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Business Leaders’ Focus on CSR is Misguided

CSR efforts in the business world are impressive and laudable, but the focus on CSR may have allowed companies to hide dubious ethics.

It was the darling of the socially responsible investment community: The FTSE4Good Index Series – designed to measure the performance of companies demonstrating strong Environmental, Social and Governance practices – had it listed for several years in a row, while in 2013 it became global sector leader in the Dow Jones Sustainability Index. In the same year, it was awarded the German Investors Award for Responsible Business and was listed in the Global Compact 100 index.

But in 2015, as the Dieselgate scandal unraveled, Volkswagen was removed from both the DJSI and FTSE4Good indices. It became clear to many that while it was saying and doing the right things on the CSR front for many years, the company engendered a culture that tolerated (if not encouraged) cheating to achieve commercial goals. As Robert Armstrong would later write in Financial Times, “…we have to assume something went wrong with VW’s culture such that immoral behavior became acceptable.”

A similar thing happened at Wells Fargo. A long-admired leader of the financial services sector who had handled the financial crisis better than others, it counted “ethics” as one of its five values, and had flaunted its “culture of caring” and bold “2020 CSR strategy and commitment” which won it many awards and much recognition as a role model in the financial sector. The account fraud scandal in 2016 crushed that reputation, and a subsequent investigation blamed a sales-oriented culture that resulted “in one of the worst banking controversies in years.”

These cases, and others like them, beg the question: have the notions of “responsibility” and “ethics” become completely disconnected in recent years? Corporate social responsibility is perceived by most as a term that reflects a company’s moral and ethical responsibility beyond its legal duties. While it has grown in popularity with the rise of environmentalism, it was always seen as tightly connected to the discipline of business ethics – indeed the most universally accepted definition of socially responsible behavior in ISO 26000 lists “ethical behavior” as one of its Seven Key Principles. Has this aspect of CSR been somewhat neglected?

Have the notions of “responsibility” and “ethics” become completely disconnected in recent years?

It’s easy to understand why businesses have increasingly focused their embrace and implementation of CSR on the social and environmental aspects of it – this was a natural extension of traditional corporate philanthropy, and it allowed for clear evidence and measurable outcomes. In fact, triple bottom line reporting and the GRI framework that followed may have contributed to this “narrow” view of CSR by highlighting environmental practices, labor conditions and community involvement.

This is not to say that business ethics has been completely forgotten – most companies still focus on things like good governance, anti-corruption practices, transparency, code of ethics and so on. But unfortunately, these elements are often left to the legal and compliance departments to deal with, and are not typically seen as part of the company’s value creation. Moreover, they’re missing the most important ingredient – the proactive development of an ethical culture among both leadership and staff.

The solution of course is not to do away with the term CSR (though some attempts to evolve it are already underway). Instead, companies should broaden their perspective:

  • Shift focus from “responsibility” to “integrity”:it may be seen as semantics by some, but while responsibility is intuitively connected to duties and expectations from others – integrity suggests an internal moral code. As such, it applies to both intentions and actions, and creates a more direct link between the company and the individuals that comprise it; after all, the behavior of the company is the sum of the behaviors of its individuals.

When leaders and managers practice and demonstrate ethical behavior, and when they reward such behavior among others (and punish its absence) – an ethical culture will emerge.

  • Call it CSR, CR, sustainability or corporate citizenship – there is no doubt that the world has benefited from business schemes to “do good” for decades. But as long as this trend fails to build real business integrity and ethical cultures at the same time, trust in business will remain diminished and scandals like those that happened to Volkswagen and Well Fargo will keep occurring.

It may be that the focus on the environment and society has distracted leaders from the importance of everyday ethics. Some go further to claim that sometimes companies use CSR to direct public attention away from other, harmful business practices – making CSR at best an exercise in window-dressing and, at worst, a moral fig leaf for companies whose culture is essentially immoral. Be it as it may, leaders should broaden their approach by adopting the principles above. If they do this right, being a CSR champion in the future just might cease to be such a short-lived title.

This article has been originally published on Columbia Businss School Alumni resource

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