The Civil Corporation

Simon Zadek

• Publisher: Routledge
• Year: 2012
• eBook ISBN: 9781136554681
• Topic: Business
• Subtopic: Management
• Index: Business

The Civil Corporation is top draw reading for business professionals, management students and academics, activists and public servants. It goes to the heart of the issue of business in society, cutting through the rhetoric of campaigners and business-speak by framing the tough questions in balanced and yet provocative terms. Crucially, it connects an insightful vista of the broader landscape with a set of practical 'do's' that have stood the test of time. The book was awarded the prestigious Academy of Management's Social Issues in Management Book Award in 2006, confirming that Zadek has produced what every author aspires to: a classic book that is timely in its application.

Part 1

The New Economy of
Corporate Citizenship

CHAPTER 1

Can Corporations be Civil?

Many of Britain's best-known companies are already redefining the traditional roles of the corporation. They are recognizing that every customer is part of the community and that social responsibility is not an optional extra.

Rt Hon Tony Blair MP, British Prime Minister¹

If business is so powerful, and is now doing so much good; why is so much wrong in the world?

Oded Grajew, President, Instituto Ethos²

The role of business in society is the 21st century's most important and contentious public policy issue. Business is increasingly moulding societal values and norms, and defining public policy and practice, as well as being the dominant route through which economic and financial wealth is created. How business is done will underpin how local and global communities of the future address social and environmental visions and imperatives. This is true whatever one believes to be critical in creating a just and sustainable world. Economic welfare, peace and security, global warming, human and animal welfare – to name just a few – are and will continue to be deeply informed by business in practice.

Our views of business today hang in the balance. On one hand, business is in the limelight of increasingly concerned public scrutiny. The popular media carries daily fresh allegations of its misdemeanours. An outpouring of books, pamphlets, films and conferences challenge and debate its social and environmental performance. Grass-roots, anti-corporate demonstrations adorn the streets outside city offices, and regularly surround meetings of the world's leaders and major international institutions. On the other hand, recent years have seen the emergence of the philosophy and practice of ‘corporate citizenship’. Corporations have sought under this umbrella to gain broader trust and legitimacy through visibly enhancing their non-financial performance. Today, the focus is shifting from philanthropy to the impact of core business activities across the broad spectrum of social, environmental and economic dimensions represented by the vision of sustainable development.

Surprisingly little has been said about where this critical debate and practice might lead us in the future. Activists leading the assault on corporate power and influence have in the main remained entrenched in their negative critique. Few have mapped out credible alternatives for generating and distributing sufficient economic wealth to provide a decent quality of life for a growing world population. Similarly, few advocates of corporate citizenship have addressed the challenge of whether or how such approaches are likely to deliver adequate social and environmental gains to reverse the underlying pattern of growing levels of poverty, inequality and environmental insecurity.

In addressing the why, the how, and the so what of corporate citizenship, this book seeks to establish what should and can realistically be expected from the business community in addressing the imperatives and aspirations underpinning sustainable development. It goes on to address whether and how these expectations can in practice be realized. It seeks to achieve this by exploring:

• contemporary forms of corporate citizenship emerging from the dynamics of the New Economy;
• new patterns of civil governance underlying emerging partnerships between business, governments and private non-profit organizations;
• the scope for engagement, learning and advocacy which corporations have in maximizing their contribution to sustainable development; and
• under what conditions corporate citizenship can play a significant role in addressing the darkest sides of unsustainable development.

GLOBAL BALANCE SHEET

Much happened in the last century. As a species we became taller, faster and stronger. We learnt how to dominate our natural environment –and to appreciate its ability to strike back. We experienced terrifying excesses of nationalism and racism – and matched this with expressions of universal values such as those underpinning the vision of the United Nations (UN). Democracy, at least the elective version, came into its own in the 20th century, building from the revolutions of the 19th century to South Africa's liberation struggle.

But the most pervasive outcome of the last hundred years has been the incredible growth of economic wealth and the associated level of material consumption. Certainly, the technological revolutions of the 18th and 19th centuries marked the onset of a rapid acceleration in the income and wealth of a small but significant minority in Europe and North America. But it was during the 20th century that this acceleration took on quantum proportions. The global economy at the turn of the millennium was driven by annual expenditure on consumption of almost US$30 trillion, a doubling in just 25 years.³ By the turn of the 20 th century, a billion or so people were experiencing extraordinary material standards of living. Average incomes across this group rose at least six-fold between 1900 and 2000.⁴

Economic growth has unquestionably delivered real gains. Few could quibble about the improvements in most of the better-known indicators of human development, such as personal health, literacy and longevity, for enormous numbers of people. As the United Nations Human Development Report 1999 concluded:

People in many countries live a much longer and healthier life than just two decades ago. In 31 of the 174 countries included in the Human Development Index (HDI), life expectancy has increased by more than a fifth since 1975. . . Between 1975 and 1997 most countries made substantial progress in human development, reducing their shortfall from the maximum possible value of the HDI. Of the 79 countries for which HDI trends between 1975 and 1997 are available, 54 made up more than 20 per cent of their shortfall, 31 more than 30 per cent and 19 more than 40 per cent.⁵

The United Nations Human Development Report 2000, similarly, highlights that:

The achievement of human potential reached unprecedented heights in the 20th century. . . Worldwide, 46 countries, with more than a billion people, have achieved high human development. . . In developing countries during the past three decades, life expectancy increased by ten years. . . adult literacy increased by half. . . and the infant mortality rate declined by more than two fifths.⁶

Well-documented facts are equally clear on the negative side of the equation. Nearly one in three of the world's workforce is unemployed,⁷ 1.2 billion people live on less than US$1 a day,⁸ and 840 million people go hungry each day.⁹ The world's 225 richest individuals have a combined wealth of over US$1 trillion, equal to the annual income of the world's poorest 47 per cent – about 2.5 billion people. A further 100 million in the so-called developed world are relatively impoverished.

Over the same period, the state of the natural environment has worsened. The climate has noticeably changed, half the world's original forest cover has disappeared, and overall the capacity of the Earth's ecosystems is estimated to be degrading at about 3 per cent a year.¹⁰ The growth in consumption has been underpinned by a mushrooming in the use of natural resources, and in the levels of waste and emissions; a quintupling of fossil fuel use since 1950; and a doubling of the use of fresh water since 1960. As the ecologist and writer Paul Hawken poetically notes about the US economy, ‘For every 100 pounds of product we manufacture. . . we create at least 3200 pounds of waste’.¹¹

Consumption patterns of the materially well-off have taken on proportions that would be comic if they were not equally tragic. The UN points out that Europe and the US spend almost US$13 billion annually on perfume, and almost US$18 billion on pet food; Europeans annually spend more than US$50 billion on cigarettes, and Japanese business runs up an annual entertainment account of almost US$35 billion.¹² Against this must be compared the profile of consumption of the typical household in a developing country, where about 80 per cent of income goes on buying basic foodstuff. Equally it compares with the annual cost of only US$40 billion, according to the UN, that it would take to achieve universal access to all basic services; such as basic education, water and sanitation.¹³

Confusing Causalities

Facts abound, but what do they mean? Is the heady consumption of wealthier citizens a constraining factor to development for others – the zero-sum view that the wealth of the few condemns many to poverty? Or is such profligate consumption the salvation of those currently in poverty? Many argue, after all, that what is needed is for those without enough to emulate, catch up and join the party. Sakiko FukudaParr, Director of the UN Human Development Office, captures perhaps the middle path between these views when she argues that:

It is not a matter of more or less consumption. I cannot agree with the hair-shirt view that less consumption will make the world a better place. The issue is what kind of consumption – of ensuring that consumption is not environmentally destructive, and that it challenges poverty and inequality.¹⁴

Such diversity of opinion feeds through, naturally, to contested views about the role of economic growth in promoting human development and environmental security. As the UN, amongst many, reminds us:

The link between economic prosperity and human development is neither automatic nor obvious. Two countries with similar income per capita can have very different HDI values; countries with similar HDI values can have very different income levels. Of the 174 countries, 92 rank higher on the HDI than on gross domestic product (GDP) per capita (purchasing power parity, PPP$), suggesting that these countries have been effective in converting income into human development. But for 77 countries the HDI rank is lower than the GDP per capita (PPP$) rank. These countries have been less successful in translating economic prosperity into better lives for people.¹⁵

Our understanding of what-causes-what is not obviously enhanced through increased volumes of data. The economically wealthiest countries certainly offer up the most comprehensive data imaginable, but the results continue to confound us. Economic competitiveness, we are often told, is the foundation of long-term societal success. But we know, equally, that economic competitiveness does not always yield the promised social dividends. For example, the Republic of Ireland, US, and UK figure in the top ten competitive nations,¹⁶ according to Jeffrey Sachs and the World Economic Forum. But this efficient club of three turns out to be the same group identified by the UN as having the highest levels of poverty and inequality among industrialized nations.

Among the 17 industrialized countries included in the HPI-2 [measure of human poverty], Sweden has the lowest human poverty, with 7 per cent, followed by The Netherlands and Germany, with 8.3 per cent and 10.4 per cent. The industrialized countries with the highest poverty according to the HPI-2 are the United States (16.5 per cent), Ireland (15.3 per cent) and the United Kingdom (15.1 per cent).¹⁷

Tramline Debate

The most confusing facts of all concern the contested contributions of business, particularly the corporate community, to the positive and negative sides of last century's overall accounts. The corporate community is vast and rapidly growing. Of the 100 largest ‘economies’ in the world today, 51 are corporations.¹⁸ The top 200 corporations have sales equivalent to one quarter of the world's total economic activity.¹⁹ General Motors has annual sales equivalent to the GDP of Denmark, and the annual income of Sears Roebuck is comparable to the total annual income of over 100 million Bangladeshis.²⁰ There has been a 12-fold increase in world trade since 1945, dominated by a small number of global corporations. This trade now accounts for about 20 per cent of measured, global economic income. The 1990s witnessed a massive growth in the pattern of international capital flows to developing countries. In 1990, public sources accounted for more than half of the international money flowing to developing countries. By 1995, 77 per cent came from private sources.²¹ The volume of foreign direct investment nearly quadrupled over the same period, jumping to US$96 billion by 1995.²² Foreign direct investment increased by 27 per cent in just one year, 1997.²³

With so large a footprint, one might expect that corporations’ contribution to the global accounts would be utterly obvious. Far from it. Indeed, the facts have underpinned a largely polarized debate about the contribution of the corporate community. Facts abound, but they seem inadequate to the task of building a common view as to whether corporations are at the leading edge of positive change, or irreducibly part of the problem. This polarization is plain to see in the veritable outpouring of publications about the future of the corporation, backed by conferences, workshops, Internet-based debates, counselling-based ‘confrontations’, and every other possible form of interaction. Every possible statistic, anecdote and mystical vision has been fashioned to demonstrate that corporations are good, bad or just plain ugly.

Debate on the future roles of the corporation is guaranteed to bring out people's most extreme and often bunkered views. The tramline nature of the debate is not surprising. Stories, even those that make ample use of facts, are written for specific audiences. They need to be understood in terms of how they seek to persuade and influence. This is certainly true in the area of corporate citizenship. Some people's words and deeds are meat and bread to corporate audiences, but stick in the throats of those who campaign against the World Trade Organization (WTO) or Monsanto. Similarly, the views of those who target the would-be activist as audience are in the main dismissed by those charged with the practical challenges of navigating these corporations into the future.

Paul Hawken and Amory and L Hunter Lovins describe this debate as being made up of the pro-marketers (‘blues’), the believers in socialism (‘reds’), and those who see the world in terms of ecosystems (‘greens’). They encourage us to become ‘whites’ – essentially synthesists who do not ‘entirely oppose or agree with any of the other three views, and are optimistic in adopting a path of ‘integration, reform, respect, and reliance’.²⁴ Hawken and the Lovinses are astute in the caricatures they paint. But it is not clear that the ‘rational way’ must be for the ‘whites’ to lead the charge of real change, as they suggest. The paths of those with opposing views about the corporate community do of course cross and at times even converge. Increasingly, innovative partnerships and...

Table of contents

• Front Cover
• Title Page
• Copyright
• Contents
• List of Figures and Boxes
• Preface
• List of Acronyms and Abbreviations
• Introduction: Beyond the Mainstream
• Part 1 The New Economy of Corporate Citizenship
• Part 2 The Civil Corporation
• Part 3 Building the Civil Corporation
• Part 4 Conclusions
• Notes
• Biblography
• Index