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By Rosabeth Moss Kanter
Consider this puzzle: Anti-globalization protests have grown louder
during the same period that global companies have increased their
"corporate citizenship" activities. A growth in corporate
social responsibility has been accompanied by a chorus of voices
opposed to global capitalism. The terrorists' choice of theWorld
Trade Center as a target on September 11 fueled debate about the
role and responsibilities of rich nations and their multinational
companies.
Definitions of social responsibility cover a range of issues, many
of them internal and clearly in the corporate self-interest, although
often marginal in terms of either company success or societal impact.
For example, Motorola received a "top corporate citizen for
2001" award from Business Ethics magazine for long term R&D
and total quality investments; Hewlett-Packard was honored by the
same magazine for employee profit-sharing and 52 weeks of maternity
leave. While it is disheartening that some companies still have
to be reminded of the financial benefits of improving quality or
the productivity benefits of work/family programs, these are domains
in which competitiveness and social responsibility are in harmony.
Yet neither cluster of activities has helped the companies' earnings,
nor have they addressed the social problems of greatest concern
to corporate critics.
Recent events in the pharmaceutical industry provide clues about
why protest movements flourished along with programs of corporate
social responsibility - and the shortcomings in the corporate citizenship
movement. Charitable donations, recycling programs, or treatment
of employees were not the issues in the post-September 11 anthrax
scare, when Bayer, the U.S. subsidiary of a German company, was
confronted with a more challenging citizenship demand in a time
of national emergency. Several governments indicated willingness
to consider bypassing patents if Bayer did not lower Cipro prices.
Negotiations with HHS Secretary Tommy Thompson resulted in an agreement
announced October 26 to sell 100 million tablets of Cipro to the
U.S. government at 95 cents a pill compared to the former government
wholesale price of $1.77/pill and an average U.S. wholesale price
of $4.67/pill. Bayer's U.S. CEO, Helge Wehmeier, called this "making
a difference." Consumer activists called it "profiteering."
Rival generic drug makers said they could offer similar drugs much
cheaper (as low as 3 cents a pill for Ivax's doxyciline), and three
large pharmaceutical companies offered to supply large quantities
of their antibiotics free if the FDA would approve them for anthrax
treatment.
At the World Trade Organization talks in Qatar a few weeks later,
activists - perhaps emboldened by the Cipro controversy - sought
concessions from the industry for poor countries and found receptive
policymakers. On November 15, Europe and the United States agreed
to put the rights of poor countries seeking to obtain cheap medicine
above the rights of multinational companies seeking to protect their
patents - for cancer, diabetes, and asthma as well as AIDS. Closer
to home, pharmaceutical companies are under attack for high drug
prices, and laws now mandate prescription of lower-priced generics.
This push to extend the public obligations of private sector companies
occurs in an industry populated by some of the world's most admired
socially responsible companies. Drug donation programs have become
standard practice among the best of them. For example, GlaxoSmithKline
offers preferential pricing in developing countries for currently
available medicines needed most. GSK has donated 100 million doses
of polio vaccines to the poorest African countries and enables five
NGO partners to order free of charge medicines manufactured specially
for use in developing countries. Merck's Mectizan Donation Program,
in collaboration with the World Health Organization, the World Bank,
UNICEF, the Carter Center, and dozens of national ministries of
health, has reached an estimated 25 million people annually for
13 years with treatment for river blindness in Africa, Latin America,
and parts of MiddleEast. In some areas infection rates dropped from
over 50% to nearly zero in about a dozen years, and economic returns
included increased agricultural output. Merck tripled Mectizan production
in 1998 to treat another parasitic disease, lymphatic filariasis,
implying hundreds of millions of additional dollars in donations.
Beneficial results for recipients don't stop critics from seeing
raw self-interest instead of benevolence, corporate power instead
of corporate responsibility. It's only for the tax writeoff, they
say. Or, It's only for good publicity designed to undermine the
case for fair trade in drugs - bringing us back to Cipro and the
WTO.
What's a good corporate citizen to do? The first step is to take
a deeper look at the nature of the problem, to see what is missing
or mistaken in the corporate citizenship movement.
Companies have turned social responsibility into a marketing tool,
and the more they tout their contributions to society, the more
they fuel expectations that might be impossible to meet.
As more is accomplished, more is demanded. As companies increase
their claims to be good corporate citizens, their performance is
compared with the rhetoric. That accounts for why those with the
best intentions sometimes get the most criticism. Already on the
journey, activists feel they can push them one step further.
Companies are being pushed toward "corporate citizenship"
by social investment funds and rating schemes that stem from the
very success of global capitalism: the broadening of ownership of
stock of public companies, the proliferation of mutual funds and
investor services, the use of new media to spread the views of small
groups to sizeable audiences. Social investment funds are examples
of niche marketing tied to a broader social movement. According
to the Social Investment Forum, by 1999 over $2 trillion was invested
in the U.S. in such funds, about 13% of investments under professional
management. Criteria for investments vary; they include screens
for alcohol, tobacco, gambling, defense/weapons, animal testing,
environment, human rights, labor relations, employment equality,
community investment, and/or community relations. The Dow Jones
Sustainability Index rates world companies on what is becoming known
as the "triple bottom line": economic criteria (such as
innovation, branding), environmental performance (such as ecological
risk awareness), and social trends (such as human rights, lifelong
learning). The Financial Times' FTSE4Good Indices cover the environment,
human rights, social issues, and stakeholder relations.
The U.K. minister for corporate social responsibility (itself a
new role) hinted in 2001 that the government might require mandatory
reporting on social and environmental issues for larger companies.
In late October 2001, the Association of British Insurers, whose
members control one-quarter of the U.K. stock market, published
new guidelines asking companies to disclose any significant risks
to short and long-term value from social, environmental and ethical
factors. The Financial Times called this a significant shift for
investors that had traditionally seen social responsibility as an
extraneous distraction.
Business associations promoting corporate citizenship have grown
dramatically in the past decade. Business for Social Responsibility,
founded in 1992 in the U.S. as a group of small social purpose businesses
such as Ben & Jerry's ice cream, now has over 1400 members,
including global giants such as Citigroup, BP, Dow Chemical, ABB,
and General Motors. BSR has alliances all over the world, including
with Japan's Keidanren, the Japanese Federation of Economic Organizations,
which issues a Charter for Good Corporate Behavior. Although corporate
citizenship activity consumes a small proportion total company time,
it commands a high CEO mindshare. IBM, regularly rated among the
world's best corporate citizens, contributes over $250 million a
year, including employee matching contributions, primarily focused
on K-12 public education initiatives in the U.S. and eight other
countries; in a company with over $80 billion in sales, what other
activity worth less than half a percent of revenues would have CEO
Louis Gerstner's personal involvement?
Associations such as BSR spread the message that social responsibility
is good for shareholder value and cite the available evidence. Some
social investment funds have performed above other stock market
indices. Some academic studies have shown that higher social responsibility
is associated with more sustained financial performance. Companies
aligned with social causes are shown to gain payoffs that enhance
financial performance, from brand enhancement - why the resources
contributed to those causes are as likely to come from marketing
budgets as from philanthropic funds - to employee recruitment and
retention. The Millennium Survey of 25,000 citizens of 23 countries,
conducted by Environics International, in collaboration with the
Conference Board in the U.S. and the Prince of Wales Business Forum
in the U.K., found that 90% want companies to focus on more than
profitability. Other surveys cited by Business for Social Responsibility
show that two-thirds of American consumers feel more trust in a
product aligned with a social cause, and 90% of employees feel more
pride. Some companies consider it a part of corporate culture, creating
a common set of values through such programs as Novartis' global
community service days.
But the more corporate social responsibility is justified in terms
of shareholder value, the more skepticism could arise. Proving that
corporate self-interest is served only fuels suspicion of the motives
of large companies offering to do good. Even benevolent, well-intentioned
companies such as Merck had to overcome WHO's doubts about a partnership
with a corporation for the push to eradicate river blindness.
Advocates could be winning the debate about shareholder value while
making only trivial progress on the issues they champion. There
can be no doubt that much good is done by companies through their
efforts to reduce pollution, improve education, or make charitable
contributions. The numbers sound impressive when companies report
the numbers of lives saved or children educated through their aid
to communities and causes. But not against the magnitude of the
problems. Private sector contributions and efforts are a drop in
the bucket. For example, Intel's Teach to the Future Program aims
to train 400,000 teachers in 20 countries in technology by the end
of 2003, in collaboration with Microsoft - a big number and a worthwhile
goal. But what proportion of all teachers would be reached? The
8 countries picked to date (including large countries such as the
U.S. and China) have an estimated 10 million teachers; the total
for 20 countries is likely to be close to 20 million teachers, with
Intel's program reaching 2 percent of them. But whether this contribution
has impact on the quality of education in those countries depends
on so many more things that are not under Intel's control, including
the investments made in educational improvement by the governments
that run the schools. There is a disconnect between individual company
actions and the more complex operation of social systems as a whole.
Making progress on social issues can be highly political. Donating
money, food, computers, or drugs sounds easy, but as companies have
learned, even the simplest gestures can require complicated negotiations,
multilateral partnerships, and creation of new distribution systems.
To some critics, the very fact that companies are mucking around
in the social realm is a sign of what's wrong: too much corporate
power, too little effective public power. As governments have downsized
and privatized in major nations, corporations have picked up responsibilities
for societal and community welfare in what has been called a creeping
privatization of social policy.
Critics argue that companies are not accountable to a public process
and should not be in a position to use their clout and resources
to make de facto public policy. Of the 100 largest economies in
the world, 51 are corporations, if corporate revenues are compared
with country GDPs, according to calculations by Sarah Anderson and
John Cavanaugh of the Institute for Policy Studies. Anti-globalization
is often anti-Americanization and anti-Northern-hemispherization.
The 200 largest corporations in the world include 82 companies headquartered
in the U.S, 41 in Japan, 20 in Germany, and 17 in France; only South
Korea represents the world outside of North America, Europe, and
Japan. Resentment of corporate power and its extension into public
realms can have a pernicious impact: the more companies shoulder
social responsibilities, the worse the backlash against them. On
a September 2000 Business Week/Harris Poll, 72-82% of Americans
agreed that "business has gained too much power over too many
aspects of American life."
If companies' attempts to do good is not good enough, their stumbles
have disproportionate impact on their reputations and the reputation
of global business. In my book Evolve!, I speculated about a new
law of physics for the Internet Age: bad news travels faster and
generalizes further than good news. While a good gesture is relative
to all other things a company does, a bad one is absolute, sweeping
everything off the slate. A company can't substitute positive gestures
for negative impacts to arrive at an average. Environmentalists
have long memories about Exxon's Valdez disaster. Despite generous
corporate contributions, Philip Morris is still a tobacco company.
Monsanto of the 1990s was considered a great place to work, had
a respectable corporate contributions program aimed at good causes
such as domestic violence (U.S.) and hunger (Africa), and played
a leadership role in the American welfare-to-work initiative; but
all that was overwhelmed by the movement against Monsanto for producing
genetically modified seeds.
Token corporate social responsibility programs will not be enough
to stem the anti-globalization tide, as former ABB chairman Percy
Barnevik observed. More is required. Without neglecting good behavior
within the boundaries of the firm itself, multinational companies
must demonstrate cumulative, sustained, and positive impact on the
well-being of poorer countries, especially those that provide fertile
ground for anti-Western terrorists. The case must be made - if it
can be made - that big companies offer unique skills, that their
presence will spread benefits to small and local organizations,
that work will be done through representative processes, that governments
capabilities will be strengthened, and that positive systemic impact
can be demonstrated.
Three principles should guide action.
1) Innovation in products and services. It is important to shift
the emphasis in social contributions to the core of the company
- its products and services - and away from feel-good marketing.
Merck's Mectizan program and IBM's Reinventing Education initiative
are examples of using the scientific and technological capabilities
of giant corporations to develop new products that solve problems.
Mectizan is considered a "miracle drug" for poor countries
because it can be taken once a year without requiring medical monitoring,
record-keeping or special storage. Reinventing Education has produced
new voice recognition software to teach reading to children, Web-based
collaborative tools to help teachers create better lesson plans.
Incentives for more of this kind of innovation could be provided
by governments or foundations in a competitive process guided by
public priorities.
2) Coalition-building for accountability and systemic impact. Only
a few companies can create international initiatives from the ground
up, and even those efforts will not succeed without the involvement
of other organizations that direct a product or service to those
who need it or ensure effective systemic change. Many more companies
can and should be involved in coalitions that can increase their
aggregate impact, because resources are focused on a common goal.
Joint action also helps address the problem of public goods, since
many contribute to benefits that many will share. To ensure that
coalitions are representative, reflect public priorities, and are
publicly accountable, they should include government ministries
and NGOs. Large companies can help convene other leaders to ensure
that goals are set and actions taken, with the coalition taking
responsibility for implementation. A Latin American Basic Education
Summit in March 2001 was convened by IBM and a dozen multinational
companies doing business in the region but ultimately controlled
by government officials from each country and domestic companies,
all agreeing to work together to raise educational standards. Such
coalitions can fill institutional gaps, through the formation of
a not-for-profit organization to ensure accountability and impact.
They can serve as resources for capacity-building to strengthen
government and improves its performance.
3) "Localization" of activities. The term "globalization"
has come to connote imposition of standards from outside a country
or community, a kind of homogenization that ignores the particularities
of local needs or institutional capacities. In contrast, many U.S.
new media companies call international market expansion "localization,"
because already-global technologies are applied them to specific
contexts with unique languages, social norms, and infrastructures.
"Localization" as a term for international activities
suggests bottoms-up planning and participation in the community
as insiders rather than outsides. Large, faceless companies become
smaller, more familiar entities when they encourage high degrees
of local involvement in setting priorities, planning and decision-making.
BP, for example, deals with anti-globalization forces by involving
local communities in integrated planning for new sites around the
world, according to deputy group chief executive Rodney Chase. Some
companies argue that their best social contribution is to create
jobs in poor countries, to train local suppliers, and to educate
young people in skills for the future - economic development activities
that also stick close to corporate self-interest. Cisco Systems
started its Networking Academies in 1997 to offer courses in Internet
technology skills through local high schools and colleges; currently
232,013 students are enrolled in 8431 academies in 133 countries,
including some near the war zone in central Asia (e.g., Pakistan,
Turkmenistan, and Uzbekistan). Ciscos' partnership with the International
Youth Foundation for school-to-work programs further builds local
capacity.
Whether "corporate citizenship" can be improved sufficiently
to tame the anti-globalization forces remains to be seen. That won't
happen without an emphasis on more strategic action. There is a
gap between the socially responsible behavior of individual companies
and their cumulative societal impact. It is time to focus on actions
to close that gap.
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