Corporate Responsibility Facade Crumbling ?

 

​Worldwide industry is moving away from only serving its shareholders to acknowledging the rights of the stakeholders. Yet there is a yawning gulf between the rhetorical embrace of corporate responsibility and the industry’s arms-length deployment of political financing to maintain commercial advantage. Public and employee anger over corporate hypocrisy has become the most pressing business ethics challenge today. CEOs will be required to meet the pressing challenges in governance and management implied by their “stakeholder capitalist” rhetoric. Alison Taylor, Executive director, Ethical Systems at NYU's Stern School of Business says

the corporate responsibility façade is—finally, thankfully—crumbling. Activist investors and angry citizens have forced a reckoning. Young graduates evaluating prospective employers know that the true narrative of a corporation’s purpose can be found by reviewing who it does business with and which politicians it backs. We in India has still to go a long way to push Corporate India into taking their Corporate Social Responsibility with the seriousness it deserves. What we are witnessing in India is the use of CSR Funds to fund the ambitions of political parties rather than to adequately finance programmes for the poor. They are more interested in funding the PM Care fund than programmes for the poor and the needy.

By Alison Taylor

 Big Oil is talking a much better climate-change game these days, publicly committing to an energy transition and the aims of the Paris accords. But there is a yawning gulf between the rhetorical embrace of corporate responsibility and the industry’s arms-length deployment of political financing to maintain commercial advantage.

 It isn’t just the corporate critics who recognize this. BP itself recently announced plans to withdraw from three trade associations with stated positions deemed inconsistent with the company’s own pledges. Royal Dutch Shell and Total are also reviewing their industry memberships, as are mining majors.

The pressure they face to take such steps is real. The industry’s years of reliance on hypocrisy, lobbying, and misleading public relations tactics is eerily reminiscent of the approach taken by tobacco companies. Its litigation risks are set to follow a similar trajectory, with lawyers and activists framing failure to address climate change as a human-rights violation.

 This is not just a story about the oil and gas sector, however. Public and employee anger over corporate hypocrisy promises to be the most pressing business ethics challenge of the 2020s. Amazon Employees for Climate Justice responded to Jeff Bezos’s   $10 billion commitment to fight climate change by reminding their CEO that “one hand cannot give what the other is taking away.” Amazon’s split-screen approach is far from unique. It is today’s dominant approach to corporate responsibility, and it is no longer fit for purpose.

 Anti-corruption regulation and enforcement have gained astonishing momentum over the past decade. A remarkable global consensus has evolved. International provisions and national laws are increasingly in sync, and regulatory cooperation is increasing year-on-year. But all of this effort is focused on the bribery of government officials. Other forms of corruption—such as influence peddling, nepotism, creative tax avoidance, and regulatory capture—not only remain legal, they have broadly been accepted as the standard corporate playbook.

Awareness of these shadowy tactics has grown, though, and with it, public anger. Today, it is clear just how much money is deployed by corporations to block legislation that might serve the public interest. Offshore data leaks and the collapse in white-collar crime enforcement suggest that criminal liability and paying taxes are just for the little people.

 Any claim to be a responsible corporation is predicated on addressing these abuses of power. But most companies are instead clinging with remarkable persistence to the façades they’ve built to deflect attention. Compliance officers focus on pleasing regulators, even though there is limited evidence that their recommendations reduce wrongdoing. Corporate sustainability practitioners drown their messages in an alphabet soup of acronyms, initiatives, and alienating jargon about “empowered communities” and “engaged stakeholders,” when both functions are still considered peripheral to corporate strategy.

When reading a corporation’s sustainability report and then comparing it to its risk disclosures—or worse, its media coverage—we might as well be reading about entirely distinct companies. Investors focused on sustainability speak of “materiality” principles, meant to sharpen our focus on the most relevant environmental, social, and governance (ESG) issues for each industry. But when an issue is “material” enough to threaten core operating models, companies routinely ignore, evade, and equivocate.

 Coca-Cola’s most recent annual sustainability report acknowledges its most pressing issue is “obesity concerns and category perceptions.” Accordingly, it highlights its lower-sugar product lines and references responsible marketing. But it continues its vigorous lobbying against soda taxes, and of course continues to make products with known links to obesity and other health problems.

Facebook’s sustainability disclosures focus on efforts to fight climate change and improve labor rights in its supply chain, but make no reference to the mental-health impacts of social media or to its role in peddling disinformation and undermining democracy. Johnson and Johnson flags “product quality and safety,” as its highest priority issue without mentioning that it is a defendant in criminal litigation over distribution of opioids. UBS touts its sustainability targets but not its ongoing financing of fossil-fuel projects.

 Slippery verbiage is an understandable tactic, given investors’ growing obsession with ESG performance metrics and company lawyers’ well-founded fears of the legal and reputational ramifications? Consequences of telling the truth. But in this environment of pervasive suspicion, it is time to admit that the imperatives of sustainability raise strategic dilemmas that are too significant to be addressed by deploying comfortable “win-win” narratives.

This is an excellent moment to refocus sustainability teams on addressing strategic environmental and social questions, not spending a year gathering data for reports that will be met with eye rolls. By continuing to treat sustainability as a means of simply securing their legacies and impressing their peers at Davos, CEOs will never meet the pressing challenges in governance and management implied by their “stakeholder capitalist” rhetoric.

 The corporate responsibility façade is—finally, thankfully—crumbling. Activist investors and angry citizens have forced a reckoning. The Conference Board views the upcoming 2020 proxy season as a tipping point for disclosure of corporate political activity. Young graduates evaluating prospective employers know that the true narrative of a corporation’s purpose can be found by reviewing who it does business with and which politicians it backs.

 BP’s split from three trade associations can certainly be read as an inadequate response to the scale of the climate crisis. The same could be said of JPMorgan Chase’s recent announcement that it will curtail its financing of coal projects and stay out of new oil and gas developments in the Arctic. But moves like these should also be seen as the freshest salvo in an intensifying battle over the heart, and future, of capitalism.

​First appeared on Forbes

Alison Taylor, Executive director, Ethical Systems at NYU's Stern School of Business