Sustainability Watch – Corporate responsibility: what's in a name?
In this month's Sustainability Watch, Ben Cooper wrestles with the nomenclature of corporate social responsibility, with a little help from Nestlé chairman Peter Brabeck-Letmathe.
Scarcely before 'corporate responsibility' had established itself as a generally recognised term it had begun to morph into the idea of 'corporate sustainability'. Community investment and corporate responsibility are often confused with one another. Good old-fashioned philanthropy has gone right out of style, as a descriptor at least.
The lexicon of business ethics is indeed complicated. But how significant is the terminology? The sceptic would say it matters little. These are just ways companies seek to present ethical credentials, to project a social responsible image, to show that while their prime purpose is to make money, they can do so without unacceptable social or environmental consequences.
But from the corporate side, the terminology is more than semantics. The changing vocabulary is symptomatic of the search for the best way to integrate the 'social responsibility function' into the overall business model, and that process is far from over.
As it happens, the world's largest food company is an opinion leader in this area. Today, a company of the size and reach of Nestlé is obliged to have a developed social responsibility platform, and this month saw the publication of the Nestlé Creating Shared Value and Rural Development Report 2010.
The report, one hopes, will answer two questions. Firstly, what has this mind-bogglingly powerful global conglomerate got to show for itself in the ESG (environmental, social, governance) field for the last year? And, secondly, what on earth is 'Creating Shared Value'?
Once again, the sceptic would say this is Harvard Business School doubletalk, an attempt to appropriate the responsibility function, to make it fit. On one level, if the overall objective is to find a way to incorporate the notion of social responsibility into the business model, then this may actually be quite a useful way to view it.
Last week, Nestlé chairman Peter Brabeck-Letmathe gave a public interview at the New York-based think tank, the Council on Foreign Relations (CFR), where he attempted to explain the thinking behind Creating Shared Value. As well as articulating strong views on corporate philanthropy, Brabeck confessed to his annoyance that in today's environment companies were almost compelled to speak about "giving something back".
"I don't feel that we have to give back to society, because we have not been stealing from society," Brabeck told the CFR audience. This may smack of a corporation keen to clutch on to every cent it has earned but it also speaks to one of the inconsistencies about corporate responsibility that sceptics often pick up on, namely that a public company's first priority should be the return to shareholders, which arguably does not allow for the intrusion of the moral agenda of employees, even the CEO.
Brabeck went on to explain that philanthropy is fine for Bill Gates and Warren Buffett. It is their money. But Brabeck and Paul Bulcke would be redistributing someone else's money, namely that of Nestlé shareholders, and that is quite a different matter. Anybody who practises philanthropy, he says, "should do it with his own money".
Corporate responsibility may be often associated with community investment, particularly in projects linked to a company's business footprint or supply chain, but Brabeck explained he was greatly troubled by it being viewed as synonymous with philanthropy. So began the search for a model which was not philanthropic and could be seen to be primarily in the shareholder's interest.
To do business, Brabeck continues, a company needs two things. The first is the investment from the shareholders, the agreement being that in return the company makes those shareholders more money. The second is a "licence" from society to do business. Just as the first prerequisite requires the company to give a return to shareholders, the second requires a return to society.
"It is not enough for a company just to create value for the shareholder, because you are covering one aspect of the licences you receive," Brabeck says. "You also have to create value for the society at large which allows you to act."
Creating Shared Value is therefore not about "giving back" to society, nor is it an "add-on", but "integrates the corporate social responsibility of the company into the strategic thinking and decision-making of the organisation".
Nestlé illustrates the Creating Shared Value concept by means of a pyramid. At the base is compliance with national laws and its own basic principles, the second tier is sustainability - protecting the future, and at the top of the pyramid is the idea of Creating Shared Value.
Creating Shared Value "goes beyond compliance and sustainability", the company states, identifying areas where a) shareholders' and society's interests strongly intersect, and b) where value creation can be optimised for both. The company then invests resources, both in terms of talent and capital, in those areas "where the potential for joint value creation is the greatest, and seeks collaborative action with relevant stakeholders in society".
Nestlé has judged that the areas of greatest potential for such joint value optimisation are Nutrition, Water and Rural Development, which are "core to our business strategy and vital to the welfare of the people in the countries where we operate".
Brabeck has been strongly influenced by the ideas of Michael Porter and Mark Kramer on strategic corporate responsibility. In fact, Porter and Kramer produced a report for Nestlé on its Latin American value chain which was the starting-point for Creating Shared Value.
What he liked in this thinking was the idea that "value creation for the shareholder is not in conflict with the value creation for society". He believes investment in developing countries illustrates the paradigm perfectly.
In a recently published book entitled Peter Brabeck-Letmathe and Nestlé - a Portrait: Creating Shared Value, he states: "Our relationship with over 600,000 farmers in rural areas is very important. Rural areas are where you find the most extreme poverty in the world. Therefore, we thought that this is an area where we can do something. And we can do it by making business decisions, not by add-ons or artificial actions."
In the book, he continues: "Many people talk of the necessity of winning back trust and credibility and hope to do this through more rules on corporate governance and through so-called corporate social responsibility. But rules that remain on paper do not generate trust."
The central idea that true credibility only comes through concrete actions informs the Creating Shared Value concept. But here Nestlé also strikes a tone that even cynical observers may relate to.
When expressed in more sentimental terms, corporate responsibility arguably doesn't quite ring true. Corporate responsibility, as Gandhi once remarked about western civilisation, "would be a good idea". To some, Brabeck's assertions may seem arrogant, but to others they will be refreshingly honest and candid, and therefore possibly more credible not only to external stakeholders but also to employees.
Brabeck is nothing if not a realist and his realism is borne out of the fact that a company has to act in the best interests of its shareholders. That is what is expected of it. But that is precisely what NGOs and campaigners expect of companies too, even if they don't particularly warm to the idea. A model which integrates corporate responsibility and capitalist self-interest could ironically end up having greater credibility across the board.
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