Embedding CSR into Corporate Culture

Challenging the Executive Mind

D. Swanson

• Publisher: Palgrave Macmillan
• Year: 2014
• Print ISBN: 9781137300072
• eBook ISBN: 9781137300089
• Topic: Business
• Subtopic: Business Ethics
• Index: Business

Embedding CSR into Corporate Culture demonstrates that a new frontier for corporate social responsibility is possible in theory and practice. The key idea - discovery leadership - enables corporate managers to deal effectively with problems, issues, and value clashes occurring at the corporation-society interface.

1

A Call for Socially Responsible Corporate Leadership

In the 1999 film The Matrix, Morpheus says to Neo: “I’m trying to free your mind, Neo. But I can only show you the door. You’re the one that has to walk through it.” And so it is with socially responsible corporate leadership. The choice, first and foremost, is whether or not to pursue it. This is an important step for executive managers whose decisions greatly impact society. Indeed, this impact is all the more significant, given that ordinary citizens do not vote for corporate executives. If they did, they might demand better results than the massive social harms inflicted by Enron-like scandals in conjunction with record high levels of executive pay. It is no wonder that American satisfaction with the size and influence of major corporations remains near the all-time low of 30% (Gallup Poll, 2012),¹ following decades of low public approval and confidence ratings (Frederick, 2006). Arguably, the corporation as one of society’s major institutions should garner more public support than that. After all, many transnational corporations have revenues greater than the gross domestic products of small nation-states. Ideally, such power should stem from the public’s trust that these corporations will serve the greater good. However, there are reasons why corporations operate without necessarily enjoying high levels of public confidence, although there are countervailing developments as well.

The disconnect between corporations and public confidence

The first reason why corporations may operate without enjoying widespread public confidence is that multinational corporations do business in global environments with widely different cultural expectations, laws, and regulations. In this context, gaining public confidence is somewhat mitigated because the product, employment, and environmental standards in offshore countries often differ from those in home countries. However, a rush to the lowest possible standards has been slowed by two developments in particular: some multinationals voluntarily adopt responsible standards; also, pressure from social activists and non-governmental organizations encourages them to do so.

The second reason why corporations may operate absent high levels of public confidence is that the corporate charter favors the financial interests of stockholders over those of citizens at large. This arrangement legitimates executive decisions that favorably impact stock prices in the short run, especially given the positive gains that can accrue from executives exercising their own stock options sooner rather than later. This narrow prioritization of financial gain has been called into question recently by several US states that have adopted the ‘benefit corporation’ designation for those corporations that create a material positive impact on society and meet higher standards of accountability and transparency (Benefit Corp Information Center, 2013).

Even before this development, the narrow focus on financial gain was offset by the socially responsible investment movement and pressure from some institutional fund managers and stockholder activists for responsible corporate practices, especially those that protect the environment and human rights. Many firms now seek to brand themselves as socially responsible, pursuing triple bottom-line policies that aim at economic, social, and environmental goals that may provide financial benefits through improved reputations. One report indicates that

[m]any US companies have sharpened their focus on broad initiatives for corporate social responsibility [CSR] in response to demands from customers and investors in recent years. Once considered a “soft” boardroom issue, today a broad spectrum of corporations are addressing CSR by revamping their work-force, rewriting ethical guidelines, analyzing operations, and even remolding their leadership to demonstrate unequivocal support for socially responsible behavior and ideals. And such issues are gaining momentum on board agendas as well. A recent study by Calvert Asset Management Co. and The Corporate Library shows that board oversight for environmental and social issues exists at 65% of the S&P 100 and at nearly a fifth of the Russell 1000. The rewards, many of these companies publicly state, are evidenced by increased customer loyalty and investor satisfaction, as well as a tangible impact to the bottom line.

(Corporate Board Member, 2010)

However, in some cases it is difficult to discern if such initiatives are substantive or rhetorical. Therefore, a third problem that undermines the motivation for corporations to garner widespread public confidence is that they can shape public opinion by using public relations tactics such as greenwashing, a form of marketing that deceptively promotes the perception that an organization’s policies are environmentally friendly. Public confidence based on such manipulation cannot be considered genuine.

A fourth problem that diminishes the quest for high levels of public confidence in corporations is the influence that business has over public policy and regulation, which means that corporations can pressure for their own regulatory standards and subvert public policy processes designed to represent the public interest. Although this influence varies globally, it is increasingly pervasive in the United States, especially in the wake of the 2010 Citizens United Supreme Court decision that allows corporations to make unlimited election expenditures. The downside is that politicians elected by such expenditures may sponsor or support legislation that narrowly favors business interests. Presently, it is unclear whether public dissatisfaction with the Citizens United decision will translate into the kind of activism capable of overturning this ruling, given the arduous necessity of passing a constitutional amendment. Meanwhile, the “revolving door” means that politicians and their staffs may eventually go to work for the very industries that they are supposed to regulate, which also undermines corporations’ need to garner widespread public confidence. It is simply much easier to garner the support of key political actors than to earn and keep strong public support.

The enabling roles of ideology and education

Given the arrangements described above, it remains to be seen whether societies can fend off the tendency for corporations to serve narrow interests instead of broader social needs. Hope may lie in the countervailing developments mentioned above: voluntary corporate efforts; pressure from activist groups (including some stockholders), non-governmental organizations, institutional fund managers; the closely related movement for socially responsible investing; and the advent of the benefit corporation. The belief that fuels these efforts is that corporations should be tools for community flourishing.

Although this sentiment is hardly new, it is still more of an under-tow than a wave of inexorable change. This is partly due to an entrenched free-market ideology that rationalizes the status quo and keeps the need for corporate social responsibility (CSR) from taking hold firmly in public consciousness. This ideology is expressed whenever the question “Isn’t business ethics an oxymoron?” is invoked. It is also expressed whenever Adam Smith’s metaphor of the invisible hand is resurrected to convey that unfettered markets will automatically lead to the greatest good. The corollary is that executives should be free to make decisions that narrowly benefit their stockholders. Coincidentally, the greater good is also served, or so the story goes.

Of course, Smith, a moral philosopher, meant no such thing. Indeed, his famous justification of capitalism, as set forth in The Wealth of Nations in 1776, recognized a social contract between business and society that justifies the activities to be permitted in the economic sector as subject to certain boundaries given by the government on behalf of the social good (Collins, 1988). In an earlier work, The Theory of Moral Sentiments, Smith emphasized that the human propensity to be other-regarding demonstrates an innate capacity to go beyond narrow self-interest and strive for moral virtue (Doomen, 2005). In both works, Smith recognized that the relationship between business and society involves mutual moral obligations and reciprocating institutional arrangements based on trust and social justice (Sen, 1993). In this context, economic actors have moral agency or the ability to make moral judgments. However, this aspect of Smith’s work is rarely invoked, except in esoteric academic discussions. It is simply easier for many to equate unfettered markets and freedom of choice with the greater good than it is to examine the social consequences of questionable business decisions. Not that business education delivers much of an antidote. In fact, business schools as a whole have failed to organize their curricula around corporate social responsibility.

This problem can be traced to standard economics, a variant of neoclassical economics, which takes business decisions to be “value-free.” Indeed, the colloquialism that business ethics is an oxymoron stems from the artificial fact–value dichotomy customary to the economic perspective that dominates business education. In schizophrenic fashion, this dichotomy separates descriptive and normative realms so that “what is” and “what should be” are viewed as different domains of human experience. The corollary that managers’ decisions are value-free pervades the ideological foundation of business schools, especially in finance and strategy courses, which are essentially offshoots of economic theory (Swanson & Frederick, 2005). As a result, an amoral, even brutish theory of management has long been taught and learned in business schools and communicated to the public at large (see Ghoshal, 2003). One has only to consider the widespread impacts of management decisions on stakeholder communities and the natural environment to grasp that this ideology fosters an unwillingness to comprehend the systemwide consequences of corporate actions (Waddock, 2003).

One indicator of the influence of economics on business education is the finding that self-oriented values become more important than other-oriented values as students advance in their MBA coursework (Krishnan, 2007). This squares with the finding that such myopia gets worse after students take traditional finance and economics courses (Orlitzky, Swanson, & Quartermaine, 2006). Similarly, another study found that economics education is associated with more positive attitudes toward greed (see Wang, Malhotra, & Murnighan, 2011). These findings are troubling in light of other data suggesting that prospective MBA students already value ethics less than other subjects (CarringtonCrisp, 2010). Additionally, MBA students have been found to cheat more than their non-business graduate peers, a state of affairs attributed largely to observed peer behavior (McCabe, Butterfield, & Treviño, 2006). That students can graduate from business schools with a narrower perspective than they had going in is not lost on the students themselves. According to the Aspen Institute Center for Business Education (AICBE), students report that the further along they are in their MBA program, the less prepared they feel to manage the value conflicts that they believe they will confront in the workplace. They also indicate that the importance of having a positive impact on society decreases for them over the course of their MBA studies (AICBE, 2008). One management scholar sums up the state of affairs as follows:

By propagating ideologically inspired amoral theories, business schools have actively freed their students from any sense of moral responsibility.

(Ghoshal, 2005, p. 76)

Obviously, this type of myopic business education stifles the potential for socially responsible corporate leadership. There is no reason to accept this status quo, given indications that ethics and other behaviorally based skills can be taught and learned in higher education (Bebeau, 1994; Rest, 1986; Rynes, Trank, Lawson, & Ilies, 2003). Not surprisingly, the most recent statistic available is that only one-third of accredited business schools offer an ethics or corporate responsibility course, and presumably fewer require one (Swanson & Fisher, 2012). Indeed, several business schools eliminated these courses in 2002 in the wake of scandals such as Enron, Arthur Anderson, and Worldcom (Kelly, 2002), a reduction that was enabled by a change in accreditation standards in the early 1990s (Swanson & Fisher, 2008; Windsor, 2002). But the dubious quality of business degree programs is hardly news. As far back as 1959, Carnegie and Ford Reports chastised business education for its minimum respectability in academe – the Carnegie report made it clear that business schools would not be able to provide the kind of leadership it would take to turn things around (Frederick, 2006; Klein, 1998). However, there is a counter-vailing development in this sector as well. Some business schools are seeking to brand themselves as leaders in corporate responsibility education, which a growing minority of prospective students reportedly wants (AICBE, 2008).

One would have expected business education to be in better shape by now. After all, calls for corporate social responsibility registered loudly in the 1950s when corporate leaders in the United States, followed by academics at pedigreed universities, asked business to act as a trustee of social well-being. According to Frederick (2006), one of the first such calls came in 1951 from Frank Abrams, chairman of the board of directors of Standard Oil of Jersey and the author of a seminal statement about the duties executives have to society (Abrams, 1951). Subsequently, the Committee for Economic Development (CED, 1971), comprised mainly of top-level corporate executives, encouraged business to adopt a broader, more humane view of its function in society. That the Philadelphia-based entrepreneur Joseph Wharton founded the first business school in the United States as a vehicle for social enterprise knowledge reflected these early calls for business responsibility, which apparently were not heeded by a majority of business schools. As a result, thousands of business students graduate each year specializing in amoral decision making.

The costs to society are incalculable. Not even stockholders are served by this narrow view, as demonstrated by the disastrous financial meltdown that accompanied the eruption of corporate scandals in the first years of the new millennium. Indeed, in response to financial scandals at Barclays Plc, JPMorgan Chase & Co., and Goldman Sachs Group Inc., an article in Bloomberg flatly stated:

We are dealing with a drop in ethical standards throughout the business world, and our graduate schools are partly to blame.

(Zingales, 2012)

It’s about choice

Here we come to the crux of the matter. As stated earlier, it is about choice. The formulation of choice that was embedded in the business school curriculum paradoxically aligns freedom, a value in-and-of itself, with value-free decision making. This remarkable conflation, expressed in the logic of standard economics, is then applied to business organizations to justify amoral (value-free) management. This sleight of hand has not been fully discredited because it has not been sufficiently examined. As a result, a clear mandate for corporate social responsibility is thwarted.

A famous statement along these lines is Milton Friedman’s (1970) article entitled “The social responsibility of business is to increase its profits.” In it, he asserts that managers need not be moral agents, since their actions are already restrained by standards of public policy, the law, and ethical custom. However, these are the very standards that proponents of corporate social responsibility have always deemed important (see Carroll, 1979; Frederick, 1995). The difference is that Friedman portrays managers as passive targets of social control, whereas advocates of corporate social responsibility call for managers to be proactively aware of the values underlying society’s expectations (what Friedman calls “ethical custom”) and voluntarily respond to them (see Frederick, 1995; Sethi, 1979). Historically, most standard economists have not dealt with the need for such responsiveness. Given their focus on markets, they have had the luxury of treating organizations as “black boxes.” But contemporary social science has gone far beyond that. We now know enough about organizational dynamics to extrapolate the social consequences of value-myopic decisions, especially when they occur at the top of corporations where great power is vested. According to Scott and Hart (1979, p. 80), this power calls for managers to have greater sensitivity to the implications of their premises and the values at stake.

This brings us to the point of this book: rationalizing value myopia is not simply a fallacy; it is a dangerous practice. Although there is a pressing need to understand this danger, it has not been modeled adequately in terms of executive decision making, organizational dynamics, and societal outcomes, which is what a sound theory of corporate social responsibility should do. This book is an attempt to fill this vacuum. But it does not stop there. After modeling the deleterious effects of corporate leadership based on value myopia, the alternative model of leadership based on value receptivity is given. As will be seen, the key to unlocking the potential for CSR is for executives to embed value receptivity into corporate culture.

In the final analysis, this book is designed to expand society’s expectations of executive leaders. As its title conveys, it is especially meant to challenge how academics and executives view responsible business leadership.

A preview of the book’s content

Chapter 2 sets the stage for modeling responsible corporate leadership by comparing the amoral image of self parlayed by standard economics to other representations of “the self,” especially the prototype referred to as “the moral collectivist.” This comparison suggests that a sense of self for business leadership is at a historic crossroads of sorts, ripe for re-envisioning in terms of CSR leadership.

Chapter 3 also sets the stage for modeling socially responsible corporate leadership by examining three categories: (1) corpo...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Tables and Figures
• Acknowledgments
• List of Abbreviations
• 1. A Call for Socially Responsible Corporate Leadership
• 2. Images of the Self: Toward a Model of CSR Leadership
• 3. Corporate Social Performance: The Context for CSR Leadership
• 4. Leading Socially Neglectful, Alienated Organizations
• 5. Leading Socially Attuned, Value-Cohesive Organizations
• 6. The Practice of Value-Attuned Discovery Leadership
• 7. The Road Ahead for Research and Education
• Notes
• References
• Index