What I Saw at the Revolution

A former CR practitioner looks back on the movement’s antecedents—and revival.

By Tom Kiely

Corporate social responsibility, sustainability, and shared value are terms I use all the time but don’t much like. Many people say (and I’ve joined this chorus) that the terms come loaded with too many meanings, have roots too deep in frameworks and concepts long-since outdated, and thus are only useful today in a short-hand kind of way. They are terms that seem to require clarification. “By CSR I mean…and I don’t mean…”

Terms and concepts won’t settle to clarity soon. During the last decade, momentum of activity and thinking within the business community on a broad range of issues that are clustered behind these terms has increased markedly. The number of late-comers (including me) who pitched in to help build on the work of others has been accelerating, as have the commitments of many executives and the attention of investors. The stream of conferences, white papers, information channels, and networks about “sustainability” and “CSR” has burgeoned dramatically, particularly in recent years. We’ve also seen many innovations: B-Labs, loyalty shares, the Sustainability Accounting Standards Board (SASB), IBM’s Smarter Planet initiative, new models of social entrepreneurship, and social impact financing, among others. For many reasons, I believe this momentum will continue to quicken over the next few years, suggesting that the terms and concepts we use—and caveat—today will continue to evolve.

Like any late-stage convert, I wish I had focused much sooner in my career on the fundamental linkages between business, society, and the environment. When I retired as Director of Sustainability for McKinsey & Company, at the end of 2012, I kicked myself all the way to the exit door. How could I leave now? The work was meaningful and exciting, and McKinsey was a nifty platform from which to do it.

Reflecting on a career that started in business journalism and editing, lastly at the Harvard Business Review, and then detoured into professional services, I am struck that the momentum we are witnessing now has a lot to do with a mind-shift among corporate managers who have begun to re-think their own, and their company’s, relationships with myriad stakeholders. It isn’t just that sustainability, stakeholder engagement, and shared value creation have suddenly “caught on.” How they think about sustainability and CSR—what constitutes practice in these areas—ultimately reflects a slow evolution during the last couple of decades in how managers think about value, who it’s for, and how it’s created.

Still, I agree with many others who note that despite the momentum, business performance in sustainability and CSR remains woefully short of where it ought to be. Much change is still needed. While reflection can be blind, biased, selective—take the observations that follow with a bucket of salt—trends during the last four decades suggest some of the challenges that lie ahead.

Shifting Responsibility
Words we hear today—from leaders such as Unilever’s Paul Polman, IBM’s Ginny Rometty, and others, about the role of business in society—echo ones that have been largely buried for a couple of generations. Businesses can’t be sustainable, these leaders say, if success comes at the expense of society and the environment. “Winning alone is not enough,” Polman said in a 2011 interview with the Guardian. “It’s about winning with purpose.”

The leaders of many U.S. corporations said much the same during the three decades preceding the 1970s. In 1946, more than 90 percent of executives responding to a Fortune Magazine survey agreed that business persons should take into account the impact of their decisions beyond the “profit and loss statement,” and more than half of them said that between half and three quarters of the managers they knew had a “social consciousness.” Much of this sentiment was captured in a 1971 white paper by the Committee for Economic Development, arguing that a healthy business requires a healthy society—and thus it was in the interest of business to help ensure social well-being. To many executives of the post-war generation, companies had institutional responsibilities to society, beyond being economic engines. Managers, they said, also needed to be attuned to society’s expectations, and ready to respond to them. They also believed that business leaders might need to step up to address pressing social issues (with economic impact), such as poverty and the deterioration of inner cities.

But this perspective went into eclipse during the 1970s. At the beginning of that decade, Milton Friedman wrote an essay that articulated a new view of a company’s social role, which became the prevailing one in the decades that followed. For Friedman, the social contract between business and society was solely commercial. Corporations do not have responsibilities, he argued, only executives did—and their responsibility, as agents of their owners, was to maximize shareholder profits. End of story. Social good would merely be an outcome of their success. He argued that investors should not try to force corporations to address other stakeholder issues, because these actions were akin to imposing taxes and distributing proceeds socially. Similarly, corporations that out of seeming self-interest contributed beneficially to their communities because they saw economic value in it—to attract talent, reduce wages, or “lessen losses from pilferage”—were undermining the “foundation of a free society.” The concept of social responsibility, he concluded, was “unadulterated socialism.”

Shareholder primacy was the prevailing view of business I heard within companies, commercial organizations, and business schools during the 1980s and 1990s. It wasn’t the only view: A number of academics, and influential thinkers, such as Peter Drucker, continued to innovate perspectives on how businesses ought to frame their engagement in social issues, the responsibilities of commercial institutions in society, and the social contract. But if Fortune had conducted a survey on social consciousness during the early 1990s, I suspect few respondents would have agreed with their counterparts from an earlier generation.

Yet many business issues during the 1980s and 1990s created social friction and should have raised more questions among managers and within the finance and business community about the social role of business. These issues included de-regulation, the energy bust, industrial decline, a banking crisis, environmental disasters, and a market meltdown among them. There was certainly public and political outcry. Gallup polls show that public trust in business began to decline during the 1970s—and though trust has been cyclic, it has never again regained the levels in this country that we saw during the 1960s. But among business leaders, as I recall it, the conceptual approach was to view responsibility as compliance and risk, in the belief that their job was solely to enrich shareholders. A rising economic tide would lift all … of course, you know the cliché.

This mindset began to crack during the 1990s, long before the recent economic crisis. I covered technology and business as a journalist for several years, largely at publications in New England, and ended up at the Harvard Business Review during the mid-1990s. By then, questions about the social responsibility of business re-surfaced with re-engineering, the elimination or automation of jobs, the de-layering of value chains, and offshoring. We published articles by Charles Handy and James Ogilvy on business trust, for instance, essays by Michael Porter and others on resource productivity, and articles on income inequality, the long-term stability of the global financial economy, and new approaches to corporate philanthropy and social innovation.

But what was triggering a renewed focus on stakeholders other than the shareholder was the brief heady promise of the new economy. Certainly the bursting of the technology bubble called into question the greed, the self-delusion, the get-rich-quick giddiness of those times, as well as the swirl of scandals and crimes that surfaced then, too, which were profoundly disillusioning for many. But even before the bubble burst, the new economy fostered doubts about the narrow obeisance to a Friedmanesque view of shareholder value creation. The optimism of the tech upswing prompted many business thinkers to predict new forms of organization arising in a networked economy, and new relationships with stakeholders. They re-thought corporate conventions on talent management, culture, values, and even corporate purpose. Behavior did not always match rhetoric, of course, nor was it sustainable. But looking back, it seems to me that something definably new had entered mainstream business thinking—with the implication that something definably old wasn’t working properly.

Consciousness Renewed
In other words, in a modest way, corporate purpose (beyond just profit making), the role of at least some stakeholders, and the pursuit of sustainability was resurfacing within the context of innovation and growth. During the late 1990s I left the publishing sector, in a career change, moving first to Deloitte and then to McKinsey, to help those firms package and disseminate thought leadership. When I started at Deloitte, global businesses were re-thinking supplier relationships and incentives, in part inspired by Toyota’s success, and in part necessitated by the growth of production networks. They were waking up to the fact that a war for talent was raging. And they were innovating their way through contentious environmental and social realities of operating in communities around the world.

Fifteen years later, most large companies publish a CSR report (though too few of these are integrated with financial reporting), and many have adopted more effective stakeholder engagement processes—including, for some, oversight at the board level. Leading companies in many sectors pay more attention to both the risks and the opportunities of societal issues—such as healthy products, supplier diversity, or employee engagement programs—than they did during the 1990s. Corporate philanthropy has increased. Executives are joining forces with government and social sector leaders to address regional social issues, such as in New York City and Minnesota. And recognition is steadily increasing within the business and academic communities that the narrow focus on short-term performance is undermining long-term value creation for both business and society.

Observant readers will note that this is a very subjective view of the last few decades (we are prisoners to our experiences, as the postmodernists say), and others will have different views. But what I surmise from my small window on this world is that a growing number of executives are re-thinking the social contract largely in response to structural changes wrought by globalization and technology—changes that re-define, as Polman said, what it takes to win.

Is some of this just cleaver PR? Yes. Will some of this go away with a return to economic growth? Likely. But the underlying drivers of change—including the shift in economic clout from west to east; the proliferation of technology connectedness, and knowledge; growing resource scarcity; changing demographics; the massive disconnect between education and employability, in many countries; growing income inequality; and the changing nature of work and social life—augurs greater friction between business and society in years ahead, unless business leaders and their organizations directly engage to help shape solutions, for both business and society.

Momentum With Legs
How might this new approach to engagement evolve? I think the level of integration, transparency, and collaboration we have seen over the last few years can only increase. As sustainability and social responsibility come to be seen as just doing what’s right for business, the distinctions between them will blur and seep into general management thinking. There may be a rough analogy here to the evolution of IT during the last three decades, as it changed from an operations function to become, for many companies, integral with the business itself.

If that analogy holds, however, managers have a steep learning curve ahead. Not only will managers need new frameworks for thinking about how to identify opportunities for creating business and social value, but also frameworks and practices for organizing to go do it. One colleague has suggested that companies could get a lead on this by forging connections with, and investing in, social entrepreneurs. Finally, managers will also have to learn how to manage initiatives that involve collaboration with the public sector and social sector organizations.

Re-balancing attention to short-term performance with a longer-term focus on sustainable value creation is imperative. As a few recent research studies have shown, executives in public companies will frequently defer making investments with payoffs down to road to meet quarterly earnings consensus. Businesses that manage for the short-term perform less well over the long-term than do peer companies with a longer-term view, research also shows. The negative consequences for both the business and for society are multiple. Making the shift from short-term to long will require concerted action by institutional investors, on the one hand, and corporate boards on the other. Gathering round the ESG reporting pole is a good first step for all.

Among those of us concerned about long-term business value, about strengthening the fundamental linkages between business and society, about private-public-social sector collaboration to address important issues local or global, and about applying market solutions for addressing social problems, we have our work cut out for us. (I’ve retired from McKinsey, but not from work.) We are likely to see more innovation in these areas in the decade ahead than in the one behind us. So it’s probably not worth sweating over the terminology we use, for now.

Posted August 22, 2013 in Social Responsibility