Opinion

Chrystia Freeland

What’s BP’s social responsibility?

By Chrystia Freeland
July 19, 2010

OIL-SPILL/

This piece first appeared in The Washington Post.

For weeks people on both sides of the Atlantic have been speculating over who would lose his job first because of the BP spill — Ken Salazar, the interior secretary, or Tony Hayward, the oil company’s chief executive. Given last week’s initial progress in capping the well, I won’t try to name a favorite in that race. But I would like to suggest a third, inanimate, culprit: the cult of corporate social responsibility.

As crude poured into the Gulf of Mexico and the world economy struggled to recover from the financial crisis, corporate social responsibility might seem a perverse target. Surely we need more corporate responsibility, not less. But many of the business disasters of the past 24 months have been facilitated by the mini-industry of corporate social responsibility — known as CSR by those in the trade — a fetish encouraged by the philanthropies that feed off it and funded by the corporate executives who have found that it serves their bottom line.

Consider BP’s “Beyond Petroleum” campaign. Before the spill transformed that slogan into a punch line for late-night comedians, Madison Avenue had lauded BP’s effort to position itself as the greenest fossil fuel producer: “Beyond Petroleum” won two PRWeek “campaign of the year” awards and a gold “Effie” from the American Marketing Association. Ogilvy, the firm that invented the slogan, still boasts of “Beyond Petroleum” as a successful “case study” on its Web site.

Or how about Goldman Sachs’s “10,000 Women” project? This initiative to organize and fund business education for 10,000 “underserved” women around the world is the limousine of CSR drives: smart, innovative and absolutely in tune with Nicholas Kristof and Sheryl WuDunn’s “Half the Sky” zeitgeist.

But the gulf oil spill and the financial crisis have taught us, rather brutally, that the heart of the relationship between business and society doesn’t lie with the charitable deeds companies do in their off-hours but whether they are doing their day jobs in ways that help — or hurt — the rest of us. While BP was winning plaudits for being the first oil company to accept global warming as a scientific fact, the old-school Texas oilmen at ExxonMobil were unfashionably unapologetic about their core mission: to produce oil. Chastened by the Exxon Valdez disaster, however, they also became religious about safety standards. With hindsight, that attention to safety turns out to have had much greater social value than any number of creative CSR drives.

The same story played out on Wall Street. So much of the wealth of the gilded early “naughties” trickled down into 10,000-women-style clever charitable initiatives that my friends Matthew Bishop and Michael Green were inspired to coin a term to describe the phenomenon: “philanthro-capitalism.” Yet the considerable social good done by those projects pales in comparison with the destruction wreaked by the made-on-Wall Street financial crisis of 2007-08.

The problem with CSR is that it muddies the waters. Goldman’s purpose isn’t to educate women; BP’s isn’t to lead the green revolution. The job of business is to make money — in BP’s case by producing energy, particularly fossil fuels; in Goldman’s case through finance. Even the most cuddly, caring chief executive is ultimately charged with a selfish central mission: to generate profit for her shareholders.

Forgetting that core goal — which the CSR culture can tempt us to do — is bad news for business leaders. It was a sad day for American capitalism this spring when Goldman Sachs chief Lloyd Blankfein decided that it was politically unsafe to admit to Congress that he is very good at his job: in this instance, making the right bet on subprime mortgages. Even more deplorable was the moment a year earlier when President Obama used his bully pulpit to bully business — in this instance, the Chrysler bondholders, whose only sin was to stand up for economic self-interest and that of their investors.”

OIL-SPILL/

But getting confused about the principal job of business is even more dangerous for the state. CSR, and the communitarian philosophy behind it, asks us to believe that the interests of an individual company and those of the wider community are fully aligned. They aren’t — a truth too many regulators forgot in recent years.

Corporate social responsibility sounds as unobjectionable as motherhood and apple pie — and it would indeed be crazy to object to rich companies writing big checks for good causes. But we shouldn’t let that distract us from the fact that the chief social responsibility of business is to make a buck — and the social responsibility of government is to be sure that perfectly proper corporate greed is channeled and constrained for the greater good of us all.

Comments
13 comments so far | RSS Comments RSS

Dear Ms. Freeland:
this is a comment about a different topic: your appearance this July (week of July 12) on PBS, discussing the financial regulations passed by Congress.

I really, really enjoyed your use of metaphor when you were being interviewed. Here are a couple of examples:

“if you want to use a traffic metaphor, what we have discovered in hindsight is that capital was moving too fast. The speed limits were too high, and there weren’t enough air bags, and there weren’t enough seat belts in the system.
The goal, broadly speaking, of this legislation is to lower the speed limit of financial capital and to require all of us to wear seat belts. Now, the good news is, I think the legislation succeeds in doing that, maybe not 100 percent, but to some extent. And that should mean that car crashes, you know, 100 car crashes are a little bit less likely in the future.”

And later in the show:

“when we look back at the financial crisis of 2008, one of the conclusions we’re going to draw is, regulators forgot that their job was to be policemen. And they started to see themselves as farmers, if you were, of Wall Street.
They started to think that their job was to help financial services to grow. Now, that might be the job of other parts of government, but, surely, the job of regulators is to make sure these guys are not doing things which are too risky.“

It is difficult for financial reporters to write this well, let alone speak this clearly. Thank you. I can see why your rise has been so rapid.
Respectfully,
Richard Jones
scotjones1@aol.com

Posted by RichardJones | Report as abusive
 

Tony Blair should be CEO of BP…as soon as they get this leak plugged. We have the most read general life, job related, and home foreclosure stories on the web at http://storyburn.com

Posted by STORYBURNeasy | Report as abusive
 

The author seems to be arguing either that

a) generating shareholder profit cannot be altruistic in of itself, which seems much more un-american than the “communitarian” leanings of the targets of this piece, or
b) that the act of making money exists in a vacuum- how the money was made has no effect on anything else. “Making a buck” is the same no matter how it is done.

The world where either of these are true may have once existed, but it doesn’t any longer. Social responsibility isn’t just PR glitz, it’s long-term solutions to long-term problems, and the companies which address these problems in the most sustainable ways will not only keep the world turning and getting better every day, but outlast and out-earn companies focused on short term profits. If this isn’t an alignment of shareholder’s interests and the interests of the global community, I don’t know what is.

Posted by jonarea | Report as abusive
 

When it comes to social responsibility, individuals as well as organizations have to think long term. Money is only one component of profit.

If the communities in which you do business begin to fail, then your business will by necessity, fail in those communities as well.

With that in mind, businesses and individuals must not engage in activity that is harmful to society. But how do you know what’s “harmful to society”? You can’t measure it with some kind of formula. Therefore the only way to do this is individually by obeying the primary law of “love your neighbor as yourself”.

People with little or no understanding will scoff at this. But more people are waking up to the undeniable truth of it. Follow the link below and decide for yourself.

http://www.youtube.com/watch?v=CbAghRsyV g0

Posted by Benny_Acosta | Report as abusive
 

alrite ill admit jonares got alittle carried away with how important CSR is, but hes rite it is important for profit. CSR isnt done to the point wher it is a liability for the company, it is done to the point where the marketing benefit is optimized. For an energy company this is alot, because almost all energy companys engage in CSR to promote ther use over substitutes. For an oil company it is imperative to keep public opinion in favour or prolonged use of fossil fuels, as widespread efforts to reduce them will lead to oil companys operating in an elastic business, one they do not wish to be part of at all. I see what the authors trying to say, but your point on CSR being a serious liability rather than a long term beneficial inconvenience sounds off from the point of a marketing director who uses CSR to keep customers from finding alternatives.

Posted by theobvious | Report as abusive
 

Ms. Freeland

Greed, corporate or otherwise, is NOT acceptable. Greed is the very essence of egoism. Egoism is the desire to take all you can while thinking nothing of the other. Egoism ties us to animal behavior. Therefore greed is not good. It is needed in order to show us the difference between receiving for ourselves and bringing benefit to others. In the first instance (receiving for the self) there is a never ending quest for “more”. And it doesn’t matter how many “values” a person has to “compromise” in order to get what they want.

Every human being on earth behaves this way. But that doesn’t mean it is acceptable or even healthy to remain that way. We have to recognize our interdependence. Unless we wake up to this fact our problems will only get worse.

Take a moment to look at a short video clip about the natural law of interdependence. You will understand that greed is indeed not good. Of course you don’t Have To, check out the link. But then again, if you want to look like you know what you’re talking about, you might want to know about the alternative to greed.

http://www.youtube.com/watch?v=qKyk_QG_L XA&feature=channel

Posted by Benny_Acosta | Report as abusive
 

The world economies will get a balance when the fundamentals of a capitalism society are protected from manipulators:

This simple equation could force a seeking balance.

investment = investment + profit

gambling = gaining or losing

Allowing a combined effect of greed + fears mars the regular functioning of offer + demand easily can lead to catastrophes like that one in 2008.

Easy profit is so close to easy losses that leaders are failing to protect the functioning of society.

There is a lesson about advanced countries and societies. They are not as intelligent and superior as they were assuming as they are leading on many catastrophes from economic, obesity, and even environmental ones.

When a person shows a high IQ profile I look at the size of the belly to see if any advanced brain performance is employed on adopting a healthy lifestyle. Do those wise guys know what is important in life?

I am trying to figure out about the difference of dying old poor/unknown or rich/famous.

Perhaps rich people die better and by using secrets accounts would have savings for eternal life.

Posted by Hydrology | Report as abusive
 

Hydrology,

Check the link in my last post. There actually are answers to the global situation. It just requires individual acceptance and responsibility.

Posted by Benny_Acosta | Report as abusive
 

The discussion in the US is out of focus and ill informed.
Let me remind you of the following facts.
BP is meetings it’s obligations,even though it did not itself cause the disaster.
The two American companies that were primarily responsible,TransOcean and Haliburton have cleverly kept media attention on BP.

Fortunately for the wildlife and fisherman of the Gulf of Mexico,BP is acting in an honourable fashion.

Compare the action of BP with the American Company, Union Carbide, which caused the biggest environmental disaster on the Planet,when over 15000 people were killed at Bhopal in India.
The attitude of Americans in general & Obama in particular is causing intense irritation in the UK.

It is your insatiable demand for cheap oil and gas that has caused this disaster.

Posted by Hornblower | Report as abusive
 

I read this pretzel of an article and am having a hard time following your logic. “the chief social responsibility of business is to make a buck”, you say, in the best tone-deaf, last-century rabid capitalist meme. “any of the business disasters of the past 24 months have been facilitated by the mini-industry of corporate social responsibility….” REALLY???? So capitalists are blaming social responsibility for BPs results this quarter? Why the heck are you bringing up Madison Avenue advetisers…. they just mix the koolaid!
Here is a suggestion: replace “shareholders” with “stakeholders”, read up on the triple bottom line, (social, environmental, and financial bottom lines)or TBL. You may desperately want to turn a blind eye to the concept of companies needing to behave sustainably in order to survive, but IT´S THE FUTURE!! Companies like BP do not have a chance in hell of being SUSTAINABLE in order to benefit its shareholders, period. There is a point where capitalism turns into cannibalism, but I digress. Yuck, I feel like I´ve just been dipped into the Gulf of Mexico.

Posted by MLatvenas | Report as abusive
 

This is an interesting article, honest and hard-headed. The CSR is a broader category of which “green washing” is a part.

The system called for, though is a cat and mouse game. And in the U.S., where money is speech, the mouse owns the cat.

Posted by JohnF500 | Report as abusive
 

Dear Ms. Freeland:

I find myself agreeing and disagreeing with your post at the same time.

I think the central problem is that the term “CSR” means different things to different people. To BP, it meant a variety of things, and these definitions seemed to have shifted over time. Lord Browne took an important stand on climate change, but the company’s real financial commitment to alternative energy paled in comparison to its promotion of its “Beyond Petroleum” image. That’s not “CSR”, that’s “greenwash” or “propaganda” to use an older term.

BP also committed to greater public transparency about all aspects of its business, including its safety and environmental record. It disclosed, for example, how many spills it caused each year, and how many gallons were spilled. Most of BP’s peers will not disclose this information. That commitment to transparency is also “CSR.”

Your fear that CSR will distract business leaders from their central purpose is exaggerated. There is absolutely no risk that public companies will ever forget to pursue profit. That is a sure recipe for bankruptcy. Many companies, however, have forgotten their obligations to make money “within the rules of the game” to use Milton Friedman’s phrase. If a company cannot make money without killing people and destroying the environment, it has no right to be in business.

The greater risk is that investors, consumers, communities, reporters, and business leaders will fail to take a hard enough look at a company’s CSR efforts, and fail to see what’s truly important. Worker health and safety and environmental compliance are core responsibilities all oil and gas companies owe to society. The company’s obligation to make money is constrained by its obligation to do so safely and responsibly. Before the accident, BP was one of the largest companies in the world by market capitalization. That is sufficient evidence that most investors did not bother to examine BP’s frightening safety record before choosing to buy its stock.

I agree that corporate philanthropy is nice, but insufficient. That is no reason to paint all “CSR” activities with the same brush. There are many companies that take CSR quite seriously, working to embed these concepts into their core business operations. There are many, many examples. The fact that BP is not one of them does not mean that the whole concept is bankrupt.

I also agree that CSR can never replace effective regulation. No regulator, however, will ever be able to fully and effectively constrain the worlds’ public companies set loose without any internal ethical or moral guidelines except to “make money.” This is particularly true for companies with global operations. There is no single government with the power or the authority to regulate all operations by a multinational.

In the end, we need both effective regulation and strong CSR programs. We also need more conscientious investors who are willing to demand more responsible behavior.

Adam Kanzer
Managing Director & General Counsel
Domini Social Investments LLC

Posted by Adam66 | Report as abusive
 

CSR has become much more effective since the focus has moved from avoidance (of sin stocks) to shareowner activism. Of course it is the government’s job to channel the power of corporations and to ensure against externalizing costs. However, who do you think largely controls the government? As a lobbyist, I spent years writing California’s legislation. Typically bills were written or amended by the very industry lobbyists the legislation appeared to regulate.

I came to the conclusion that we aren’t likely to have governments that operate democratically until we have businesses and other institutions that are also more democratically governed. Shareowners, for example, are charged with electing corporate directors but we can’t even nominate directors without going through a very expensive proxy contest. Even proxy access would only give us the ability to nominate a token few.

I agree with a recent report, “Compensation Complicity: Mutual Fund Proxy Voting and the Overpaid American CEO,” by AFSCME, The Corporate Library and Shareowners.org which analyzed mutual fund voting patterns. The Report offers two action recommendations:

1. Retail investors in mutual funds, should critically evaluate how their mutual funds vote. New tools such as those available at Proxydemocracy.org make this task much easier. (For example, see their ranking of votes on: director elections, executive compensation, corporate governance, and corporate impact. Please send them a donation to support their work. Another excellent source of information is Jackie Cook’s Fund Votes.)
2. Investors should consider shifting their investments from fund families whose voting practices and records are not responsible to fund families with more responsible practices and records, provided the fee and performance characteristics of the funds are comparable. If more responsible fund families are not available — for example, because the investor’s investment is made through an employer-sponsored benefit plan with limited investment choices — the investor should lobby for expanded choices.

Posted by Corpgov.net | Report as abusive
 

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