Will the financial crisis lead to more or less CSR?

As the turmoil in financial markets continues unabated, some of those in the responsible business arena are considering what the likely effects of all this are going to be on the practice of CSR. The last decade or so has seen a seemingly unstoppable rise in interest, attention, and action on CSR issues, at least from some quarters of the business community. But with recession around the corner (or apparently already arriving for some countries), what is the prognosis for responsible business when times are hard?

Out here in the blogosphere a range of opinions are circulating. One post that has gotten quite a lot of attention came from Adam Jones of the Financial Times, who was among the first to raise the issue, and ended up somewhat hedging his bets:

"I suspect there are lots of Milton Friedman-reading managers in the private sector who grumblingly tolerated CSR programmes during the boom and would now love to get rid of them on similar cost grounds. Instead of throwing the money changers out of the temple, it would be a case of throwing the CSR priests out of the marketplace. But that would be a pretty dumb move at a time when the public mood is for more accountability and regulation, not less."

Reenita Malhotra, writing on her "Inspired Economist" blog, focused on the specific effects on CSR in the investment banking industry, arguing that such enterprises should be protected exactly because of their positive social benefits:

"A high return on investment has enabled many of the investment banks to show a solid to commitment to corporate social responsibility in the last few years"

Taking an opposite point of view, Nic Paton at the online resource Management-Issues suggested that a lack of attention to genuine CSR was actually to blame for the crisis in the first place:

"While many companies believed they were engaging in corporate social responsibility, they were in fact missing the point. Truly responsible business, rather than chasing a fast buck and in the process taking overly dangerous risks, would have considered the interests of all those who had a stake in their business."

Finally, Mallen Baker, writing for Business Respect, has taken a similar line, but has also sought to move the debate forward by looking at what this should mean for practicing CSR in the future

"Bear Stearns produced no CSR report of any sort. Lehman Brothers did not produce a CSR report, but they produced a philanthropy report. Even if they had gone further, it seems unlikely that the complex nature of how they created wealth would have been a feature. Now it needs to change. If anything is to come out of this, it has to be that corporate social responsibility once and for all leaves behind the philanthropy tag, and we see clear focus on two areas:

* How we create a different ownership structure for businesses where responsibility for consequences is a more real feature of share ownership.
* That the oversight and accountability demanded of companies now goes into the detail of how they make their money - and what are the consequences of their actions.

Two months ago, such concepts were unthinkable. Now they are essential."

Pretty profound stuff. But the prognosis for CSR is, as far as we can see, far from clear. Changing ownership structures for businesses seems a long way off, unless by this Baker means the movement into public ownership of banking institutions in the UK, US, Iceland and elsewhere. But somehow we doubt that's what he is getting at.

So, really, it's probably too soon to say for sure what will happen next on the rocky road of CSR. But hopefully our poll at the top of the page will give some indication of where our readers think it should be heading....

‘Are we all France now?’

That’s what Jon Stewart asked his guest Bill Clinton on the Daily Show a minute ago. They were discussing the proposed 700 billion (!) bailout for the financial industry proposed by the Bush administration today.

This is inspiring stuff. Who would have thought that the government most committed to reinstall freedom of markets, low taxes and ‘small government’ is now intervening directly in the economy in an unprecedented way. We blogged about similar cases in the UK and France recently – but what the US government intends to do here eclipses all the others.

We find it interesting from two perspectives. First, it is one of the classic examples of an ethical problem. On the upshot, yes, the financial industry is in trouble and the effects of further bank collapses would be massive - for the economy in general, but more concretely for jobs, home owners and ‘hard working’ Americans (and beyond). But on the other hand, why bail out an industry which has enjoyed fairytale profits in recent years, not to talk about bonuses and executive salaries far beyond imagination?

From a ultilitarian perspective (see Chapter 3 of Crane & Matten) maybe everybody would be better off by the bailout. But what about fairness and justice - providing healthcare for children has been anathema for the US government so far, yet would have cost much less. Or from another perspective, what about the consent of taxpayers to spend what amounts to $5,000 each in tax dollars for this massive bailout package?

The second aspect hints at the political role of private corporations. To have enough to live of in old age (i.e. pensions) and having a roof above your head (i.e. homes/mortgages) are obvious issues: access to these for a long time was considered a basic civic entitlements of citizens. That’s why welfare states in Europe still provide (or tightly regulate) access to these commodities. The US though has been at the forefront of creating markets for these things. As we see, the corporations in charge have failed at administering them – maybe because they shouldn’t have been in charge of these issues in the first place. And that’s why the government now feels it has to step in. The bailout now is an attempt to help out as a one-off. But it raises the general question we have discussed at length in our just published recent book: if corporations are now responsible for administering basic entitlements of citizens would it not be just fair to apply the same rules of transparency, accountability and democratic control as we do to governments? It is fascinating to see this debate and we guess it is far from over.

Ethics and financial crisis

With stock markets plummeting, financial institutions going belly-up, and governments on both sides of the Atlantic stepping in to bail out failing companies, the prospects for investors, the financial community, and even tax payers do not look good. And with the likely knock on effects for employment in other sectors almost certain to result in job losses, the fall-out from the current market turmoil is going to be widely felt.

For us business ethics professors, however, the picture is somewhat mixed. On the one hand, issues of social responsibility tend to be higher on the agenda when times are good. On the other, when greed and corruption contribute to downturns (such as in the post Enron wake of the early 2000s), significantly more attention can shift to issues of integrity and governance in business. Its no coincidence that the 2000s have witnessed perhaps the most sustained growth yet in the corporate responsibility 'industry' and in courses, books, conferences, and workshops on the subject.

Today's financial crisis clearly has at least some of its roots in corporate iresponsibility around the subprime mortgage market in the US. If 'responsible lending' practices had been observed (or if tighter regulatory oversight had been imposed), we might not all be in this position right now. Certainly, the financial industries of other countries appeared to be more attuned to the problem than in the US, such as in the UK, where the British Banking Association has in place a code on responsible lending:

Responsible lending is providing credit, based on background checks and professional judgement, to people who can accommodate regular repayments without getting into financial difficulty.

But although the sub-prime problem was the rockfall that got the financial landslide going, there are a number of structural issues that also need to be considered. And here we need to perhaps look at deeper institutional issues rather than the ethics of individual people or companies. As with Enron, the fault lines for disaster run through the system of risk management, regulation, transparency, business interdependence, and reward systems, not simply rogue traders crossing the ethical boundaries.

There are ethical issues here too of course, but they are at a different level to the ones that most people think of when they think about corporate responsibility. Here, we are talking about the ethics embedded in business systems and institutions, and how ethics and the law intersect to ensure that markets work effectively, fairly, and ultimately securely. Sure, a lot of our current problems with the financial crisis can be put down to individual greed, mismanagement, and bad decisions, but ultimately it goes deeper than that. Whether this means that the current crisis will be a boon to business ethics however depends on how well us ethical experts manage to get to grips with these deeper level problems.

For further reading on this, check out our paper on challenges to the business ethics curriculum, published in an early version available free online and later in the Journal of Business Ethics.

Business ethics at the Toronto International Film Festival

At the moment, here in Toronto, we are in the midst of the 2008 Toronto International Film Festival (TIFF), which is one of the world's premiere festivals , up there with Cannes, Venice and others. The city is alive with movie folk, big name actors and directors, and excited film fanatics. It's a fun place to be.

Regular readers of the blog and some of our other work will know that we are enthusiastic advocates of the role of movies in enlightening us about various aspects of business ethics. And TIFF 08 is no exception, with a bunch of exciting new films that get to grips with some of the social, ethical and environmental challenges facing contemporary business across the globe. We'll talk about some of these movies in a moment.

But it's not just the movies that are putting corporate responsibility in the limelight at TIFF this year. With increasing commercialisation and corporate sponsorship of the festival, some critics are complaining that the one time "people's festival" has been taken over by big business interests. With priority entry at some venues for sponsors, just flashing your Visa card (Visa is one of the main sponsors) can get you early seating and a place in the special lounge with drinks and refreshments while everyone else has to queue outside. Understandably, not everyone is over-enamoured with the implications of these acts of "good citizenship" by corporations - or at least not when there are such strings attached.

But it's tough balancing act for arts organizations when governments such as the incumbent Canadian Conservative Government, make cuts to arts funding leaving the private sector as the next obvious port of call. If arts organizations go in this direction, the challenge is obviously to work out a relationship that creates meaningful value for both partners - and takes account of the various stakeholders of each institution. It's a difficult proposition, but an important one to get right if these partnerships are to be sustainable. TIFF has clearly had the first warning shot fired across its bows and festivals around the world would do well to make sure they systematically incorporate these concerns into their subsequent planning.

But onto the films...

This year's line up has a few hot new documentaries that look worth checking out, including these (for more details check out the full program at http://www.tiff08.ca/:

Food, Inc. directed by Robert Kenner explores how modern developments in food production pose risks to our health and the environment. According the TIFF 08 programme:

Food, Inc. carefully dissects the cozy relationships between business and government in both political parties. In opposition to these powerful interests, we meet people from all walks of life, from a Republican mother who lost her two-year-old son to E. coli poisoning to the founder of Stonyfield Farm Organic Yogurt, who flouts conventional left-wing dogma by seeing a positive side to Wal-Mart.

Upstream Battle, directed by Ben Kempas, about Pacific salman, Native Americans, hydro-electric dams, and water rights in Northern California and Oregon (see the trailer here):

"Upstream Battle is wonderfully nuanced, acknowledging the complexity of the situation. The other stakeholders in this ecosystem include farmers who rely on the water for irrigation; the neighbouring tribes of Yurok, Karuk and Klamath; and commercial fishermen who catch the salmon at sea. The film manages to humanize those on all sides, including the corporate employees whose own livelihoods are in flux over changing owners."

And for a dose of individual resistance to organizational corruption, Yes Madam, Sir, directed by Megan Doneman tells the story of Kiran Bedi, the first woman to join the Indian Police Service, former head of Tihar Jail, Asia's largest, and notoriously corrupt and overcrowded prison, and latterly resident at the UN in New York.

"Kiran Bedi is arguably India's most controversial daughter, both revered by her supporters and reviled as a self-centred publicity seeker by her critics. In this captivating examination of her life, Australian documentarian Megan Doneman shows that whatever people may think of Bedi personally, there is no disputing her professional achievements. "

We'll try and catch one or two during the festival, but anyone that has seen these or who has more details, do drop us a comment. And if you're not in Toronto, keep an eye open for local release announcements ... and fof course or other new films that might be of interest. We're always keen to hear about new movies to feature. But let us know who you're being sponsored by first!!

The new business of shoplifting

It's this time of the year again. Classes have started (at least for us here in Canada) and in the first lesson it’s the thorny job of the business ethics professor to win over the skeptics. Those students who think that they shouldn’t be in this class in the first place. Those who need convincing that the law is just not enough to keep businesses on the bright side of life.

This day and age though, one doesn’t have to go far to find ammunition to make the case. This week, it can be found in a fascinating article in The New Yorker. The topic is shoplifting and how US retailers are trying to deal with it. Mind you, this is not about stingy shopkeepers trying to slap wrists of cheeky kids attempting to sneak out with a free ice cream. It is a US$ 40bn business issue for the industry. And it straddles class - remember Winona Ryder being caught with $5,000 of designer goods in Beverly Hills? It is also one of the most professionalized ‘sectors’ of the wider organized crime industry.

From a business ethics perspective this story is fascinating for at least two reasons. First, it is just mindboggling how much the industry has developed strategies, departments and instruments to prevent shoplifting. ‘Asset protection units’ as these are called – btw, relish the ‘amoralized’ language companies use! From hundreds of in-store cameras, armies of detectives on the shop floor, detailed profiling of customers, and even the operation of entire forensic labs, retailers have created their own mini law enforcement empires. The retailer Target alone faces 75,000 'theft apprehensions' a year. As their head of asset protection argues,

Even if all the U.S. attorneys across the country stopped prosecuting bank robberies, fraud, drug trafficking, and even terrorism, there would still not be enough capacity to prosecute even the apprehensions made by Target.

The result is simple enough: the tackling of this ethical issue is a core task for business. The article is a fascinating read for the challenges, risks and limits of addressing the problem in the corporate world.

The second aspect is even more striking: roughly half of all losses in retail are the responsibility of employees! It raises the thorny question of why these people commit such crimes. Fair enough, many organized crime rings try to recruit employees or even place their members as shop assistants. But for many shop assistants, being on low wages while selling $ 1,000 Armani Suits, the temptation may just be too much. As one VP of asset protection of a New York retailer argues in the article:

You're on commission selling. When times are good, you make a fortune. September through the holiday season, you're raking it in. Then Christmas is over, no one is shopping, gas is four dollars a gallon, and your paycheck went from fifteen hundred to five hundred a week and you have to pay off those bills from that Caribbean vacation you took when the money was rolling in. So you think, I'll credit my card for a thousand dollars and make out a fake return. When it works the first time, you try it again. But next time you load a little more onto your card. And the way this economy's going? We're going to be busy.

It turns our attention to what we call in our business ethics book (Chapter 4) ‘situational factors’ in ethical decision making. For some employees, given the wages and the nature of their products, the temptation is just too high. Whether security cameras and store detectives are the right answer then remains up for debate. Maybe it’s the general working conditions, the level of wages and the general identification with the company. Our guess is that a more in-depth understanding of why employees do these things would help to devise more appropriate strategies. We don’t know what you think. But we would love to hear.