Corporate Responsibility, Good Governance, and Scalable Solutions

Source: Gearing Up: From Corporate Responsibility to Good Governance and Scalable Solutions

By SustainAbility Ltd. 2004

Synopsis:

Corporate responsibility (CR): A term that can embrace financial integrity, corporate ethics and dimensions of economic, social and environmental value added. In the wake of such scandals as the Enron collapse, the term has often focused back on narrower definitions of financial integrity. However, throughout Gearing Up, we use CR to refer to a business approach embodying open and transparent business practices, ethical behavior, respect for stakeholders and a commitment to add economic, social and environmental value.

Gearing Up explores the relationship between corporations, corporate responsibility and governance. Ultimately, the question it seeks to answer is, through which system(s) will change be most effective?

Reflection:

I struggled with this resource until I reached the section on scalable solutions. Until that point, my biggest question was whether or not this was a subject that needed exploration. My understanding of the relationship between business and government is that business offers a society the goods and/or services demanded/needed/wanted by that society and government does its best to keep an eye on those operations to prevent them from doing more harm than good. Admittedly simplistic, but it explains my incredulity. From an environmental and social perspective, the changes demanded by sustainable development will unquestionably benefit more people than Business As Usual, so what incentive would government have in regulating developing practices that are already ahead of the curve? For example, without a lot of effort, I can think of a dozen businesses, mostly in the outdoor retail field, that practice sustainable business. They use less energy, less water, fewer raw materials, produce fewer emissions and less pollution. Their only criticism, and this is by no means conclusive, is that, in the short term, they are less profitable than Business As Usual, as most of the efforts that result in the aforementioned cost more. So again, what incentive would government have to interfere with what is already a good system?

When I got to the section on scalability, I made the connection. The businesses I might cite are small. As far as I know, none of them are publicly owned. There are no shareholder meetings, no quarterly meetings with mandates to hit your number no matter what, etc. I doubt any of the owners/CEOs have seen Glengary Glen Ross, and if they have, I doubt they abide by Blake’s ABCs. Unfortunately, Business As Usual is where we’re at, and it’s where change needs to take place, and a lot of the men and women making their living with Business As Usual would get along just fine with Blake.

So, the implication I drew is that the role of government is to aid us in getting from Business As Usual to sustainable business. Hmmmmm… Business As Usual and government regulation mix like oil and water. Forgive me for being skeptical that government regulation of Business As Usual will lead to change on the scale needed.

There was no regulation required to get us to Business As Usual. Growth was/is the natural/logical direction for business. It is a question of motivation. Most corporations on the scale of Business As Usual are not intrinsically motivated. They exist for profit. Therefore, there are two potential paths through which change might occur. One, if sustainable business practices can be proven as profitable as or more profitable than Business As Usual, we have nothing to worry about. We’ll be working with the same motivation that got us where we are, and government will have little reason to get involved. Of course, when we’re talking about profit, we’re talking about cost, and one of the bricks in the foundation upon which Business As Usual was built is incomplete accounting of costs. Most of our products are produced overseas by inexpensive labor, under governments that may be less likely to embrace strict environmental and social standards. Those costs will catch up to us, but it seems the prevailing wisdom is to ride that wave as long as possible. So government may function to more accurately account for costs through regulations and subsidies. My worry with that is the potential for unintended consequences. I cite the subsidization of corn and our current food system.

Path two is to hope that Business As Usual starts recognizing that the current system is not sustainable and starts making changes to get in line with that standard. I guess it’s not a stretch to put that in terms of profit, but only on a timescale longer than that which most corporations pay attention to. This is the role I see for the smaller companies like those I might have cited above. If their efforts prove profitable, and can be scaled up to the level of Business As Usual (or, if that level is not sustainable, a reasonable level, whatever reasonable means), then we’ll be on the right track.