A balancing act in corporate citizenship

First published in the Financial Times on 23rd July 2013.

Just how willing are consumers to support responsible businesses over less expensive rivals?

Do companies need a set of values? Is the objective of making a profit a necessary but insufficient condition for those in business? Are matters such as the “triple bottom line” – combining environmental and social considerations with economic ones – vital priorities for management? Or is this all just politically correct hot air?

For some years there has been a growing emphasis on corporate social responsibility in the boardroom. Frequently these policies are gestures, lip service to the idea of being a good business citizen. No doubt many organisations attempt to take such issues seriously at the top but for troops on the front line I wonder how many know or care about CSR.

Milton Friedman wrote in 1970 that “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game”. Attitudes about the purpose of business among many of the great and the good have changed since then – but who is right?

There have been several high-profile initiatives in recent times to reinvent the philosophy of business. “Inclusive capitalism” was launched by grandees such as Lynn Forester de Rothschild, chief executive of EL Rothschild, and McKinsey’s global managing director Dominic Barton. Its aims are admirable – the encouragement of longer-term investing, more training and apprenticeships, and greater support for small enterprises.

Similarly, The B Team was founded by Sir Richard Branson and others to persuade companies to treat people, planet and profit as equal priorities. It proclaims an almost unprecedented number of missions, declarations, beliefs and visions – oh, and a moral compass. One feels ethically inadequate just reading the website. In a perfect world, it is of course hard to disagree with its worthy goals. Just how practical and relevant the scheme is may be another matter – especially for hard-pressed entrepreneurs running modest enterprises.

These well-meaning campaigns arrived in the wake of the financial crisis, which was mainly created by banking and property crashes. But does that mean all business is profoundly tainted in the public’s eyes? I’m unconvinced that there is actually a crisis in sentiment towards industrial capitalism as a whole. A recent poll by YouGov in several European countries showed pronounced declines in support for the progressive agenda of higher state spending. Instead, citizens want smaller government, lower taxes and a more dynamic private sector.

Of course, we all disapprove of crony capitalism and an out-of-control banking sector. They poison the well for everyone. But beyond such generic principles, business life is more complex. Each of us has to grapple with our own moral dilemmas. When does opportunism become theft? At what point does hard-sell migrate into deception? And just how willing are consumers to support socially and environmentally conscious businesses over less expensive rivals?

For example, Marks and Spencer has undertaken a thorough effort in recent years to behave as a model corporate citizen, continuing a long tradition in that vein. But its clothing division has struggled against bargain-basement rivals. By contrast, sales at the low-cost retailer Primark have boomed even as it was criticised for using a Bangladeshi supplier whose factory collapsed, killing hundreds. It seems most shoppers care less about how products are sourced and rather more about prices.

Moreover, it can be hard to maintain too purist a stance. Both Ben & Jerry’s and The Body Shop had founders who were passionate about ecological causes. But in due course they sold out to huge companies – Unilever and L’Oréal, respectively. I doubt that either multinational is willing to place quite the same emphasis as the previous owners on environmental matters.

In truth, business can be both self-serving and ethical. Very many transactions are repeat purchases. If companies indulge in sharp practice, and gain a reputation for low quality or poor service, revenues eventually suffer. Few companies survive in the long run if they rip off the public, screw suppliers or treat employees badly. But balancing priorities between stakeholders, while staying successful, is no easy task.