Bailout – Who’s next?

So, you know by now that a little ‘Obamania’ has also infected Crane and Matten. But why not enjoy the honeymoon while it lasts. It might be over sooner than later. Among the many daunting tasks the new administration will have to face – the economy, Iraq, Afghanistan, Guantanamo, foreign relations – one of the most difficult animals for Obama to tame reared its ugly head last week: the American auto industry.

Now it makes perfect sense that at a time when Washington is handing out blank cheques to troubled banks, Detroit’s CEOs thought it worth a try to get next in line. And in fact their companies are in dire straits. Poor quality, fierce competition from the Far East and Europe, bad environmental performance of their products, high healthcare costs – these are just some of the issues which have led to the current situation. None of which is really new and good management could have addressed these problems years, if not decades ago.

But the appearance of the CEO’s of the big three on Capitol Hill last week points at a bigger issue Obama will have to face. It is good to see this in a broader context and to pull Stan Luger’s brilliant analysis of ‘Corporate Power, American Democracy, and the Automobile Industry’ from the shelf again. The book analyses the influence on political decision making by the US car industry over most of the 20th century. It puts the recent efforts of the industry in the context of longstanding direct political intervention, lobbying and coalition building.

Last week’s events then point to one of Obama’s biggest challenges, to deliver on bringing ‘change’ to Washington. And for a democrate President, this is no easy task. After all, car companies still are massive employers. Michael Moore’s ‘Roger and Me’ showed years ago what happens to towns in America’s industrial heartland when car companies close shop. In that sense then Obama’s success will in some way depend closely on creating jobs – which in fact is one of his big promises.

Here is the tricky bit: the political power of business in modern democracies is more than just lobbying or other ways of direct influence. In his book (p. 25) Luger quotes the sociologist Claus Offe on this point:

‘The entire relationship between capital and the state is built not upon what capital can do politically via its association […] but upon what capital can refuse to do in terms of investment.’

So every politician needs business to thrive and to invest in order to secure jobs and tax revenue. To deal then with this crucial contribution of business from the political end is a much more complex job for Obama than it seems.

In this sense, with the bailout of the banking industry and potentially others we might witness a watershed in contemporary capitalism: a return of the government as a key player in business. The last three decades have seen the exact opposite with most governments privatizing large parts of the public service delivery and divesting from their business interests. In some ways the bailouts then might even have this one positive effect: corporations apparently have such an importance for the wellbeing of a society that the government has to ‘rescue’ them in a situation where their survival is threatened. Acknowledging this, and granting the government a controlling stake in these companies might actually reverse one important trend of the last years. Rather than accepting a growing influence of business on politics we might actually see the reverse: that we as citizens, represented by democratic governments, regain control of a corporate world which for too long has put shareholder’s and manager’s interests ahead of many legitimate interests of wider society.

Now that sounds a bit like a utopia. And the perspective of more governmental influence on corporations will make most hard nosed business people cringe – isn’t that what socialism was about? Not quite – but anyway: it is essentially what banks and automakers in the US and elsewhere are currently asking for!

Barack Obama to be a boost to CSR?

As many people have remarked, last week's election of Barack Obama to the US Presidency was a historic event. One of the questions we have been musing on though is what exactly an Obama Presidency might mean for business ethics and CSR in the future. The George Bush years are certainly finishing with a nasty bang in terms of the financial crisis and the legacy of ethical mismanagement, as we have discussed in previous blogs. That said, for better or for worse, the free market agenda endorsed by Bush has clearly provided plenty of scope for voluntary CSR initiatives ... and for a fair dose of corporate irresponsibility. So it is perhaps no coincidence that the last eight years have seen the issue of responsible business come to the fore like never before. Without regulatory oversight, business self-regulation has been the main game in town for those seeking responsible practice.

So what of the future then under Obama? Much has been made of the President-elect's commitment to climate change mitigation strategies (specifically cap-and-trade legislation). Andy Savitz, writing in Ethical Corporation recently, suggested that would be the area where he would be likely to make immediate impact:

"Climate change, one of his recurrent campaign messages, is the easiest and most dramatic way for president Obama to deliver on his promise of bi-partisanship at home and to show the rest of the world that we are back in the international relations business. The financial mess may slow it down, but we can expect to see a complete turnabout in Washington, with national cap and trade legislation and the emergence of the US as a leader in the global climate change negotiations."

But there are also many other areas where, we might see the change that Obama promises having an impact on CSR - from health care reform (where private sector responsibilities might be fundamentally reshaped), to labour conditions (where minimum requirements may be put on foreign imports), to clean technology and "green jobs" (where companies may face new incentives and disincentives to accelerate sustainability and oil independence).

So perhaps it was no surprise then that a survey conducted at last week's Business for Social Responsibility (BSR) conference reported that almost nine in ten of the survey's 400 or so respondents welcomed Obama's election as promising a positive impact on advancing CSR. But the scale of optimism was quite remarkable given the circumstances of the financial crisis. Plus, this anticipation of an Obama boost to CSR is matched by an increased expectation of business regulation. The same survey reported that an overwhelming majority (94 percent) anticipated increased government regulation of issues related to corporate responsibility, including climate change (86 percent) and corporate governance and financial transparency (83 percent).

So what's going on here? On the one hand, we see expectation of more CSR, which is typically associated with voluntary activity beyond that required by law. On the other, we're also seeing greater expectation of regulation itself - which according to many would be seen as an alternative to voluntarist CSR. Its an interesting confluence, which at some level is perhaps a reflection of an underlying conviction that the US could move towards an approach to CSR where different constellations of regulation, self-regulation, and voluntarism are developed at the industry level through multipartite initiatives. Certainly, one of the main areas that we see enthusiasm for Obama from the CSR movement is his commitment to a unifying agenda, which many see as promising a new era of collaboration between business, government, and civil society.

The first test of this will probably be in the automotive industry, where the failing "big 3" car companies are seeking financial assistance, and where Obama could potentially see millions of people lose their jobs in the first year of his presidency. At present the rhetoric is still about protecting ordinary workers and ensuring that the car industry remains both economically and environmentally sustainable within a broader agenda of reducing America's oil dependency (which for Obama appears to be more about developing renewable energy sources than military manoeuvring in the Middle East). But there are going to be tough choices to be made here, and it is uncertain yet whether the new administration will have the skill (or the time) to develop a sophisticated package that manages to simultaneously save the industry, protect jobs in the long term, AND turn the American car giants around into sustainable innovators. Whatever the outcome, it appears that we will be getting deep insight into Obama's real impacts on CSR sooner rather than later. Its going to be an interesting few months...

For Asia, the future is green!

This week’s blog comes from Bangkok where CSR Asia is organizing it’s 2008 CSR Summit. It is a long time since Crane and Matten were in Bangkok at the Greening of Industry Network Conference in 2001 – which incidentally was their first joint conference appearance. What back then seemed a rather western idea and topic, parachuted into lovely Thailand to give some academics the excuse to travel to an exotic country on expenses, is now a living practice among Asian businesses.

More than 300 delegates, mostly from companies and NGOs, all over Asia gathered this week in Bangkok. For us it is a brilliant opportunity to check the pulse on business ethics and CSR in one of the most dynamic marketplaces globally. What is fascinating is to see how responsible practices begin to change in this part of the world. CSR in Asia started out very much as a supply chain driven idea, making sure that products manufactured in this part of the world were put together under acceptable conditions – from an ethics perspective.

Now though the tides turn slowly. The biggest issue seems to be the rapid decrease in water and air quality, decline in biodiversity etc. The Environment is highly on the agenda, making CSR a topic much more driven by local stakeholders in these countries. In many places in Thailand, China and Bangladesh, the impacts of global warming in terms of water supply from Himalayan glaciers, rising sea levels or d shifting weather patterns are really palpable. There was a fascinating session on business responses to climate change today – which not only highlighted the urgency of these issues but also showed a fascinating degree of creativity in corporate responses.

In the current, 2nd edition of Crane&Matten we started to include the Asian perspective, next to the North American and European one. We are just getting our act together for the 3rd edition – and one thing is sure: the Asian perspective will not only stay, but become more prominent. More Asian cases seem particularly challenging. If you have any material or suggestions, please join the conversation!