A Blueprint for Including Corporate Social Responsibility In Strategic Planning

Introduction

There is a pervasive need for an effective framework regarding corporate social responsibility (CSR) today.  The field of CSR involves attempts to address this need.  Because questions of ethics have abounded throughout history, there are many concepts to draw from.  Many ideas coming from non-traditional sources appear on the surface to be anti-business, counterintuitive or consensus-gathering bureaucratic bottlenecks.  It is the purpose of this report to shed light on the effectiveness of using some non-traditional sources, particularly an inverted triangle hierarchy, in unleashing the stagnating gridlock that can occur when the law has not caught up with the ethical dilemmas, and hence avoid legal battles.

There are few concerns more divisive in this country than the bioethical questions surrounding human embryonic stem-cell research.  Largely unregulated researchers in search of funding find that federal dollars have strings attached.  Because their projects present ethical dilemmas over the very definition of life, and, by extension, how much tinkering with that definition is too much, the National Academy of Sciences has presented non-binding ethics guidelines for researchers, recommending that:

• All stem-cell research institutions should establish an oversight committee
• Researchers should not pay donors for eggs or sperm
• Human stem cells shouldn’t be injected into monkey embryos ¹

Thus begins the long process of moral oversight for this field, overwhelmed by ethical questions.

            Government has attempted to guide stem-cell researchers.  During his first term in office, President George W. Bush allowed an ethical compromise on public funding for pre-existing lines of stem cells.  Any new lines would require private sector funding.  This leadership strategy allowed the search for cures to diseases to continue unimpeded by ethical “gridlock”, (albeit unsatisfactorily as far as some scientists are concerned).  Uncle Sam, normally science’s largest contributor, has now removed itself from the issue, giving way to private investors and governments outside the US, who are quickly filling the void left in its wake.  This has freed up funds on the areas of agreement so that developments can proceed.

            Moral tradeoffs are not new to government.  The U.S. has wrestled with ethical concerns ever since the founding fathers first said “no taxation without representation”.  The leadership quality of being able to take an unpopular stance for the greater good is the heart of social responsibility.  Regardless of the source of the problem (academic, governmental or corporate) promoting the “greater good” in effect reshapes society.

Re-shaping Corporate Ethical Frameworks:

Industry of course, has had their share of ethical nightmares.  Uttering the words Exxon-Valdeez or Enron evokes memories of executives asleep at the wheel (literally and figuratively), incapable of the stewardship in their charge, or corrupt in carrying out their duties.  The backlash of WTO protests and terrorist attacks suggests that business is perceived as complicit in many of the world’s problems.  Criticism is more far-reaching than ever, leading a majority of Fortune 500 CEOs to believe that responsible actions to communities can reduce support for such groups. It is partly a symptom of globalization that corporations are perceived as more powerful than ever, and therefore more responsible for society’s woes.  Governments’ “failure to solve many social problems” is another factor.   Indeed, governments and corporations have been blamed for many environmental and political problems.  Corporations are required, as a result, to respond more like governments, and possibly face bureaucratic stagnation.  The current “free market approach” to CSR with its “haphazard patchwork” of attempts at cures, leaving vast sectors unattended while others bear the brunt of the criticism² must be replaced.

Exemplars of CSR leadership in the Non-profit Sector:

Some “not-for-profit” (NFP) organizations have sought to create socially responsible environments for a comparatively long time.  Alcoholics Anonymous, the organization of recovering alcoholics founded by Bill Wilson and Dr. Bob Smith in 1939, developed such traditions early in its existence.   Their model for organization is illustrated by an inverted triangle, where autonomous groups of recovering alcoholics throughout the world are at the very top, connected administratively to district area committees and conferences, and ultimately to the General Service Board, which disseminates enabling information between groups and to agencies outside the organization.  A.A. bases its success on each individual member’s responsibility to carry a simple message on recovery to the suffering alcoholic, and relies on the lowest level (the board) to enable them to do that.  The board is seen as having the entire membership as their boss³.  Thus, the corporation is seen as an enabler for the work of individual members.

Doctors without Borders/Médecins sans Frontières (MSF):

Doctors without Borders, an international humanitarian association of doctors, health sector workers and other professions, is designed to “help provide assistance to populations in distress, to victims of natural or man-made disasters and to victims of armed conflict, irrespective of race, religion, creed or political convictions.   The MSF organization observes neutrality and impartiality in the name of universal medical ethics and the right to humanitarian assistance and claims full and unhindered freedom in the exercise of its functions.  Members undertake to respect their professional code of ethics and to maintain complete independence from all political, economic, or religious powers.  As volunteers, members understand the risks and dangers of the missions they carry out and make no claim for themselves or their assigns for any form of compensation other than that which the association might be able to afford them.”⁴   

Although their organizational structure is not explicitly an inverted triangle, MSF’s ethical decision-making is literally moved to the “front lines”.  Its five ‘operational sections', directly control field projects—deciding when, where, and what medical relief is necessary and, eventually, when to terminate aid. The remaining MSF sections recruit volunteers, raise funds for field projects, and do public outreach and education projects on behalf of populations in danger.  MSF has four other offices, including its international office in Brussels, which enables communications⁵.  The structure of MSF can, therefore, also be thought of as an inverted triangle.

Exemplar CSR in For-profit Companies and NGOs:

The dilemma in corporations involves the double bottom line – whether companies have an ethical requirement to anyone other than their shareholders - a double bottom line.  The Johnson and Johnson corporation’s credo⁶ is perhaps the clearest example of how an inverted triangle hierarchy approach is used to aid corporate ethics.  The Starbucks company’s “guiding principles” ⁷ appear to be in the process of becoming an inverted triangle, but the lower profile of the coffee industry makes its gains a nicety.  The recent use of Starbucks’ own lobbyists will undoubtedly bring about new ethical questions, spurring its’ ethical maturity even further.

Merck’s low-cost pharmaceutical cures for swamp blindness and elephantiasis have helped third world countries, and should be applauded.  These drugs have no real application outside of third world tropical countries.  However, because Merck’s HIV drugs also are helpful in industrialized nations, it has been less willing to cut its profits for AIDS treatments.  “Ethics = People before Patents” is the public’s expected rule when it comes to such dilemmas, but Merck cannot be expected to sacrifice its entire profit base.  In the blueprint being proposed, where the normative case dramatically conflicts with the business case for CSR, a coordinated partnership with governments, other corporations and Non-Governmental Organizations (NGOs) is required.  NGOs passion approaches a religious conviction to spur such cooperation⁸.  The pharmaceutical industry may, in concert with NGOs, be in the process of using an inverted triangle structure.

Stockholder vs. Stakeholder:

The moral high ground, in highly competitive markets, may provide a valuable basis for differentiation⁹.  In 1986, the Unites States Catholic Bishops’ pastoral letter on economic justice was diametrically opposed to the Friedman model of corporate responsibility.  Where Friedman emphasized shareholder wealth, the bishops saw corporate purpose as being more directly for the progress and prosperity of the community.  The bishops addressed flaws inherent in laissez-faire business cycles described by Adam Smith¹⁰, which apparently obviated business’ need to purposely consider a greater good – that a greater good would in effect occur naturally (if everyone minded their own business).  Addressing Friedman’s belief in free competition within customary ethics, the bishops diverted the normal flow of responsibility from managers to shareholders, emphasizing that with power comes responsibility.  They declared that corporations held a trusteeship over human and natural resources, and technology, which required accountability to the common good¹¹.  This approach could be illustrated as an inverted triangle.

A Proposed CSR “Blueprint”:

1) The Inverted Triangle Hierarchy:  Alcoholics Anonymous, in its evolution away from the earlier Washingtonian and Oxford sobriety movements thought of this same primary responsibility in the 1950s.  At that time, A.A.’s inverted triangle was used to illustrate the concept that the ultimate authority for their fellowship was the groups of alcoholics themselves³.  The following is an adapted illustration of what an inverted triangle hierarchical approach to CSR might look like:

Sample Inverted Pyramid Hierarchy of CSR Oversight:

In this model responsibility (i.e., moral authority) flows from constituents down to the managers, executives and the board while enabling (reporting on results, logistical support, etc.) flows back up the same path to the constituents.  This empowers the front lines, and promotes transparent reporting.

2) Two-way communication is required:  Empowering individuals on the front lines is the first step.  Increase authority to make ethical decisions.  With authority comes monitoring.  Two-way communication is a key factor toward empowering the front lines.

3) CSR Reporting coincidental to all financial reporting:  Changes in GAAP may be required, to include CSR oversight and statements in SEC reporting.

CSR Blueprint and the Competing Values Framework:

Because the Competing Values Framework (CVF) is so adaptable to the individual as well as to business units and entire organizations, it is used here to illustrate the empowering of the front lines that is required for the inverted triangle hierarchy to be useful in CSR.

1) Human Capital Development (Internal Flexibility: Cohesive double bottom line): 

Because there is a positive relationship between corporate social performance (CSP) and corporate financial performance (CFP), corporate values and formal standards of conduct should be treated as absolutes¹².    Johnson and Johnson’s Credo is one example of how corporate values can be conveyed and their treatment of the Tylenol tampering case is illustrative of the benefits of this commitment, in the way everyone in the company responded to the crisis¹³.  WAI, a small electronic parts supplier, is a company conveying an ethical standard operating procedure based on mutual courtesy and respect also begins during recruitment¹⁴.  Edward Jones also benefits from honesty in labor practices¹⁵. 

2) Oversight Committees (External Flexibility: strategic growth): The acid test for international compliance is to ask “Would the practice be acceptable at home if my country were in a similar stage of economic development?”¹⁶   Oversight committees such as those recommended by the National Academy of Science¹⁷ should be present in one form or another in every company, even if they start out as ad hoc groups, to answer just those kinds of questions.  To quote Mintzberg, “the strategic decisions of large organizations inevitably involve social as well as economic consequences.” ¹⁸ 

3) Periodic Reviews (External Control: Responsible analysis of social impact):

Researching ones own situation should come first, while external NGO audits should come last.  Consultancies which can assess vulnerabilities are becoming increasingly important in the areas of strategy, community involvement, environmental performance, reputation management, performance system, social auditing, business ethics, communication, specific consultancies around major operating lines¹⁹.  Donaldson describes the need to design and implement conditions of engagement for suppliers and customers, allowing foreign business units to help formulate ethical standards and interpret ethical issues.  In host countries, he recommends supporting efforts to decrease institutional corruption, and in general exercising moral imagination.²⁰

4) Communications (Internal Control: Stable managed information flow)

In the Total Responsibility Management System²¹, communication is circular:

Integrating CSR Blueprint into the Wheel of Competitive Strategy:

“Brands are becoming an effective weapon for holding corporations to account”. ²²

What follows are some other applications of CSR in the various “spokes” of the Wheel of Competitive Strategy²³, which help illustrate the comprehensive strategies necessary:

1. Target Markets: Companies should not target those who do not have the capacity to understand the consequences of their actions (e.g., Camel cigarette cartoons to underage smokers, drinking irresponsibly, or targeting minorities per se to charge higher interest rates for mortgages.)

2. Marketing: Companies should exercise truth in advertising and not disguise risks (e.g. the health risks of smoking).

3. Sales: Companies should take precautions not to sell to those without the legal or ethical capacity to purchase (e.g., selling cigarettes to minors over-the-counter or selling to countries without the ability to repay debt).

4. Distribution: Extortion should not be tolerated, regardless of the greater good.

5. Manufacturing: Companies should make and stand by goods that meet needs.

6. Labor:  Where downsizing needs to occur, a company can rely on transparent communication to avoid rumor mills, warning employees where cutbacks may occur. 

7. Purchasing: Companies should not purchase illegal parts (e.g., pay for human eggs).

8. Research & Development: Testing should always be done humanely, and respect for human life should be paramount (e.g., human embryos should not be created for farming, and animals should not be made to suffer). 

9. Finance & Control: Employ consultants for external audits of corporate finances, responsiveness to corporate social responsibility, and technical security reviews.

10. Product Line: Promote quality improvements in products for the progress of society.

Conclusion

Business serves at the pleasure of mankind.  Business must have humility to effectively serve stakeholders.  The notion of hierarchy must be flipped on its head.  On the top are the stakeholders, and their power trickles down to the CEO and boardroom.  They have greater responsibility than they think.  This is not to paralyze business, but to liberate it from the notion that it can’t do more.  By going beyond compliance, it enhances value. 

CSR is definitely self-serving.  We accept that there are competing values causing tensions, and that balance is required.  CSR is not being responsible if it calls for “throwing out the baby with the bath water”.   By openly admitting that it needs to provide a profit to shareholders, as well as social benefits and transparency with employees and good works with environment, business sets up the right conditions for treating “the whole patient”.

I would like to add a quote from Christian scripture: What does it profit a man if he gains the whole world but loses his own soul?  Or, as the Catholic Bishops wrote, “support of private wealth does not mean that anyone has the right to unlimited accumulation of wealth… No one is justified in keeping for his exclusive use what he does not need, when others lack necessities.”  This does not mean the downfall of capitalism, but it does take into account there are tradeoffs in the system that create longer term value.

Bibliography

¹ A Regaldo and G Dumcius, “Stem-Cell Labs To Get Guidelines On Ethics Issues,” in The Wall Street Journal (New York, NY), April 26, 2005, p. B1.

² N C Smith, “Corporate Social Responsibility: Whether or How?”  California Management Review (Berkeley, CA), Summer 2003, Vol. 45, No. 4, p.55.

^{3 “}Purpose of the A.A. Service Structure”, <http://aaarea56.org/purpose_of_the_aa%20service%20structure.htm>, viewed on 5/2/05.

⁴ <http://www.doctorswithoutborders.org/about/charter.shtml>, viewed on 5/2/05.

⁵ <http://www.doctorswithoutborders.org/about/orgstructure.shtml>, viewed on 5/2/05.

⁶ <http://www.jnj.com/careers/ourcredo.html>, viewed on 5/2/05.

⁷ Starbucks Company Fact Sheet, January 2005.

⁸ Smith, op. cit., p.58.

⁹ Smith, op. cit., p.62.

¹⁰ B Avishai, “What is Business’s Social Compact?” Harvard Business Review, reprint 94102, p.4 (analysis of Adam Smith’s The Wealth of Nations).

¹¹ L S Paine, “Corporate Purpose and Responsibility,” Harvard Business Review, reprint 9-396-201, Rev November 4, 1996, p.10-12, 17.  Quoting from “Economic Justice for All: Pastoral Letter on Catholic Social Teaching and the U.S. Economy”, U.S. Catholic Conference, Copyright 1986.

¹² Smith, op. cit., p. 65.

¹³ T Kaplan, “The Tylenol Crisis: How Effective Public Relations Saved Johnson & Johnson”, Pennsylvania State University, from <http://www.personal.psu.edu/users/w/x/wxk116/tylenol/crisis.html>, viewed on 5/2/05.

¹⁴ L S Paine, “Managing for Organizational Integrity”, Harvard Business Review, reprint 94207, p. 117.

¹⁵ Smith, op. cit., p. 63.

¹⁶ T Donaldson, “Values in tension: Ethics Away from Home,” Harvard Business Review, reprint 96502, p. 11.

¹⁷ Regalado, op. cit., p. B1.

¹⁸ Smith, op. cit., p. 65.

¹⁹ M Kubr, “Management Consulting: A Guide to the Profession” (Geneva, Switzerland), Fourth edition, 2002, p. 536.

²⁰ Donaldson, op. cit., p. 12.

²¹ Kubr, op. cit., p. 537.

²² Kubr, op. cit., p. 545.

²³ M Porter, “Competitive Strategy: Techniques for Analyzing Industries and Competitors,” The Free Press, 1980, p.xxv.