Measuring sustainability value in Brazil, why members of BSR are best, and academics have a pop at corporate responsibility

BSR’s head above the parapet

The base hypothesis is straightforward enough: members of Business for Social Responsibility, the California-based corporate responsibility membership group, are more likely to produce positive social outcomes than non-members. Social network and neo-institutional theories back up the idea. As, indeed, does Peter Tashman’s statistical analysis of multiple performance indicators in this paper.

BSR comes out well for two other reasons, too. First, its programmes are not issue-specific but multi-focused. Second, it avoids “free riding” by not having a certification scheme.

But the findings have a significant sting in the tail. BSR members might be better at being better, but they are just the same at being worse. The authors found no substantive difference between the negative social impacts of members and non-members. There is a simple explanation for this: companies join BSR primarily to learn from their peers and develop new corporate responsibility programmes. New initiatives are all well and good, but not if they overlook engrained practices that result in a negative footprint.

Arguably this is the result of BSR’s individual, rather than corporate, membership. Companies sign up, but it is corporate responsibility professionals that actually participate in the BSR network. Challenging existing cultural attitudes or management practices is a different ball game from developing zappy new corporate responsibility programmes. The former requires a group-wide, cross-discipline response. All too often, such systemic change lies outside corporate responsibility professional’s remit or influence. A follow-up paper addressing the organisational implications of the research would be most welcome.

“Are Members of Business for Social Responsibility More Responsible?”, Peter Tashman, George Washington University, in Policy Studies Journal, forthcoming.

CSR in Brazil: a case to be made

Does corporate responsibility add empirical value to Brazilian companies? Sadly for South America’s largest economy, value creation measures and financial performance do not augur well. The authors of this paper rely on stakeholder theory for an explanation. Civil society and consumers are not the force they are in more developed markets. But neither are they entirely silent. Nor are investors absent from the fray. Brazil has experienced a strong move in recent years to strengthen capital markets and, by extension, corporate governance standards.

One explanation lies in the remit of the paper rather than the reality on the ground. The question is considered through a narrow-defined, financial lens. Corporate social responsibility is considered in terms of diverting cash flow to responsibility-related expenses that would otherwise be allocated to “profitable activities”. A broader definition – such as the performance of the new Corporate Sustainability Index operated by the São Paulo stock exchange – would perhaps result in a more generous appraisal.

The findings leave corporate responsibility advocates with a case to make. Capital markets in Brazil must become more active in factoring in corporate responsibility concerns. That will require a jump-start from key stakeholders, including investors themselves. But there’s a broader debate to be had as well. Suspicions continue to dog corporate responsibility in developing economies.

Why? Because, as this paper demonstrates, it is interpreted as a non-strategic cost. Where that’s not the case, companies should explain the business case louder and clearer. Where it is the case, then academics and shareholders are fully justified to question its economic validity.

“Corporate Social Responsibility, Firm Value and Financial Performance in Brazil”, Vicente Lima et al, Universidade Federal do Ceará, Working Paper, April 2010.

Charge of the no brigade

Academics are attracted to refuting accepted thinking. As corporate responsibility becomes increasingly accepted in management circles, it comes as little surprise that professional theoreticians are out to trash it. Most attacks emerge from the same stable: laissez-faire economic doctrines resurrected from Adam Smith and flogged by neoliberalists of the Chicago School and their successors.

Thomas Friedman, a good Chicago boy, offered the seminal anti-corporate responsibility argument 40 years ago. Its central facets are well known by now. First, if markets operate well and unhindered, then companies should be under no compulsion to heed to social needs. Second, in maximising profits, they are fulfilling their social function. Third, any deviation from this and into the “social realm”, is misguided and ultimately counter-productive.

Despite the long trajectory of corporate responsibility refuseniks, new Friedmans keep cropping up. This paper provides one such example. Where it differs is in its acceptance that the market often fails. The question then turns to what should be done in such an event. Private profits must be balanced with public interest. To do so, the free market must be constrained. That much is clear.

But who is to do the constraining? Not the company, Karnani states. To do so would break the mantra of shareholder-maximisation. Instead, the constraining forces must be regulatory or quasi-regulatory (industry self-regulation or civil society activism) measures. A detailed explanation of each of these saves this paper from simply being a rehash of old ideas.

“Doing Well by Doing Good: The Grand Illusion”, Aneel Karnani, Ross School of Business, Business Paper 1141, March 2010.

Campus news

The Rotterdam School of Management at Erasmus University has introduced a chair for sustainability and climate change. European consultancy firm Ecorys is sponsoring the position, which is filled by Professor Gail Whiteman.

Accountancy firm PricewaterhouseCoopers has awarded a grant of $500,000 to four US universities to promote career exploration programmes for student groups. The recipients are Bryant University, University of Southern California, Wake Forest University and Florida International University.

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