The Problem with Corporate Social Responsibility

The real topic of this post is my cynicism. I have the genetics of Eastern Europe cynicism coursing through my veins. As a life-long resident of the midwest, usually within a few hours of the "Show-me" state, I have been conditioned by my environment to be cynical. With all that I have seen, done, and failed to do, I cannot help but harbor at least some cynicism.

Cynics are natural skeptics. Our weakness is that we tend not to limit our skeptisism, believing that there is always one more reason not to believe that we haven't thought of yet. And that is the greatest threat to Corporate Social Responsibility (CSR). How do we test a company's sincerity when it comes to CSR?

I think we need to have some litmus test to seperate the talkers from the believers, but that too is risky. If we set standards for CSR, it is no longer a dynamic, creative, initiative. It is just another cost, regulation, or marketing gimmick. On the other hand, we need to win over a number of skeptics and have an answer for the interminably-skeptical cynic.

This morning I saw a commercial for Chevron, the oil company. If it is 100% true, then this is a company we should get behind and give them every advantage to succeed. Their commercial shows images of people's faces up close and of vast open blue waters giving me the sense that they really care about nature, the environment, and people. The voice-over talked about commuting and other things that hit close to home, telling me that they can relate to and are interested in improving my daily, trivial existence. They also mention the diverse energy initiatives that they are eagerly pursuing, to include clean, abundant alternative energy.

If I did not have a cynic in me, I would buy every share of Chevron I could afford, tapping out my cash, savings, 401k, and home equity. I would then begin a calculated campaign to get hired on at Chevron, even if only as a Janitor. I would devote every penny and every minute to the mission of Chevron: to profitably supply the world's energy needs while planning for the future and attempting to limit our environmental impact.

You notice I am on blogger.com rather than polishing my resume and emailing Chevron's HR department? Yeah, I am cynical. I just don't see an Oil company's board room being filled with a young, diverse group of idealists trying to think up ways to improve the global community while remaining profitable. I don't know this for sure, but my imagination is stuck on the image of a bunch of old, privileged people who have rarely (or never) had to pump their own gas, drive their own car, or buy their own groceries. The people who run Chevron, I think, are completely incapable of imagining a life that is only a few paychecks away from destitution. I see the board room looking a lot like the White House cabinet, with a few tokens for the "Diversity Initiative".

Sidenote: That is not a dig on Condoleeza Rice. Here is a black woman from the deep south raised in the 1950's and 1960's, and she has risen to the top on her own merit more than by quota. She is an accomplished Russian linguist, competitive ice-skater, concert-pianist, scholar, organizational leader, and football intellectual. She is an overachieving (the good kind), extraordinarily talented, energetic American who has given us her best effort at making this a better country. I doubt that she is given as much of a voice as she should be, and that had she been more free to think and her opinion more highly regarded, we would perhaps have had a better outcome over the last eight years.

Anyhow, Chevron would have to commit stock-market suicide to try at this point to end our dependence on oil. That is a profitable horse that they need to ride until it is dead if they want to have an overachieving (the bad kind over the long-term) stock price. The 1st second that one of the division Presidents tried to push a product that makes a cut into the carbon-fuel based market, he would be fired, black-listed, tarred, feathered, and run out of town on a rail. If that didn't happen in the 1st second, the 2nd second would see a class-action lawsuit against the CEO and Board for not protecting the company's bread-and-butter.

I believe in the potential of CSR to make Capitalism even greater than it is today. However, two obstacles remain: the people who view CSR as a marketing opportunity to trick naive people out of more of their money, and the cynics who will not give any idea a chance to live and develop. Both of them could be overcome with a litmus test that, I am afraid, would require us to peer into the human heart and discern its true intentions.

If we took a closer look at Chevron and measured the amount that they donated to charity or spent on environmental protection and clean-up compared to the amount that their competitors spent, would we be viewing a measure of sincerity? Not necessarily; however, we would have a competition, and competition is what makes Capitalism great.

What factor has the greatest effect on performance, in any human scenario? Competition. We spend as much time and money as we do on sports because of the competition, not the pretty grass or snazzy uniforms. We bet on sports to make the compeition even more compatitive and interesting. Competition makes people run faster, think more broadly and deeply, and generally try harder.

In Capitalism, monopolies are bad. Why? Because monopolies do not feature competition. The lack of competition means that you do not have to focus on price, customer-service, innovation, etcetera. The customer is going to buy from you no matter what, so what is the point in trying harder?

In a monopoly, you can go decades without seeing much in the way of value, technological advancement, or customer-focused efforts. That was the case with AT&T and the baby-Bell spinoffs until the 1980's and 1990's. 1984 brought about the rise of Sprint, MCI, and other long-distance players. Suddenly, AT&T had to compete and, low-and-behold, it was suddenly affordable and technically feasible to call long-distance and understand the person's voice on the other end. (Anyone remember the pin drop?) With the 1996 telecommunications act, there were suddenly competitor's on the local phone market. Now, all the Bells and Whistles such as caller-id and call-waiting that were once expensive or not offered to homes were bundled up, offered for free by some companies, or deeply-discounted from their original prices.

If we say that all companies have to donate 10% of their profits to a recognized charity, and that they have to hold so many meetings with local community organizations and NGO's to address their concerns, then we have created bureaucracy and regulation. That always ends up badly.

We cannot test the sincerity of their heart, but we can create CSR competitiveness by publicizing data that ranks companies according to their responsibility. I know this is being done, but it is watered down right now, and hard to find. I welcome the day that we hear quarterly about a firm's CSR merits or failures alongside their earnings, employment data, market share, and product development. I welcome the day when, by going to a firm's site, you can expect to have their CSR initiatives in letters and images as large as their products and services. I especially welcome the day when, as an investor, you can easily measure price-to-earnings and operating profit alongside their success at third-world medicine or inner-city education initiatives.

I have already admitted to be mathematically challeneged, but I do not think that is a handicap in the following opinion: if I were considering investing in two companies in the same industry, where one of those companies had a slight financial advantage and the other had a slight CSR advantage, I would choose the company with the CSR advantage. Financial advantages are temporary; they can change over time. Look at the U.S. auto industry over the last 20 years. Financial advantage does not necessarily mean that the company is doing the right thing to be profitable in the future, it simply means that it has it ducks in a row today. One new discovery, disaster, or recession can change all of that in a quarter or two.

I think that if a company has done a diligent job implementing a comprehensive Responsibility strategy that can be communicated clearly and demonstrates itself to be successful, then that is a better indicator that the company has sound leadership, youthful energy, enthusiastic and free brainstorming-to-implementation processes, and a long-term outlook focused on doing things right, rather than doing things cheap, quick, and easy.

I would like to start collecting links to sites and publications that rate a firm's CSR activity. As I find them, I will post them here. Won't you do the same? Please send me any links or lists of publications you have that rank a firm's CSR performance.