Business

Selling the Wrong CSR the Wrong Way

The jury is still very much out on whether corporate social responsibility is anything more than a PR strategy. Yet, its proponents already take it as holy grail that it is both an ethical imperative and a good business strategy. But in making the case for CSR, the CEO of CSR consultancy AccountAbility, sells it the wrong way. He writes about the Responsible Competitiveness Index 2007 in the current issue of the Harvard International Review but his arguments fall so far short of objectivity that I am forced to question why HIR would print it.

Confusing Correlation and Causation

The most disingenous suggestion of Simon Zadek’s post is that ”responsible behavior” is a factor in determining overall national competitiveness. While he would like to “establish new norms of “responsible competitiveness” in global markets,” Zadek believes that this already happens, if you believe what he says about his Responsible Competitiveness Index (or RCI):

The RCI 2007 therefore provides a means of assessing the extent to which responsible business practices are a factor in determining how any particular nation competes in global markets. So, for example, the fact that Brazil scores better than China indicates that the former’s underlying competitive proposition in global markets is driven more than the latter’s, in aggregate, by responsible business practices.

Comparing these results with well-known national competitiveness indexes provides one cross-check of whether the RCI is aligned with conventional measures of national competitiveness. The World Economic Forum’s annual Global Competitiveness ranking is the best-known of these measures and seeks to factor in measures of market flexibility, technological development, workforce educational standards, and enabling political environment, among others. The World Bank’s annual Doing Business Index provides a different lens by measuring factors that make business easier, such as the ease of border customs regulations and procedures. There is a relatively close fit between these indexes and the RCI (R2=0.85 for the correlation between the RCI and the World Economic Forum’s Growth Competitiveness Index). This correlation indicates that there is a high correspondence between the level of development of responsible business practices and measured national competitiveness across the hundred or so countries common across the indexes.

This makes a mokery of statistics, but I suspect his confusion of correlation and causation is not unintentional. He states that there is a high correlation between responsible competitiveness (as measured by the RCI), and the overall competitiveness of an economy (as measured by the GCI). This is hardly surprising. But he goes further to say that responsible policies actually cause overall competitiveness to increase:

Today’s experimentation provides concrete evidence that responsible competitiveness strategies are the key to creating tomorrow’s sustainable global economy.

This is so self-serving as to be disappointing. What is more likely – that better CSR increases competitiveness, or that the causation goes the other way? Countries that are highly competitive due to high productivity, extensive use of technology, and low levels of unemployment, can afford to implement more “responsible” requirements.

Ignoring Reality to Sell CSR

Zadek’s oversight is unfortunate, because it undermines his otherwise good argument that markets should reward good behavior. But he is focusing on the wrong kind of behavior:

The need for a more responsible basis on which businesses and economies compete in international markets has never been greater. Global corporations with global strategies contribute to rising inequality and falling economic opportunities for lower-income communities across the developed world.

Bollocks! Global corporations, and their supply chains, have pulled hundreds of millions out of poverty in China and India. And the idea that globalization would unleash a “race to the bottom” has also been disproven. What happens in fact when companies go international is that, while they certainly exploit lax regulation where possible, they bring substantially better employee and consumer practices to target countries. The end result is that they raise the general level of corporate practice.

More generally, a clear argument can be made against the ethical uniformity and imperialism that Zadek promotes. The idea that there is one set of ethical guidelines by which all countries, corporations, and individuals should abide is not only a western conception, it is also highly dangerous. In that case, whose ethics are we to apply? CSR, while good in theory, ends up disenfranchising the people of poorer countries and weakens their institutions – an unintended consequence that few CSR proponents acknowledge, or even mention.

What Zadek desires is certainly a desirable goal and one that was also Adam Smith’s intention. But the kind of CSR that Zadek proposes is what I have previously termed “Advocacy in Home Markets” - it aims to boost the prospects of large multinationals in their home countries, and responds to western criticisms rather than local needs.

If Zadek is serious about building markets that reward responsible behavior, it will require more than fudging numbers. He would do better to focus on the business and less on the ethics, for instance by tracking the performance of companies that address local needs, or integrate green products into their offering, compared to those that do not.

True “responsibility” is not in implementing western standards of regulation. It is in embracing consumers that cannot pay for your service at market rates and accepting the occassional loss (what I call “Strategy in Target Markets”). This is already being done by small and medium enterprises and innovative corporations that engage those SMEs to find business opportunity where earlier there was none. Zadek is misleading us, and the HIR is doing a disservice to its readers, by focusing on the wrong idea.

© 2008 The Discomfort Zone.