Why Corporate Social Responsibility is not enough.

‘The purpose of business is business’’

Milton Friedman (1962)

In the last 20 years income inequality has risen with household wealth of the top 10 per cent of society now more than 100 times the wealth of the poorest 10 per cent;  The major institutions, such as central government and banks have been found wanting; trust is at an all time low and financial institutions are seen as a key part of the collapse.  The big government institutions of the post war era seem unable to work; the NHS, Social Services and Benefits seem are political hot potatoes.  There is a growing need for change in the world.

The neat divisions of public, private and third sector are falling away.  Charities are filling the gap left by failing public services.  The demographics of society are shifting as the ageing population become simultaneously more dependant and more socially active; with the availability of time, ability and a pension.  Young people, saddled with student debt and no hope of home ownership remain living with their parents, insecure and frustrated, with diminished job prospects. 

Social media hold individuals and governments to account; this rise of the ‘connected society’ drives the need for better conversation rather than state control.  In this era of fiscal austerity, the moral volume is turned up.

To date some organisations have responded through Corporate Social Responsibility initiatives, each with a laudable purpose and demonstrating how organisations can improve their world.  In the new world order this is no longer enough.  Organisations are being challenged to rethink their essential purpose.  The narrowness of self interest and share holder value replaced with a wider social activism and moral purpose.

Corporate Social Responsibility is no longer relevant and instead is replaced with a new understanding of the world that drives the moral and social purpose of an organisation.  No longer is it enough to focus on our customers; it is about recognising the wider number of lives that we touch.

From customers to the lives we touch; from transactions to relationships;  from shareholder value to societal value; from short term profit to sustainable profit; from high street presence to community asset; from wealth creation to creation of the common wealth.

How will institutions redefine their role in rebuilding community, stimulating social activism and engagement for the next 100 years.

‘The purpose of business is to create shared value’

Michael Porter 2011

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Ernst &Young and 2020 PST, ‘The Deficit: A Longer Term View’ (2020 PST: 2010)

Jesse Norman MP, ‘Patterns of Attachment’ (RSA Journal: Spring  2011)

Getting it right in your organization in 2010

Economically no one can be in any doubt that 2009 has been one of the most dramatic years that most of us are likely to have lived through. The demise of the major financial institutions has led to tectonic shifts in the economic landscape. Who would have thought at the start of the year that we would end up with one in four pounds now borrowed and a nationalised banking sector!
Whilst we all have opinions about both the origins and future of the crisis, there is broad agreement that an increase in liquidity was squandered for short term profit; 'share holder value' became short hand for 'share price manipulation'. Many made significant sums of money, if they were smart enough to ride the wave up and get off at the top; sadly for most of us this was not the case and now looking at our pensions or endowments they are proving to be a shallow pool. The advice that we were given from seemingly large and respected institutions has frequently been proven not to be in our best interests and we feel we have been massively let down.

We know that into the space left by this market failure will be increased regulation; an attempt to regulate our way to a better future. For example in financial services this is being championed by the FSA and in particular through its ‘Treating Customers Fairly’ initiative. However, whilst we believe that this is to be applauded it should not be regarded as another regulatory hoop to jump through but instead be regarded as a significant opportunity to re-evaluate how a business works for the benefit of customers, staff, shareholders and wider society.

The MP's expenses scandal shows that living by the rules alone is not what we have come to expect of our leaders; we expect them to demonstrably live to a higher set of standards and values. These values should be unquestioningly for the wider good and be informed by our perception of 'fairness'. Increasingly we apply the same principle to what we perceive as society's valued institutions. Financial institutions are an economy's key vehicle for wealth creation and must be challenged to take up that role.

The opportunity for leaders in financial institutions is to use the drama and crisis of 2009 and the market breakdown to create a change imperative in their organisations.

That change is not just about more customer smiles but instead re-positioning an organisation to be a champion for customers and re-positioning it as a trusted institution. This means leaders re-defining an organisation’s purpose to be more than just serving shareholder value alone. We firmly believe that shareholder value remains important but needs to be re-framed as shareholder value for the long term and as an accurate measure of both profit and contribution to a country's and community’s economic growth.

In 2009 customers were dramatically re-educated to think about the long term, because of short term market failures. In this new era businesses must redefine their purpose, they must recognise the importance of the long term, building lasting and trusted institutions. We know that the state will increase its role and provide ‘libertarian paternalism’ a sense of having enough regulation to guide and protect and yet not stifle actions - more importantly values really matter. This has been summarised by Akerlof and Schiller (2009) as moving from ‘fear and greed’ to ‘commitment and fairness’.

The internet and social media means that leaders and institutions are more accountable in the court of public opinion; not just against the rules but against our perceived notion of what is fair. We are moving from Adam Smith’s invisible hand of capitalism to a new form of social or creative capitalism which redefines it as ‘the invisible handshake’.

The new heart of business will be about simplicity, transparency and products that are not over engineered; people want to do business with those that they trust; a trust based on a visible demonstration of the principles of fairness.

Self regulation, or principle based regulation, is no soft touch but instead a much harder challenge as it asks an organisation to be clear about its values and sense of purpose. Society is challenging major institutions to think about its purpose in a far broader way; a way that serves shareholders and society and builds long term sustainable value.

Boards need to face the challenges of 2010 as not just leaping through regulatory hoops, but instead as a huge opportunity for leaders to drive reposition themselves and to drive big change in their organisations