communities, and numerous other stakeholders to do
business. Finally, reputation is used by many companies
to justify CSR initiatives on the grounds that they will improve
a company’s image, strengthen its brand, enliven
morale, and even raise the value of its stock. These justifi-
cations have advanced thinking in the field, but none offers
sufficient guidance for the difficult choices corporate
leaders must make. Consider the practical limitations of
each approach.
The CSR field remains strongly imbued with a moral
imperative. In some areas, such as honesty in filing fi-
nancial statements and operating within the law, moral
considerations are easy to understand and apply. It is the
nature of moral obligations to be absolute mandates,
however, while most corporate social choices involve balancing
competing values, interests, and costs. Google’s recent
entry into China, for example, has created an irreconcilable
conflict between its U.S. customers’ abhorrence
of censorship and the legal constraints imposed by the
Chinese government. The moral calculus needed to weigh
one social benefit against another, or against its financial
costs, has yet to be developed. Moral principles do not tell
a pharmaceutical company how to allocate its revenues
among subsidizing care for the indigent today, developing
cures for the future, and providing dividends to its
investors.
The principle of sustainability appeals to enlightened
self-interest, often invoking the so-called triple bottom
line of economic, social, and environmental performance.
In other words, companies should operate in ways that secure
long-term economic performance by avoiding shortterm
behavior that is socially detrimental or environmentally
wasteful. The principle works best for issues that
coincide with a company’s economic or regulatory interests.
DuPont, for example, has saved over $2 billion from
reductions in energy use since 1990. Changes to the materials
McDonald’s uses to wrap its food have reduced its
solid waste by 30%. These were smart business decisions
entirely apart from their environmental benefits. In other
areas, however, the notion of sustainability can become
so vague as to be meaningless. Transparency may be said
to be more “sustainable” than corruption. Good employment
practices are more “sustainable” than sweatshops.
Philanthropy may contribute to the “sustainability” of
a society. However true these assertions are, they offer
little basis for balancing long-term objectives against the
short-term costs they incur. The sustainability school
raises questions about these trade-offs without offering
a framework to answer them. Managers without a strategic
understanding of CSR are prone to postpone these
costs, which can lead to far greater costs when the company
is later judged to have violated its social obligation.
The license-to-operate approach,by contrast,is far more
pragmatic. It offers a concrete way for a business to identify
social issues that matter to its stakeholders and make
decisions about them. This approach also fosters constructive
dialogue with regulators, the local citizenry, and
activists – one reason, perhaps, that it is especially prevalent
among companies that depend on government consent,
such as those in mining and other highly regulated
and extractive industries. That is also why the approach is
common at companies that rely on the forbearance of
their neighbors, such as those, like chemical manufacturing,
whose operations are noxious or environmentally
hazardous. By seeking to satisfy stakeholders, however,
companies cede primary control of their CSR agendas to
outsiders. Stakeholders’ views are obviously important,
but these groups can never fully understand a corporation’s
capabilities, competitive positioning, or the tradeoffs
it must make. Nor does the vehemence of a stakeholder
group necessarily signify the importance of an
issue – either to the company or to the world. A firm that
views CSR as a way to placate pressure groups often finds
that its approach devolves into a series of short-term defensive
reactions – a never-ending public relations palliative
with minimal value to society and no strategic bene-
fit for the business.
Finally, the reputation argument seeks that strategic
benefit but rarely finds it. Concerns about reputation, like
license to operate, focus on satisfying external audiences.
In consumer-oriented companies, it often leads to highprofile
cause-related marketing campaigns. In stigmatized
industries, such as chemicals and energy, a company may
instead pursue social responsibility initiatives as a form
of insurance, in the hope that its reputation for social
consciousness will temper public criticism in the event
communities, and numerous other stakeholders to dobusiness. Finally, reputation is used by many companiesto justify CSR initiatives on the grounds that they will improvea company’s image, strengthen its brand, enlivenmorale, and even raise the value of its stock. These justifi-cations have advanced thinking in the field, but none offerssufficient guidance for the difficult choices corporateleaders must make. Consider the practical limitations ofeach approach.The CSR field remains strongly imbued with a moralimperative. In some areas, such as honesty in filing fi-nancial statements and operating within the law, moralconsiderations are easy to understand and apply. It is thenature of moral obligations to be absolute mandates,however, while most corporate social choices involve balancingcompeting values, interests, and costs. Google’s recententry into China, for example, has created an irreconcilableconflict between its U.S. customers’ abhorrenceof censorship and the legal constraints imposed by theChinese government. The moral calculus needed to weighone social benefit against another, or against its financialcosts, has yet to be developed. Moral principles do not tella pharmaceutical company how to allocate its revenuesamong subsidizing care for the indigent today, developingcures for the future, and providing dividends to itsinvestors.The principle of sustainability appeals to enlightenedself-interest, often invoking the so-called triple bottomline of economic, social, and environmental performance.In other words, companies should operate in ways that securelong-term economic performance by avoiding shorttermbehavior that is socially detrimental or environmentallywasteful. The principle works best for issues thatcoincide with a company’s economic or regulatory interests.DuPont, for example, has saved over $2 billion fromreductions in energy use since 1990. Changes to the materialsMcDonald’s uses to wrap its food have reduced itssolid waste by 30%. These were smart business decisionsentirely apart from their environmental benefits. In otherareas, however, the notion of sustainability can becomeso vague as to be meaningless. Transparency may be saidto be more “sustainable” than corruption. Good employmentpractices are more “sustainable” than sweatshops.Philanthropy may contribute to the “sustainability” ofa society. However true these assertions are, they offerlittle basis for balancing long-term objectives against theshort-term costs they incur. The sustainability schoolraises questions about these trade-offs without offeringa framework to answer them. Managers without a strategicunderstanding of CSR are prone to postpone thesecosts, which can lead to far greater costs when the companyis later judged to have violated its social obligation.The license-to-operate approach,by contrast,is far morepragmatic. It offers a concrete way for a business to identifysocial issues that matter to its stakeholders and makedecisions about them. This approach also fosters constructivedialogue with regulators, the local citizenry, andactivists – one reason, perhaps, that it is especially prevalentamong companies that depend on government consent,such as those in mining and other highly regulatedand extractive industries. That is also why the approach iscommon at companies that rely on the forbearance oftheir neighbors, such as those, like chemical manufacturing,whose operations are noxious or environmentallyhazardous. By seeking to satisfy stakeholders, however,companies cede primary control of their CSR agendas tooutsiders. Stakeholders’ views are obviously important,but these groups can never fully understand a corporation’scapabilities, competitive positioning, or the tradeoffsit must make. Nor does the vehemence of a stakeholdergroup necessarily signify the importance of anissue – either to the company or to the world. A firm thatviews CSR as a way to placate pressure groups often findsthat its approach devolves into a series of short-term defensivereactions – a never-ending public relations palliativewith minimal value to society and no strategic bene-fit for the business.Finally, the reputation argument seeks that strategicbenefit but rarely finds it. Concerns about reputation, likelicense to operate, focus on satisfying external audiences.In consumer-oriented companies, it often leads to highprofilecause-related marketing campaigns. In stigmatizedindustries, such as chemicals and energy, a company mayinstead pursue social responsibility initiatives as a formof insurance, in the hope that its reputation for socialconsciousness will temper public criticism in the event
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