation and nies that want to nd pragmatic ways of
or national governments. the government of Botswana, where the applying human rights in global business
Anglo American, a mining company, is proportion of suerers being treated is have formed the Business Leaders Initia-
among the most sophisticated in its ap- now the highest in Africa. Since 1987 tive on Human Rights (BLIHR), which now
proach to managing its social impact. It has Merck has also donated 1.8 billion tablets has 14 members. Technology companies
developed a socio-economic assessment to treat river blindness, reaching more in America are working on a code of con-
toolbox to identify local stakeholders, see than 60m people a year in Africa, Latin duct on human rights, not least to avoid
how projects aect them and draw up America and the Middle East. All this helps the sort of trouble that Yahoo! encoun-
plans to improve the outcome and de- to quieten the critics. The involvement in tered in China. In Britain the Ethical Trad-
velop trust. The company says this pro- emerging markets may even prove a good ing Initiative brings together retailers,
vides a better understanding of local inter- investment in future growth. trade unions and NGOs to support cor-
ests and helps it to avoid potential Novo Nordisk, a Danish company that porate codes that improve working condi-
conicts. Last October Cynthia Carroll, supplies a big share of the world’s insulin, tions across global supply chains.
Anglo’s CEO, announced at the annual has written the triple bottom linethat Such multi-stakeholder initiatives
conference organised by Business for So- is, striving to act in a nancially, environ- tend to involve companies that have ele-
cial Responsibility in San Francisco that mentally and socially responsible way vated CSR to a strategic level. Some initia-
as a contribution to spreading good prac- into its articles of association. It reckons tives will not work: sitting down with
tice it would make the basic version of its that having the creed anchored so rmly is competitors, let alone NGOs, is not easy.
toolkit publicly available. making it more alert to both risks and But the eort can be worth it. When Gap
Involvement in social programmes, es- opportunities. encountered a problem over child labour
pecially in poor parts of the world, is an in India last October, the damage proved a
increasingly fashionable way for a com- Comfort in numbers two-day wonder, according to Mary
pany to burnish its brand and, with luck, But risk management can be a lonely busi- Robinson, the president of Realising
protect itself from attack. Which self-re- ness. Mattel’s monitoring of its suppliers is Rights: The Ethical Globalisation Initiative.
specting CEO these days wants to be said to have been state-of-the-art, but that She reckons this was due to Gap’s swift re-
caught doing nothing for Africa? But some- did not save it from costly embarrassment sponse and its involvement in initiatives
times these programmes also have a clear in China. With the best will in the world like BLIHR (which she chairs). When Gap
business rationale. Anglo American, for and the most energetic eorts to create joined BLIHR three years ago it admitted it
example, says the $10m a year it spends on codes, talk to stakeholders and support had some problemsand found itself win-
HIV testing and treatment in Africa is start- hospitals and schools, companies can still ning praise for transparency rather than
ing to pay for itself through reduced absen- nd themselves uncomfortably exposed, being pounced on for its transgressions.
teeism and longer lives for skilled workers. especially as what is expected of them can Whether these initiatives always serve
The big drugs companies, for their part, vary so much from country to country. wider interests (as opposed to those of par-
were greatly embarrassed by accusations The answer, many have decided, is to ticular rms) is harder to tell. Some compa-
of ignoring the needs of Africans dying spread the risk. Groups of them are getting nies may benet more than others: for De
from HIV/AIDS, so GlaxoSmithKline and together to agree on codes of conduct Beers, for example, the Kimberley Process
others decided to make HIV drugs avail- usually within a particular industry, but reduced a threat to the industry and if any-
able for no prot. Merck has entered an in- also across industries and in consultation thing increased its own brand’s domi- 1
2 nance. The introduction of more humane concerns us, says Daniel Feldman of Fo- source of growth in its own right.
conditions for textile workers in places like ley Hoag, a law rm with a CSR practice in Nike, for example, came to the subject
Bangladesh risks losing them their jobs un- Washington, DC, when most corporate- in defensive mode: it was attacked in the
less productivity can be improved at the responsibility eort is on PR and commu- early 1990s, when the idea of corporate
same time, stresses Alex MacGillivray of nications, is that we don’t know whether responsibility had barely surfaced. Now
AccountAbility, a think-tank involved in a rms are actually implementing the Hannah Jones, the vice-president of cor-
multi-stakeholder initiative called the rules. Is there a reporting requirement? Is porate responsibility (who reports to the
MFA Forum. As for the EITI, there is some the CEO keen? chief executive), talks of return on invest-
evidence that it has reduced corruption in For a few companies that want to be ment squared: to investors and to the
Nigeria, according to Mr MacGillivray, leaders in the world of corporate citizen- community. She sees corporate respon-
though it may be just shifting the graft to ship, the answer to those questions is sibility as providing a fresh source of inno-
other ministries. Some NGOs would clearly yes. And even if such companies vation. She no longer bothers to attend
prefer hard law rather than the soft rules rst discovered CSR the hard way, by suf- CSR conferences full of other corporate
involved in many of these initiatives. fering a knock to their reputation, many folk; these days she prefers to network
How committed are companies to the now see it as more than just a tool of risk with social entrepreneurs. And like many
rules they claim to live by, whether their management; they are convinced that it in the CSR world she has high hopes for
own or an industry-wide code? What can be a competitive advantage and a more emphasis on sustainability. 7
A change in climate
The greening of corporate responsibility
A L GORE has done a wonderful thing for

corporate bosses. By helping to propel
climate change to the top of the global
of doing more with less, he says. In 2008
UTC is aiming for growth of 10% while cut-
ting carbon emissions by a further 5%.
agenda, he has opened up a world of new Looking ahead, some companies think
opportunities for them. Opportunities for the demand for ecient and clean energy
rhetoric, for a start. The green theme al- use is an opportunity not just for savings
lows chief executives to adopt a planetary but for growth. Mr David thinks that in 30
perspective. It’s what survival will be years’ time conservation and related areas
about in the 21st century, proclaims Coca- could make up 30% of the company’s busi-
Cola’s Neville Isdell, talking of his com- ness, from nothing today. DuPont, a chem-
pany’s plans for water conservation. Over icals giant, is starting to set targets for in-
at PepsiCo, Indra Nooyi stresses the impor- creasing revenue from non-depletable
tance of companies embracing purpose products and services. At the Clinton
as well as performance, with products that Global Initiative last September Standard
contribute positively and responsibly to Chartered, a bank with big operations in
human civilisation. emerging markets, pledged to spend $8 bil-
Beyond the lofty talk, reducing a com- lion-10 billion over ve years on nancing
pany’s output of greenhouse gases and en- renewable energy projects in Asia, Africa
couraging responsible use of resources and the Middle East. Peter Sands, the chief
can also mean cutting waste and saving executive, says that since enormous
money. Whether it is discouraging the use amounts of money will have to be de-
of plastic bags in a supermarket or switch- ployed in this area in the coming years,
ing o a law rm’s computers at night, we want to be active leaders. says Linda Fisher, the chief sustainability
there are plenty of quick wins for most ocer at DuPont. Measuring is not a sim-
companies. This is doubly satisfyingdo- Sootless in Seattle ple task, but once a company has a proper
ing well and doing goodand therefore ex- But leadership on sustainability is not baseline it can see what can be changed.
tremely popular. easy. Some of the companies that set Commitment from the top is crucial.
For some companies the gains to be themselves the goal of becoming carbon What are the truly committed compa-
had from cutting waste and improving en- neutral by 2010 or 2012 will struggle to nd nies doing? Three examplesan outdoor-
ergy use are very large. United Technol- a way to do it. For those that are serious goods business, a logistics company and
ogies Corporation (UTC), whose products about changing their impact on the planet, one of the world’s biggest conglomerates
range from aerospace to air-conditioning it will be something of a voyage of discov- give an idea of what is happening at the
systems, has reduced its carbon footprint ery. The starting point is to nd out the size cutting edge.
by 19% over the past ten years even as it has of their current carbon footprint. We nd If your business is equipping people for
doubled its output, according to George with energy and greenhouse gases, if you outdoor adventure, then careful steward-
David, the CEO. We’ve had an explosion start to measure, people reduce the usage, ship of the environment seems a natural. 1
Buying ethical is not as

The good consumer straightforward as it seems
W HAT’S a label worth? A lot, it seems,

when it comes to towels in an up-
market New York shop. In 2005 ABC
On greenery, M&S reckons that British
consumers divide into four broad groups.
About one in ten is passionately green
six times as large because they had to be
grown in heated greenhouses.
Consumers are right to be suspicious
Home Furnishings allowed two Harvard and will go out of their way to shop ac- of the ethical claims made for many pro-
University researchers, Michael Hiscox cordingly. At the other end of the spec- ducts. A recent study of the labels of 1,018
and Nicholas Smyth, to conduct an ex- trum one-quarter are not interested. products in big stores in North America
periment on two sets of towels. One lot In-between are those who care but want by TerraChoice, an environmental mar-
carried a label with the logo Fair and green consumption to be easy, and those keting agency, found that almost all of
Square and the following message: who are vaguely concerned but don’t see them were guilty of some form of green-
how they can make a dierence (see chart washing. They did not tell outright lies,
These towels have been made under fair but nor did they tell the whole truth.
6). In M&S’s view, that represents an
labour conditions, in a safe and healthy
opportunity: three-quarters of British
working environment which is free of
consumers are interested in the green A conditional shade of green
discrimination, and where manage-
theme in some way. Joel Makower, the executive editor of
ment has committed to respecting the
But even the keenest ethical consumer GreenBiz.com, says that, given a choice,
rights and dignity of workers.
faces complicated trade-os, and some- most consumers will be happy to choose
The other set had no such label. Over ve times the apparently obvious ethical the greener productprovided it does not
months, the researchers observed the im- choice turns out to be the wrong one. cost any more, comes from a trusted
pact of making various changes such as Surely it must be greener for Britons to maker, requires no special eort to buy or
switching the label to the other set of buy roses from the Netherlands than use and is at least as good as the alterna-
towels and raising prices. The results ones air-freighted from Kenya? In fact, a tive. That’s a high hurdle for any pro-
were striking: not only did sales of towels study at Craneld University showed the duct, he notes.
increase when they carried the Fair and carbon footprint of the Dutch roses to be So shoppers will still ock to shops
Square label, they carried on increasing that sell cheap products of decent quality,
each time the price was raised. without asking how these are made.
Iffy 6
No wonder companies are keen to ap- They will often buy more if a product is
peal to ethically minded consumers, British attitudes to green shopping attractively presented, never mind that
whether on labour standards or green % of total the packaging may be wasteful. And
credentials. Timberland, a New Hamp- when companies try to do the right thing,
“Crusaders” If it’s easy
shire outdoor-gear company, is introduc- 11 27 consumers will not always go along with
ing detailed Green Index labels on its them. Airlines that invite their customers
shoes. Sainsbury’s, a British supermarket, Not
to buy carbon osets have seen only min-
now sells only Fairtrade bananas, with interested imal uptake.
the assurance that poor farmers have re- 24 The lesson for companies is that sell-
ceived a decent price, and all its own- ing green is hard work. And it is no good
brand paper products come from sources What getting too far ahead of the customer.
approved by the Forest Stewardship difference Half a step ahead is about right, accord-
Council. Tesco, M&S and Wal-Mart have can I make? ing to Stuart Rose, the chief executive of
38
all launched initiatives that bet on the rise M&S. Much more, and you won’t sell.
Source: Marks & Spencer survey of 25,000 consumers, 2007
of the ethical consumer. Any less, and you won’t lead.
2 Sure enough, outdoor-goods companies tations each quarter. It can think long- emissions comes from electricity con-
such as Patagonia (every day we take term. Four years ago it decided it had to sumption, so it shopped around for renew-
steps to lighten our footprint and do less aim to be climate-neutral and brought in able sources, such as hydro power in
harm) and Timberland (our love for the consultants to establish a baseline and Washington state. It opened a second dis-
outdoors is matched by our passion for help produce a plan. The target date is tribution hub in Pennsylvania to cut en-
confronting global warming) are among 2020, with a one-third reduction by 2009 ergy waste in transport. It also looked at
the most ardent champions of sustainabil- against the 2006 baseline. ways to reduce greenhouse-gas emissions
ity. The same goes for Seattle-based REI, REI was shocked to nd that more than from employee commuting, which ac-
America’s biggest consumer co-operative a quarter of its carbon emissions came count for about a fth of the total, so it is
with over 3m members and 80-plus stores. from ights associated with the adventure providing incentives for its people to cycle
As a co-op, REI enjoys the luxury of not travel it organises, so it started to buy car- to work. Our team is really getting granu-
having to worry about Wall Street’s expec- bon osets for these trips. One-fth of its lar, says Sally Jewell, REI’s chief executive. 1
2 The company is also working on the 2.8m spent on installing state-of-the-art the heart of their strategy is not very long,
carbon footprint of its buildings, its use of desktop video-conferencing systems). In but one name usually tops it: GE. In 2005 it
paper, its packaging and the eco-friendli- 2010 TNT will move its headquarters to launched ecomagination, a vigorous
ness of its products. Together with other what is designed to be a carbon-positive push to invest in green technology and ex-
manufacturers, it is looking at eco-sensi- building that will be producing green en- pand sales of products and services with
tive materials, which need to be natural ergy to spare. measurably better environmental perfor-
but also to do the job in hand well. Green TNT intends to monitor its carbon emis- mance. Products range from light bulbs to
labelling will follow. sions assiduously, giving customers a gas turbines to railway and jet engines and
The lesson from REI is that going seri- tracker to show CO2 emissions of the ser- have to oer a sustainability improvement
ously green involves a lot more than set- vices they are buying. Reporting on emis- of at least 10% to be included.
ting a target date for zero emissions. It re- sions will follow the same rules as nan-
quires measuring and managing. That cial reporting, so there could be warnings General Eclectic
turns out to be hard, intricate work which of poor performance just as a company Like most such initiatives, ecomagination
stretches right across a company’s opera- might issue prot warnings. Bonus is partly a packaging and public-relations
tions, and perhaps beyond. At present, REI schemes will be linked to this. job, bringing together a number of things
counts the carbon once it owns a product: But there is no escaping the fact that, as the company was doing anyway. Some
for example, it takes responsibility for its a global transport company with a big eet say it is not even particularly ambitious,
own brands’ transport from the factory. It of aeroplanes and trucks, TNT churns out given the gains in energy eciency that
does not include its suppliers’ operations greenhouse gases. In 2006 it produced 826 technology is producing across the board.
in its carbon calculations because it has yet kilotonnes of CO2. To cut down on emis- Part of the plan involves a cut in green-
to work out how to do it. But I think that’s sions from the trucks, it is introducing hy- house-gas emissions in 2012 of 1% com-
coming, predicts Ms Jewell. brids and electric vehicles. The 44 aero- pared with the 2004 baselinenot bad for
planes are trickier. They account for half of a company that also expects to grow
The non-ying Dutchman all TNT’s emissions, and there is little the strongly over that period, but hardly
You know a boss is serious when he gives company can do but try to run these as e- stretching. Sure enough, GE is beating its
up his private jet, swaps his Porsche for a ciently as possible. It says it is prepared to targets, with emissions already down by
hybrid Prius and drives rather than ies all invest in promising aircraft technologies. 4%. There are no targets yet for saving wa-
the way from Amsterdam to Davos. Peter Its eet includes two Boeing 747s which ter (though GE says these are on their way).
Bakker believes that being on top of the cli- y back and forth between Liège in Bel- Still, GE is big, and ecomagination has
mate-change issue is a prime business gium and Shanghai, accounting for half scale. R&D investment in cleaner technol-
need for TNT, the Dutch logistics company the company’s fuel consumption. Two ogies is to rise from $700m in 2005 to $1.5
he heads. He thinks customers may well years ago we didn’t think of climate billion in 2010. By then the company ex-
shorten their supply chains to stop ship- change when buying 747s, says Mr pects revenues from ecomagination pro-
ping so many parts around the world by Bakker. Today it would be a main item if ducts to be at least $20 billion.
air. Regulators may impose new rules, we were considering buying two more. This is turning out to be a good bet.
such as a carbon tax or carbon labelling, But would TNT really forgo increasing its We’ve sold out in eco-certied products to
which could aect TNT’s business model. business with China? 2009, says Bob Corcoran, the vice-presi-
Investors are asking questions about sus- The logistics industry provides the ardent for corporate citizenship. You can’t
tainability. Only those companies that teries of globalisation, and TNT’s experi- buy a GE wind turbine before 2010. Em-
can make the shift to manage this as an in- ence suggests that pressure for more ployees like the green focus and have come
tegral part of the business will be able to responsible strategies on carbon emis- up with initiatives of their own that are
respond fast enough, he says. sions will spread through those arteries. worth some $70m a year in energy sav-
Last year Mr Bakker launched Planet Some of TNT’s customers in Scandinavia, ings. All this has helped to polish GE’s
Me, a campaign to change the company’s for example, have started to inquire about reputation. The company still gets bad
carbon trajectory. TNT’s carbon footprint the carbon impact of transporting their marks for its response to the toxic mess it
has been measured, targets for reducing it parts. TNT is asking its own suppliers and poured into New York’s Hudson river long
will soon be set and eorts will be made to subcontractors to be committed to the ago, but it now has fans among environ-
help employees lead greener lives both at environment too, and selects them with mentalists too.
work and at home. For starters, the travel that in mind. GE has not forgotten that it is in the
budget is being cut by 20% (a saving of The list of big companies that have put business of making money, not doing so-
3.2m a year, which more than covers the the environment or other aspects of CSR at cial work. No good business can call itself 1
2 a good corporate citizen if it fritters away carbon emissions. Europe already has a will be long, hard work. As companies’
shareholder money, says Mr Corcoran. cap-and-trade system, and GE would like a claims of green virtue multiply, so will the
GE has 6m investors, and it’s their money more uniform set of rules across the world. eorts by organisations such as Climate
too. The company is simply moving in the There is no doubt that the greening of Counts to monitor them and hold them to
direction in which it thinks social pres- corporate responsibility rings a bell with account. Few customers will buy green at
sures will push it anyway. many companies. They can cuts costs, de- the expense of price or quality, and it is
In doing so, it is also behaving in ways light employees and burnish their brand. early days for much of the research and in-
that would have been hard to imagine a By preparing their business for the ex- vestment in clean technologies. Besides,
few years ago. It has joined together with pected demands of customers and regula- the demand for sustainability varies great-
other big companies and NGOs to form tors they may also be giving themselves a ly from place to place. Europe and Japan
the US Climate Action Partnership to lobby competitive advantage. But if it is to in- have mostly been ahead of America. And
for national legislation in America to cap volve much more than public relations, it in China the dash for growth comes rst. 7
Going global
CSR is spreading around the world, but in dierent guises
T HE British brand of corporate

responsibility is seen as the gold
standard, says Julia Cleverdon, chief exec-
members of Instituto Ethos, a network of
businesses committed to social respon-
sibility. We are developing a unique pro-
has boomed in recent years, generous phi-
lanthropy is also a way of heading o a
backlash against business. A broader cul-
utive of Business in the Community, cess in Brazil, says Ethos’s founder, Oded ture of ensuring decent working condi-
which for 25 years has been championing Grajew. Ethos tries to inuence public pol- tions has been slow to spread.
the cause in Britain. And it is true that Brit- icy and corporate behaviour to establish
ain, especially London, has been a hive of a socially responsible market. A few Bra- One BRIC at a time
innovation in CSR since the mid-1990s, zilian rmssuch as Natura, a cosmetics China has become the new frontier for the
thanks to a creative cluster of think-tanks, company, and Aracruz, a pulp and paper CSR industry. Ms Cleverdon says Chinese
NGOs, consultancies and inventive producerare widely known for their CSR visitors are piling into her organisation’s
bosses. But according to Simon Zadek of eorts. London oces. Aron Cramer, the CEO of
AccountAbility, a think-tank that has been India has a long tradition of paternal- Business for Social Responsibility, a San
part of the cluster, this is also a repeat of a istic philanthropy. Big family-owned rms Francisco-based lobby group, points out
familiar British business story: superb in- such as Tata are particularly active in pro- that his outt has increased its representa-
novation, poor implementation. viding basic services, such as schools and tion in China from two to ten people over
By contrast, when American rms get health care, for local communities. For the the past 18 months. Call Mr Zadek on his
serious about CSRWal-Mart on sustaina- rich, who have prospered as the economy mobile phone and he answers in Beijing, 1
bility, for examplethe execution is gener-
ally impressive. The Japanese, for their
The things that matter 7
part, see the roots of CSR in the traditions
of Japanese business, such as shobaido Which issues will be the most important in the next five years? Select three:
(the way of doing business) and shonindo
Global rank Issue United States Britain Germany China Brazil
(the way of the merchant), and Japanese
1 The environment 2 1 2 2 1
rms pay a lot of attention to the environ-
2 Safer products 5 4 6 3 2
ment and to relations with local communi-
ties. The lead on CSR could even shift from 3 Retirement benefits 4 2 1 4 7
the rich world to the big emerging markets, 4 Health-care benefits 1 5 8 1 8
each with its own traditions and priorities. 5 Affordable products 6 3 3 5 3
For global companies this means that a 6 Human-rights standards 8 8 9 9 4
one-size-ts-all approach to corporate 7 Workplace conditions 9 10 4 7 6
responsibility may not work. What is right 8 Job losses from outsourcing 3 6 5 13 13
for Europe may not be appropriate for In- 9 Privacy and data security 7 7 7 6 10
dia. Such dierences in priorities (see table 10 Ethically produced products 10 9 10 8 9
7) are bound to grow in importance as the 11 Investment in developing countries 16 11 14 12 5
BRIC countriesBrazil, Russia, India and 12 Ethical advertising and marketing 12 12 16 11 11
Chinaand other emerging markets gain 13 Political influence of companies 11 14 12 14 14
in economic clout and condence. 14 Executive pay 15 16 11 10 15
Among the BRICs, Russian companies 15 Other 13 13 15 16 12
seem the least interested in the idea of cor- 16 Opposition to freer trade 14 15 13 15 16
porate citizenship, but Brazil has a lively
Source: McKinsey survey, September 2007
CSR scene. Some 1,300 companies are
2 where he is talking to Chinese think-tanks world, carrying echoes of colonialism.

about CSR and trade policy. And as more investment ows to de-
It is still early days. For Chinese compa- veloped countries from Russia, China and
nies that serve the home market, the re- the Middle East, this may colour attitudes
lentless focus on growth leaves little room in Western boardrooms too. How much
for worrying about the niceties of cor- will sovereign wealth funds care about
porate citizenship. And the lack of political corporate responsibility?
freedom means there is no network of Amid so much uncertainty, multi-
NGOs to persuade them to do more. Yet national companies yearn for predictabil-
pressure to take corporate responsibility ity and want to see the global playing eld
more seriously is nevertheless growing. levelled, as they are so fond of saying. Yet
From above, the government is starting they do not want intrusive rules either.
to make noises about environmental When NGOs supported binding global
responsibilities. From outside come the norms for rms’ human-rights respon-
codes and inspections of foreign investors sibilities, businesses objected and the ef-
and global companies that want to apply fort collapsed. Instead, since 2005 John
their ethical standards across their supply Ruggie, the UN secretary-general’s special
chain. And from within, Chinese compa- adviser on business and human rights, has
nies that want to go global themselves are been carrying out a painstaking consulta-
starting to realise that they will have to pay perverse eect of forcing them out of tion with all the parties concerned.
attention to CSR as part of their eort to countries such as Sudan in order to stop al- Mr Ruggie is due to make his nal re-
gain acceptability and build their brand. It leged complicity with government commendations in June. He says he wants
was a shock for China National Oshore abuseonly to be replaced by Chinese or eective outcomes, not feelgood out-
Oil Corporation to see its plans to buy Un- Indian companies that do not give a damn comes. For governments, that may mean
ocal, a Californian oil rm, scuppered by about human rights. a reminder of their legal responsibility to
American politicians; and, more recently, But NGOs can also be a conduit for cor- protect human rights. For companies, it
for PetroChina to nd itself targeted by porate responsibility in emerging markets, could mean further encouragement and
campaigners for disinvestment in Sudan. working closely with business to reach greater accountability for the sort of soft
The rst signs of a edgling corporate- what C.K. Prahalad of the University of lawsuch as voluntary codes and multi-
responsibility industry are beginning to Michigan’s Ross School of Business calls stakeholder initiativesthat has helped to
appear. A few Chinese companies have the bottom of the pyramid. There is a improve the behaviour of companies run-
started to issue CSR reports (beautiful convergence of interests between NGOs ning into trouble for various abuses.
books, not much inside, says a Chinese trying to improve lives in poor communi-
critic). In Shanghai in October 2007, 13 for- ties and companies keen to reach consum- A forest of gleaves
eign and domestic companies launched ers in markets with huge growth potential. Companies can select from an extensive
the Chinese Federation for Corporate So- Many NGOs have moved beyond act- menu of standards and guidelines to re-
cial Responsibility. These are baby steps, ing merely as watchdogs to co-operating main up to scratch, on human rights and
but the Chinese are quick learners. with big companies on joint projects. And much else. There are guidelines from the
I would bet that within ve years some, as Mr Prahalad and Jeb Brugmann, a ILO and the OECD, as well as standards
they’ll be deeply involved in the manage- sustainable-development specialist, noted such as ISO 14001 (for the environment)
ment of standards, predicts Mr Zadek. last year in the Harvard Business Review, and SA 8000 (for human rights). A very
Then they’ll build their own, and they’ll are setting up innovative joint businesses soft guidance standard on social respon-
become exporters of standards. If so, as an eective way of providing services sibility, ISO 2600, is in the works.
China may in time begin to challenge and reaching consumers. A soft code that is proving popular is
Western ideas of CSR. Mr Cramer reckons They point to examples such as BP’s ar- that of the UN’s Global Compact. To sign
that Chinese companies will want to rede- rangements with NGOs to distribute up, companies need only commit them-
ne corporate responsibility in ways that stoves in rural India and ABN AMRO’s selves to ten broad principlessuch as pro-
suit their own priorities. collaboration on micronance in Latin moting environmental responsibility and
Competing models of CSR are already America with ACCION International, an working against corruptionand report on
at work in Africa. Chinese investment is NGO that is itself beginning to develop a their progress once a year. Yet the compact
pouring in to secure access to raw materi- multinational business. CSR started as a is toothless. Critics say it just provides
als needed for China’s turbocharged econ- way for companies to gather intelligence cover for companies from China and else-
omy. The Chinese may show little interest about NGOs and manage their reputa- where which cheerfully sign up to it and
in the rights of workers or opening a dia- tions, they write. It has wound up pro- then even more cheerfully ignore it.
logue with stakeholders, but they build viding them with the tools they need to But on one thing Georg Kell, the com-
roads and other infrastructure. To some Af- pursue business opportunities in un- pact’s perky executive director, is no softy.
rican leaders, this no-strings approach has tapped markets. CSR is a child of openness, he says. Cor-
its attractions. Western companies, under So will inuence in CSR continue to porate responsibility in recent years has
closer scrutiny from activists, have to be trickle down from rich countries to poorer been driven by globalisation. If markets
mindful of codes of behaviour and trans- ones, or could it even be the other way stay open, it will continue to spread. But
parent reporting. Sometimes pressure round? Emerging countries might bridle at openness should not be taken for granted:
from NGOs on Western companies has the simply importing an agenda from the rich The day markets close, CSR is over. 7
Do it right
Corporate responsibility is largely a matter of enlightened self-interest
T HE CSR industry, as we have seen, is in

rude health. Company after company
has been shaken into adopting a CSR pol-
vantages over established big business. It
has focus, rather than being a sideline, as
CSR often is for large companies. It in-
will leave his full-time job at Microsoft to
work at his fabulously rich charitable
foundation. This will aim to be giving
icy: it is almost unthinkable today for a big volves people who are using their own away $3 billion a year by 2009, more than
global corporation to be without one. Cli- money and are interested in measurable any other foundation anywhere. Money
mate change has added further impetus. results: real good not feelgood. It also pours in through innovative charities
Investors are taking an ever greater inter- brings nancial rigour as well as an appe- such as Absolute Return for Kids in Lon-
est. New and surprising sorts of co-opera- tite for risk, and it can teach the big compa- don, which invests donors’ money with
tion are springing up: with NGOs, with nies a thing or two about how to measure entrepreneurs on the ground in develop-
competitors, with other companies. The the success of social investments. ing countries.
message is moving across supply chains The sums involved are not trivial. That The entrepreneurial model of tackling
and spreading around the world. is partly thanks to Bill Gates, who in June social and environmental problems is
What has helped to make all this possi- likely to stir up the CSR world. It may over
ble is globalisationwhich has also been time produce transformative technologies
responsible for much of the general and creative new business models. But for
wealth-creation through which compa- now it is still big businesses that can make
nies, let it not be forgotten, make their a dierence. Large companies will nd
main contribution to society. A sudden ways of working withand sometimes ab-
bout of protectionism, which is by no sorbingsuccessful social ventures. In the
means out of the question, could put it at next few years CSR will be mainly about
risk. So activists who press for various how large corporations steer a sustain-
forms of protection should be careful what able growth strategy in a very complex
they wish for. An economic recession environment, as Jane Nelson of Harvard
would also be bad news for the CSR indus- University puts it.
try, parts of which might be seen as a lux-
ury companies could live without. Few leaders, many laggards
But assuming that corporate goodness This report has looked at some of the com-
continues to ourish, how will things panies that are doing interesting things,
evolve? The next wave, some believe, will both to manage their risks and to exploit
be one of disruptive innovation, featuring opportunities. But such examples are rela-
a new breed of social entrepreneur that tively scarce: the same few familiar names
will take over from the established big pop up again and again. Like most indus-
companies as the driving force. Mr Benio tries, the corporate-responsibility business
of salesforce.com reckons that social entre- has a handful of leaders, a large number of
preneurs have cracked the code of the followers and many laggards.
next generation of corporate responsibil- You can recognise the leaders partly
ity: it will be for-prot and self-sustaining. from the way they are grappling with par-
Mr Benio himself plumbed philan- ticularly tricky issues, such as how to ap-
thropy into his company right from the ply codes of practice across global supply
start by committing 1% of equity, prots chains or how best to convey accurate
and employees’ time as a contribution to environmental information on product la-
the community. bels. The leaders typically have a commit-
The extraordinary wealth-creation of ted CEO who champions the policy, a
recent years has produced a large number chief ocer for corporate responsibil-
of extremely rich people, many of them ityor sustainability or whateverwho re-
from the software and nance industries, ports to the boss, and a cross-functional
who are interested in a new kind of philan- board committee to ensure that strategy is
thropy: a smart, capitalist kind. It involves co-ordinated throughout the company.
using money for maximum impact by in- Non-nancial measures of progress often
vesting in potentially disruptive technol- play an important part in the overall as-
ogies (in the environmental eld, for exam- sessment of the company’s performance.
ple) and in social enterprises that can be These are companies, in short, that are
scaled up as required. seeking to embed CSR in the business.
This kind of enterprise has several ad- Not every company can be a leader, nor 1
2 should they all want to be. Being a high- CSR and strong commercial competence
prole early enthusiast carries the risk of gives a good chance of success.
overpromising. First-mover advantage If it is nothing more than good business
soon passes. After a while, for example, practice, is there any point in singling out
everybody turns green, and the winners corporate social responsibility as some-
are the companies with the best execution. thing distinctive? Strangely, perhaps there
One large consultancy advises its big cli- is, at least for now. If it helps businesses
ents to be number two or three on cor- look outwards more than they otherwise
porate responsibility rather than number would and to think imaginatively about
one. Thoughtful rms may pick and the risks and opportunities they face, it is
choose across the spectrum of CSR activi- probably worth doing. This is why some -
ties where to be ahead and where merely nancial analysts think that looking at the
to comply with the rules. quality of a company’s CSR policy may be
The followers in the CSR industry are a useful pointer to the quality of its man-
many. By now they probably produce a agement more generally.
glossy report which lists numerous wor- True, much of what is done in the name
thy activitiestoo many, in fact, when it of CSR is nothing of the sort. It often
would be better to concentrate on those amounts to little more than the PR depart-
that really work and benet the business. ment sending its own messages to the out-
The companies concerned may have little side world. Yet in a growing number of
idea whether their carbon-oset scheme is companies CSR goes deeper than that and
eective or their ethical-purchasing plan comes closer to being embedded in the
costs jobs. Their real motive is public rela- business, inuencing decisions on every-
tions, and the telltale sign is that the person vices people want that rms do most good. thing from sourcing to strategy. These may
responsible for CSR sits in the corporate- If ignoring CSR is risky, ignoring what also be the places where talented people
communications department. makes business sense is a certain route to will most want to work.
And the laggards? There are two types. failure. The more this happens, ironically, the
Companies in the rst group have simply It is the interaction between a com- more the days of CSR may start to seem
failed to pay much attention to CSR; they pany’s principles and its commercial com- numbered. In time it will simply be the
risk being attacked as late adopters. petence that shapes the kind of business it way business is done in the 21st century.
Those in the second group, more cynically, will be. A company that is weak on both My job is to design myself out of a job,
think they can aord to ignore CSR, at least values and commercial competence is says one company’s head of corporate
for now. Perhaps they are in an industry simply a bad business. One that has strong responsibility.
with a low prole, or operate in countries values but is badly run, without proper at- For the moment, though, chief sustain-
where scrutiny is minimal. They do not tention to translating values into prots, ability ocers and their ilk remain in high
mind being viewed as freeloaders by com- will plainly not do well. In contrast, a com- demand. No doubt there will also be grow-
petitors who spend time and money on pany that is highly competent commer- ing opportunities for ones that speak Man-
trying to be good corporate citizens. Over cially but does not bother with corporate darin or Hindi as the fashion for corporate
time, though, this could also be risky if responsibility may work just ne, but it social responsibility spreads around the
they nd themselves subject to greater could also prove increasingly risky. Lastly, world. And it will be quite a while yet be-
scrutiny or miss out on opportunities. a combination of a strong commitment to fore they all become redundant. 7
Doing what comes naturally

Oer to readers Future special reports
One way of looking at CSR is that it is part Reprints of this special report are available at a Countries and regions
of what businesses need to do to keep up price of £3.50 plus postage and packing. America and the world February 2nd
with (or, if possible, stay slightly ahead of) A minimum order of ve copies is required.
society’s fast-changing expectations. It is Business, nance, economics and ideas
Corporate oer
an aspect of taking care of a company’s Customisation options on corporate orders of 100 E-government February 16th
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a competitive edge. This is what good your requirements. Resources in China March 15th
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well may simply involve a clearer focus
and greater eort than in the past, because The Rights and Syndication Department
26 Red Lion Square
information now spreads much more
London WC1r 4HQ
quickly and companies feel the heat. Tel +44 (0)20 7576 8000
So paying attention to CSR can amount Fax +44 (0)20 7576 8492
to enlightened self-interest, something e-mail: rights@economist.com
that over time will help to sustain prots Previous special reports and a list of
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business never loses sight of the commer-
for more information and to order special reports
cial imperative. It is, after all, by staying in and reprints online www.economist.com/specialreports
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