Corporate political responsibility: don’t act like illusionists
Fortune 500 companies tell us they’re serious about maintaining the health of the planet and everyone on it. But are they? Here are the perspectives of Dr Frank Wijen, associate professor of strategic management at Rotterdam School of Management, Erasmus University (RSM).
Once seen as the province of eco social warriors, corporate social responsibility (CSR) has gone mainstream. It’s now an established part of the corporate and commercial framework, with an estimated 80 per cent of Fortune 500 global companies issuing sustainability reports. While they are deadly serious about the generation of wealth, they make clear, they are also equally serious about maintaining the health of the planet and everyone on it. They are good corporate citizens.
Or are they not? Has this apparent dedication to CSR become a very clever exercise in misdirection? Are major corporations acting like the best illusionists, distracting public attention through overtly benign actions while indulging in covert activities to undermine rules and regulations designed to benefit society as a whole? Are the ‘robber barons’ of the past really still with us – albeit wearing a much more effective disguise than ever before?
Social versus political responsibility
It’s important to acknowledge that many elements of modern business life are undoubtedly significantly better than in the recent past, thanks to the progress made in embedding the concept of sustainability into corporate DNA.
Unilever and Philips are two prominent examples. Unilever has significantly reduced the environmental impact per product supplied, for instance, by co-creating and adopting a series of voluntary sustainability standards, including MSC (Marine Stewardship Council, governing seafood catch and sales) and RSPO (Roundtable on Sustainable Palm Oil). And Philips has significantly reduced its environmental footprint per product, in particular around energy efficiency, packing, weight, toxic materials and recycling.
But all the focus on corporate social responsibility has meant that few have gone on to question an organisation’s performance when it comes to what we call CPR – corporate political responsibility. It is rare to find firms that are equally transparent about, and proactive in, their political activity. The most common methods used to evaluate CSR and corporate sustainability today almost completely ignore the role of business in shaping public policy. In other words, CSR needs CPR.
Cheating in emission tests
And there is evidence that some companies use their corporate sustainability initiatives as a cover for their political efforts, to block meaningful change through government regulations seeking to rectify negative social and environmental externalities from self-interested corporate actions. Few, if any, major companies are genuinely transparent about the tools and tricks they use to shape all-important public policy.
Take the issue of fine-particle emission limits for cars in Europe, for example. There was an enormous amount of embarrassing publicity when Volkswagen was caught cheating in their diesel emission tests. However, what went largely unreported was the fact that regulatory emission ceilings were already being set way too low in the eyes of many informed commentators. And this had almost certainly happened because the vehicle manufacturing giants had used their financial muscle to deploy armies of highly effective lobbyists in Brussels, which simply blew the lightly resourced environmental campaigners off the battlefield.
The issue of vehicle emissions is hugely important, as it potentially affects vast numbers of people. According to the 2017 Air Quality in Europe report from the European Environment Agency (EEA), the annual limit value of nitrogen dioxide (NO2) continues to be widely exceeded across Europe. The EEA further calculates that in the European Union an estimated 502,351 premature deaths in 2014 were caused by air pollution, including NO2, much of which comes from car emissions. This has attracted little in the way of media attention. Slow and largely invisible deaths do not grab headlines in the way that, for example, a terrorist attack would.
A similar thing seems to have happened in terms of the emission of greenhouse gases by large industrial producers in Europe. Despite well-PR’d statements by many of them about their CSR efforts here, the EU has generously distributed free emission rights to them that will actually lead to it breaking undertakings made under international agreements. Is this an unfortunate lack of attention which could afflict anyone, or perhaps those insidious lobbyists at work again at the heart of the Union?
Or look at the active lobbying by Dutch-based multinationals to abolish the Dutch dividend tax. The companies concerned included Unilever and Philips, both of which top sustainability rankings. No single political party advocated this measure, which would have cost the Dutch taxpayer about 2bn, money that could have been spent on social amenities and good causes such as healthcare, education and nature preservation. This example nicely confronts the proactive CSR positions of these firms with their actual political activities. Lobbying for this and other fiscal favours, including secret tax rulings between multinationals and fiscal authorities, embodies sheer political irresponsibility.
Time to stop virtue-signalling
It is clear, then, that the situation is far from perfect. Companies need to be encouraged to align behaviour much more closely with their virtue-signalling pronouncements on sustainability and corporate responsibility. It’s understandable that, from a purely commercial point of view, businesses will be keen to minimise the effect that regulations might have on their profitability. But if they are consequently taking actions to make this happen, then I would argue that we need, and have the right, to know about them.
How can this come about? I’d suggest three relatively simple steps. First, fully disclose corporate political activity; lobbying and other political actions, such as financing ‘environmental’ organisations opposing regulations, should be publicised. This may seem idealistic, particularly in the light of legal decisions that currently allow unlimited covert political spending. But in the longer run, we do not expect current conditions to last. Social expectations change over time, and in the information age transparency is being increasingly insisted upon.
Second, they need to align CPR with CSR. Or, in other words – be honest. Put bluntly, don’t say one thing in public and do another behind closed doors. If a firm says it is seeking to voluntarily reduce its carbon footprint, then we would expect it also to support public policies that require all firms to reduce their greenhouse-gas emissions.
And third, they should actively support public policies that will enable the private sector to better pursue sustainability efforts and commitments. Partnership is always better than conflict and doesn’t have to have any major detrimental effect on the bottom line. One might not expect, for example, an oil company to support restrictions on fracking, but it would be reasonable to ask the same company to support regulations that restrict greenhouse-gas emissions from fracking if doing so would be environmentally beneficial and only entail marginally higher operating costs.
Politically irresponsible acts
Creating a mandatory public register detailing CPR and requiring companies to disclose dealings with politicians, regulators and bureaucrats could form another element of the solution – even though firms might still pursue their political dealings secretly. It will be hard to develop an effective sanction. But whenever outright lies are told, these will be more easily revealed, since the official statements can be more readily compared with actual behaviour. Prompting firms to report their concrete stances and actions, not their lofty, abstract ideals about a beautiful society with happy people, offers a better basis for showing non-compliance with official statements.
Academics and business people have, so far, primarily focused on CSR, thereby overseeing the pernicious effect of politically irresponsible acts by businesses. Many today agree that companies must be much more transparent about their political activities. If they claim that they are following the tenets of CSR, they must demonstrate openly that they are not lobbying in the political arena against societally beneficial regulations.
Companies must not act like illusionists, showing off their benign actions but hiding their less rosy achievements. Instead, they must behave responsibly across the board, both socially and politically.
Dr Frank Wijen is an associate professor of strategic management in the department of Strategic Management and Entrepreneurship at Rotterdam School of Management, Erasmus University (RSM). A shortened version of this feature appeared in Forbes magazine in April 2019.
Rotterdam School of Management, Erasmus University (RSM) is one of Europe’s top business schools. RSM provides ground-breaking research and education furthering excellence in all aspects of management and is based in the international port city of Rotterdam – a vital nexus of business, logistics and trade. RSM’s primary focus is on developing business leaders with international careers who can become a force for positive change by carrying their innovative mindset into a sustainable future. Our first-class range of bachelor, master, MBA, PhD and executive programmes encourage them to become critical, creative, caring and collaborative thinkers and doers. Study information and activities for future students, executives and alumni are also organised from the RSM office in Chengdu, China. www.rsm.nl