Following the launch of The Social Reporting Report, Franceska van Dijk received a response from SustainAbility faculty member Peter Sandman. With Peter’s permission, the fax is printed below, and is followed by a response from John Elkington. [Chris Marsden’s response from the following issue is appended.]
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SustainAbility Faculty member Peter Sandman’s fax
I read The Social Reporting Report with great interest. As always, you and John are on the cutting edge.
It seems to me, however, that there is one major philosophical issue that the report sidesteps: the relationship between responsibility and responsiveness. This has come up before in my reactions to SustainAbility documents; it arises whenever (as in The Social Reporting Report) you make transparency and stakeholder-relations a central focus.
The responsibility/responsiveness relationship is of paramount importance to me, since I advise clients chiefly on ways of being more responsive to stakeholders. Not long ago Bob Burton, editor of Mining Monitor, asked me about my relationship to John and to SustainAbility. I wrote back, in part:
I think SustainAbility’s work and mine are certainly compatible, even connected. But the focus is obviously fairly different. To oversimplify grossly, SustainAbility is trying to get its clients to act more responsibly; I am trying to get my clients to act more responsively. I think Elkington likes my sense of what responsiveness entails, and I know I like his sense of what responsibility entails. But he’s working on something incredibly important – how companies can merge economic, environmental, and social visions of the future. I am working on something much more derivative – how companies can lose gracefully (and profitably) to the demands of stakeholders.
What I didn’t say to Burton is that, at least in theory, responsiveness and responsibility are entirely independent. Responsiveness to “good” stakeholders yields a more responsible company; responsiveness to “bad” stakeholders yields a less responsible company. Transparency encourages responsiveness; whether it also encourages responsibility depends on the values of those to whom the company is transparent, the directions in which they push the company (more effectively than they could have pushed a less transparent company).
I have long taken the position that responsiveness is a “good” in itself, that companies should determine their public policy positions (and resulting behaviours) chiefly by the public policy preferences of their stakeholders. I justify this to my clients on grounds of profitability, arguing that companies that take responsive stands make more money than companies whose stands are determined internally and unresponsively. This is fairly easy to demonstrate – much easier than demonstrating the triple-bottom-line claim that environmental and social responsibility are conducive to profitability. Responsiveness leads to profitability, for sure.
But does responsiveness lead to responsibility? If we assume that the policy positions of thoroughly insulated companies are always less responsible than the positions of their stakeholders, then increased responsiveness will always lead to increased responsibility. But what about a company with fairly progressive instincts, dealing with less progressive stakeholders – for example, a modestly feminist multinational corporation in a fundamentalist Muslim country. Here insulation yields more progressive policies vis-à-vis women than responsiveness does. Obviously, responsiveness to worldwide stakeholders (who will resent deference to local stakeholders on this issue) might avoid the conflict – but not in theory, and not always in practice.
The question, then, is what should a company do when its internal views are more responsible than those of its stakeholders (particular stakeholders, anyway, with respect to particular issues). At this point, I still urge my clients to defer to their stakeholders, putting responsiveness ahead of responsibility. I don’t think SustainAbility agrees – but I don’t think it wants to make its view (or the problem itself) clear.
In August of 1997, I sent John a troubled exploration/defence of my position in this quagmire:
On the subject of social impact reports, I think one thing I would look for – and not expect to find, so far – is a coherent account of the company’s social impact philosophy.
The only corporate philosophy I have seen that holds together easily is the dinosaur philosophy: “We do whatever maximises profits.” This can, I think, be turned into something tolerable and perhaps even progressive: “We do whatever maximises long-term sustainable profits, which means we work hard to identify and anticipate social impacts that our stakeholders wish to see accomplished or avoided, and we act accordingly.” This is much easier to defend than the alternative: “We do what we think is right.” The problem with the latter (for large multinationals, at least), is twofold: (1) There is no “we” with unitary values; and (2) It is malfeasant or very nearly so for a company to compromise long-term sustainable profitability in the interests of its managers’ unrelated values.
One of my early experiences as an activist was trying to persuade landlords to accept gay tenants in the community where I was a graduate student. We argued that “gay money” was as good and “gay maintenance” of the apartment was better, and that landlords ought not to superimpose their personal values (however deeply rooted in Biblical conviction) on their business actions. My multinational clients have employees and executives with a wide range of values: some who practice infibulation and some who think it evil, some who drink and some who prohibit alcohol, etc. A company that makes a special effort to hire female truck drivers in the U.S. and refuses to hire female truck drivers in Iraq is responding to stakeholder values; a company that claims to have its own values on the matter should presumably feel obliged to standardise its hiring practices.
This approach can also accommodate things like the South African boycott in the 1970s: When a strongly felt universalist social consensus emerges on a particular topic around the world, wise companies join the consensus even in the few holdout locations. The approach can also accommodate values-based policies that neither augment nor threaten profits: A company that prefers to spend its philanthropy budget on education instead of health care is free to do so (but probably not a company that prefers to spend it on right-to-life or right-to-choose).
Once in a while, a corporate CEO or Board or Management Committee may encounter a situation where there is no strong external consensus to justify acting in a particular way, where the calculation of stakeholder preferences required by the profit-maximising credo leads to behaviours that management finds unacceptable. That is, once in a while stakeholder values and deferring to them in allegiance to long-term sustainable profitability may suggest behaviours that management abhors. I think this is rare, and I think it’s a moment of moral crisis: Do what our stakeholders think best or do what we think best.
The more frequent question is how shall a company cope in a world where values vary widely. Should it weigh in on behalf of its own values? Or should it calculate the weights of the competing values of its stakeholders? The latter is amoral; whether it leads to good or evil outcomes depends on stakeholder values, not on the company. (Activists must then work on the stakeholders, not on the company, if they wish to see company behaviour change.) The former is profoundly moral or profoundly immoral, depending on whether the assessor shares the company’s values.
To my surprise, I am coming to prefer the latter. I think I don’t especially want Shell, say, to have a foreign policy with respect to Africa. I do want it to listen to its stakeholders, all its stakeholders, on what it ought to be doing in Africa.
It is fairly obvious that, on social issues, most companies have been insufficiently attentive both to their own values and to their stakeholders (other than purely profit-driven stakeholders). Listening harder to either will mean taking account of currently ignored variables – from human rights violations of governmental partners to social disruption in previously traditional cultures. There are two questions:
- Do we want corporate managers to exercise their own values on these issues, or to attend to the values of their stakeholders?
- If the latter; is it useful or damaging (or neither) for them to pretend to be doing the former?
I doubt this is the most important issue of the day. When the dust settles, what they do matters more than why they do it, or why they say they do it. But it is an issue that seems to lure many of my clients into hypocrisy and confusion. In any case, it’s what came to mind when I read your letter.
You may find this excessively theoretical or even wrongheaded (John, perhaps diplomatically, never answered my August ’97 letter). I continue to find my own position troubling. If I were a corporate leader, I think I would put my values ahead of the values of my stakeholders, listening to stakeholders and dialoguing with them but ultimately declining to defer to them when I thought they were wrong. I would take the loss in profitability rather than act on values of which I disapproved. It is usually easy for me to push my clients to focus on responsiveness, largely because my own values are closer to those of the stakeholders I am urging my clients to listen to than to those of the clients themselves (and also because dialogue itself isn’t problematic, only ultimate deference to the stakeholder with which one still disagrees). But if I am to justify asking clients to defer to stakeholders they think are wrong, I must obviously believe they should also defer to stakeholders I think are wrong. I guess I do believe that, but with continuing difficulty and confusion.
If any of this provokes a response on your end, I would be delighted to hear it.
All the best.
Peter M. Sandman
Chairman John Elkington’s response
I find your distinction interesting – but uncomfortable. And for a number of reasons. As it happens, at least two members of the SustainAbility Faculty apart from yourself have raised the same issue, albeit from different perspectives. One is Peter Kinder of social analysts KLD, the other Steve Viederman of the Jessie Smith Noyes Foundation – both of whom have raised the issue of what corporations are “for”.
Given the way that US and many other corporations are chartered, you are right that the obvious way to change them is via the stakeholders to which (politically rather than legally) they will have to respond. Or, as Steve Viederman might suggest (if I understand his argument), by rechartering corporations.
But, even though I recognise the strength of the argument that companies are not legally in business to help us all address the social and sustainability agendas, I feel that business people should be interested in the whole question of how you create wealth and markets in sustainable ways. Fine if some don’t want to play the game: but we may have to flush them at a later stage.
The easy thing for me to do would be to accept your point about responsibility and responsiveness being totally independent – and say that we help “responsive” companies be “responsible” by helping them identify and engage with “good” stakeholders.
Clearly, this isn’t the same as your position of urging companies to “defer” to their local stakeholders. No doubt I.G. Farben decided that it was sensible to defer to the Nazis on the Jewish problem at the time, proving with a vengeance that the industrial combine was responsible to the dominant stakeholder interests in that society at that moment. If they had failed to manufacture Zyklon B for the gas chambers, there might even have been a storm of “outrage” from certain black-suited gentlefolk.
So is it right that e.g. BASF, Bayer, and Hoechst are pursued now, as fragments of the old combine, for this “responsiveness”? Yes, I believe it is. It should have been clear at the time that what was happening was wrong – just as it is clear now that it is wrong for current generations to undermine the future prospects of generations to come.
Clearly, we do take a position on what “good” (as in your phrase “good stakeholders”) means. For SustainAbility, “good” means actually or potentially contributing to progress against yardsticks like ecoefficiency, dematerialisation, environmental justice, proper observation of human rights, and so on.
The obvious problem that the triple bottom line approach brings is that you can’t any longer say it’s fine for a country to torture its citizens – or suppress the civil rights of a large sub-section of the community – as long as it protects its rainforests. Nor can you allow a company to ignore the economic and political impact it has on a country, economy or value chain if that impact is working against the interests of sustainable development.
Which begins to make all of this just a tad political. But, at the extremes, the evidence on abusive regimes having great respect for ecological values isn’t that strong. (Think of the plight of the Marsh Arabs in southern Iraq.)
In passing, we are not saying that the triple bottom line approach is intrinsically and automatically “conducive to profitability,” as you suggest. Indeed, the reverse may often be true. With markets structured as they currently are, it very often is the case that there are penalties to be paid for doing the right thing.
The real issue for us is to see where we can find (perhaps rare) win-win-win outcomes that encourage companies to engage and, hopefully, lobby for changes in market regimes and pricing systems.
We also want companies to be aware of the need to test their priorities, initiatives and investments against something more than the traditional bottom line. This does not mean that they have to adopt exactly the same values and approaches wherever they operate, but they should have a damned good case ready where the issue is considered crucial in some world regions and they don’t have a standardised approach.
Another test should be whether the values of individuals working with a company align with the corporate values. If engineers working on a supergun for Saddam Hussein know what it’s for, are happy to do the work and take the consequences, that’s fine. But in the “CNN World,” the consequences these days can hit them very hard – and out of the blue (quite apart from the risk of their being gunned down by Mossad). For you that is a responsiveness issue, for me it relates to respect for values.
Inevitably, I have taken your argument to extremes, to test whether it works for me. If, on the other hand, the outcome of our model was that business leaders felt able to ignore stakeholder values routinely because their own values suggested a different approach, I would be extremely worried. I see no evidence of that. Do you?
You ask whether we think it is acceptable if managers exercise their own values in this area? As you would expect me to say, I think the answer is yes – as long as the values are broadly congruent with the goals of sustainable development. If they actively undermine the interests of SD, for example if they have inter-generational equity implications, then I think we need a Court of the Generations with malevolent offenders brought to trial.
The link between all of this and company survival and profitability is that those businesses that understand that values do change, and that they may well shift in favour of SD, will be ahead of the curve – and should benefit as a result. (Although the scale of the dislocations I would expect along the way would mean that there would be huge collateral damage which had little or nothing to do with whether managements had the right values.)
In the end, we are trying all the buttons in the control room to see what does what – and what works. We are trying to sensitise managements to issues that may well become more urgent. We are trying to engage stakeholders in the process, partly so that they, too, can go up the learning curve.
To some degree, all of this is little more than a confidence trick. Some of us believe that the world would be better if people behaved differently. We believe that there is a chance that they might. We don’t see major stakeholder groups pushing as hard for some of the changes as we feel they “ought”. So we are adding our shoulders to the wheel. In doing so, we are transparent, owning up to the fact that we are not neutral.
I believe that most people will often make more or less the right decision when the eleventh hour arrives. In this case, however, the ecological and social fall-out might well be acceptable. This is not a case of the ends justifying the means, so much as a position which says that a responsive approach may well take too long, and that a responsible approach – based on the “right” values, which we may well have to help infect the global population with – is worth trying.
Where do we go from here?
John Elkington, Chairman
Faculty member Chris Marsden’s response
I was intrigued by the exchange between Peter Sandman and John Elkington because it is very close to what I have been thinking and writing about since the Warwick corporate citizenship research conference last July.
There seems to me to be two key points:
- The first is the debate between ethical values and self-interest. It is a familiar one to anyone trying to teach in this area coming from a pragmatic business background. You are immediately faced with the strong body of opinion (prejudice?) amongst academics that good behaviour in business is a matter of business ethics, which is largely about helping individual managers facing awkward dilemmas to try to do the right thing for the right reasons. The main thing a company can do to assist this process is to be supportive of ethical behaviour in its statements of objectives and business principles and the way they are implemented. Good behaviour by a company for self interested reasons, however enlightened, is not part of the business ethics curriculum. I was recently asked to design and teach a short course in corporate citizenship in order to provide balance to such a narrowly defined business ethics course, which had been taught earlier. What really matters, it seems to me, is the good behaviour; a company’s overall societal performance. That is clearly a function of both responsibility, which is based on what you think your company is for, and responsiveness, which is based on your perceptions of the business risks and opportunities associated with engagement with societal issues on which your business impacts and are within your competence to influence.
- The second point, arising from the responsiveness rationale, concerns the idea of good and bad stakeholders, or at least those whose opinions you either agree or disagree with. If you hold with the separation thesis and retain a world view that it is possible to manage very different value systems within one company operating in different parts of the world, then it is conceivable that Peter Sandman’s business advice to companies is sound. However, I think that his point about South Africa during the apartheid era – “when a strongly held consensus emerges on a particular topic around the world, wise companies join the consensus” – is rapidly becoming the norm regarding sustainability issues of ecology, social exclusion and human rights. I also think that it is both pragmatic and consistent with managing conflicting ethical issues to establish a hierarchy of values in terms of their criticality to sustainability and an individual company’s purpose. This will enable a company and its people to understand which principles are beyond compromise and which can allow for local variation, for the time being at least. I would want Shell to have a foreign policy with regard to, for instance, Nigeria. The company should be very clear about its sustainability standards of operation and its expectation of societal benefits arising from its impact both direct and indirect, including distribution of oil revenues. It should be prepared to take issue with the Nigerian government if any of these are seriously compromised. This should be done as far as possible in partnership with international government and non-government organisations in a way that helps to build and strengthen necessary global governance infrastructure.
Following the Warwick conference, which discussed the testimony of twelve companies, which had probably done more thinking about these things than most, and building on my own experience of working with BP in this area, I have been working on a model which correlates aspects of corporate social responsibility and responsiveness. This seems to provide a useful way of identifying and understanding a company’s current approach to its role in society and what might be done to influence it to improve on its performance.
It has already been suggested that a company’s inherent inclination towards social responsibility depends on its reason for being or its objectives. There are two main objective classifications, with a third now rapidly emerging if SustainAbility has anything to do with it, for public shareholder owned companies.
- The corporatist managerial satisficing objective which aims to keep shareholders satisfied while enabling managers to enhance their own salaries and security primarily by growth strategies. Very common among large companies until the late 1980s and still often retained in part, this encourages a top management sense of civic responsibility, with a “giving something back” philosophy which is largely separate from mainstream business.
- The shareholder value objective, a product of the enterprise liberating Thatcher/Reagan era and post-1989 market globalisation, insists that all activities must be justified in terms of impact on share price and dividends. This suggests a minimum compliance approach to social responsibility, with all additional societal issue involvement justified on shareholder value adding or protecting grounds.
- The triple bottom line objective, still more of an idea than a reality, is a mainstream business policy to integrate social responsibility into its values, not just those of its senior directors, and to manage positively its environmental and social as well as its financial performance, recognising that there may be significant trade-offs with financial returns, at least in the short to medium term. Social responsiveness, at least that done in response to “good stakeholder” pressure, can be related to the level of engagement in societal issues. Corporate engagement with societal issues ranges from “denial” (“it is a matter for government”), through reaction (“OK, we’re part of the problem, now help us be part of the solution”) to autonomous action (“we’ve got power and are willing to use it”).
If you put these together (see diagram), it is possible to provide descriptions of different ways companies behave and (in italics) of some of the management tools or processes they are likely to use in each case. (N.B.: movement between boxes, either upwards or to the right, does not imply abandonment of all elements of previous behaviour or use of tools.) This is a fundamentally “Anglo-American” big company model, but it appears that this model is increasingly being adopted by large companies globally.
|Company Objectives||Denial||Reactive engagement||Pro-active engagement|
|Reactive holistic engagement
||Active sustainability leadership
|Devolved external affairs
||Reactive partial engagement
||Pro-active partial engagement
||Specialists report to CEO
||Specialist intervention in societal issues
Boxes 1, 2 and 3 describe the way many large companies moved through the 1980s. This kind of strategic philanthropy led to a much more pro-active approach to addressing issues, but while these activities might involve parts of the company’s operations, they would always be seen to be dependent on corporate money, supported by the CEO or senior director and, therefore, not “owned by” or affecting the bottom line of any of the company’s specific business operations. Much good work has taken place through this process and still does, often through the semi-independent operations of corporate charitable foundations. This function is sometimes deliberately retained by companies devolving into box 4 as a way of retaining some central leverage over local community investment and creating opportunities for learning and synergy across parts of the company. However, it is a very limited agent of societal enhancement as it tends to engage such a small part of a company’s resources and, often, ignores its far more significant societal impacts.
Box 4 is where many large companies positioned themselves in the early ’90s, when major cuts were made in their central and regional corporate offices and much responsibility was devolved to the separate business divisions. While such companies may well have examples locally of good environmental and community relations practice, there will be no attempt at any coherent policy nor holistic approach to addressing societal issues on a wider scale. The U.S. oil companies, for instance, are clearly still in this box. Most of the companies at the Warwick conference also used to be here (with varying remnants of box 3 strategic corporate philanthropy) but have recently moved on. The majority moved firstly into box 5 and then on to box 6 as they saw a shareholder value adding (or protecting) opportunity to take autonomous action on a specific societal issue. Meanwhile, thanks mainly to reputation threatening crises arising from their operations in developing countries, BPAmoco and Shell, with Rio Tinto not far behind, are working hard to move into box 8, expressing, at least, a new triple bottom line objective (vis. Shell’s “adequate” not maximum profits objective) as well as active issue engagement. The Body Shop (not at the conference) is perhaps nearest to the box 9 “ideal type”: it deliberately set out to be a “box 9” company. It is interesting to speculate whether BPAmoco and Shell will actually join them within the next few years as they progress along the “road maps” as promised in their latest social reports.
What are the implications of this analysis for those, inside and outside companies, trying to influence companies to engage more actively with vital societal issues like ecological sustainability, human rights and social exclusion? Basically it describes the opportunities for working within the parameters of the rapidly globalising market economy. Companies which still have a strong corporate “giving” culture need to be encouraged to make this more strategic both in terms of its societal impact and in terms of engaging more of the company’s mainstream business activities. Companies with a strong short term shareholder value focus need to be helped (or pressurised) to understand the business risks and opportunities arising from specific issues on which their operations impact and actively engage in addressing them. In developing countries particularly and regarding engagement in global governance issues, transnational companies need to be encouraged (or pressurised) to adopt triple bottom line objectives and management systems and to take world statesmanlike positions in partnering international NGOs and government agencies in building and strengthening global governance structures.
(For a fuller discussion of the model and issues arising please email the author for a copy of his paper “Big business and society – part of the problem and the solution?” on email@example.com.)
Copyright © 1999 by Peter M. Sandman, John Elkington, and Chris Marsden