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The International Journal
of Not-for-Profit Law

Volume 6, Issue 2, February 2004

A publication of the International Center for Not-for-Profit Law

Table of Contents

Letter from the Editor

The Pacific

Social Inclusion and the Indigenous People of Australia: Achieving a Better Fit Between Social Need and the Charity Law Framework
Kerry O'Halloran

Australia Crawls Closer to Reform of the Definition of Charity
Myles McGregor-Lowndes

Consultations Toward Legal Reform in Tuvalu
James Duckworth and Mose Saitala

Social Capital and Philanthropy in Maori Society
Tuwhakairiora Williams and David Robinson

The Challenges Facing American Nonprofits

Deterring Donors: Anti-Terrorist Financing Rules and American Philanthropy
Barnett F. Baron

A Needless Silence: American Nonprofits and the Right to Lobby
Jeffrey M. Berry

The Nonprofit Paradox: For-Profit Business Models in the Third Sector
Bill E. Landsberg

Articles

Survival Strategies for Civil Society Organizations in China
Julia Greenwood Bentley

An Introduction to Canadian Tax Treatment of the Third Sector
Robert Hayhoe

"Organized" Civil Society and Its Limits
Antonio Itriago and Miguel Angel Itriago

The Fiscal Framework for Corporate Philanthropy in CEE and NIS
David Moore

Defining Characteristics of Civil Society
Timothy J. Peterson and Jon Van Til

The Alchemy of Success: The Case of Corporate Responsibility
Simon Zadek

Civil Society at the Movies
Rod Smolla

Reviews

The Civil Society Reader
Edited by Virginia A. Hodgkinson and Michael W. Foley
Reviewed by Morgan Meis

The Perfect Gift: The Philanthropic Imagination in
Poetry and Prose
Edited by Amy A. Kass

Does Civil Society Matter?: Governance in Contemporary India
Edited by Rajesh Tandon and Ranjita Mohanty

The State of Civil Society in Japan
Edited by Frank J. Schwartz and Susan J. Pharr

Paved With Good Intentions: The NGO Experience in North Korea
Edited by L. Gordon Flake and Scott Snyder

The Legal and Regulatory Framework for CSO Self-Financing in Colombia;
The Legal and Regulatory Framework for CSO Self-Financing in Chile
By Nicole Etchart, Brian Milder, Maria Cecilia Jara, and Lee Davis

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Editorial Board

The Alchemy of Success: The Case of Corporate Responsibility

By Simon Zadek*

Will Corporate Responsibility Be Truly Important?

Why do some ideas become mainstream policy and practice, while others languish in the margins of debate and, at best, interesting experimentation? What determines which ones win the day, and how best can one spot likely winners in advance? The ideas of the 19th and 20th centuries’ intellectual giants--Darwin, Einstein, Freud, and Marx, just to name a few--were considered eccentric at best in their formative years. Cars and telephones seemed peculiar accessories in their early development stages, as did most of today’s commonplace and most profoundly influential technologies. But equally, imagine the incredible number of unsung ideas that at some point seemed suitable candidates for mainstreaming but somehow failed to ride on the alchemy of success.

Such questions seem particularly pertinent in considering the recent history of responsible business, which appears to be at least edging from the margin into the mainstream. It is less than a decade since companies such as Body Shop and Ben & Jerry’s were seen as the lonely vanguards of responsible business. Today, the air is thick with leadership cases across even the most ethically dubious sectors such as alcohol and gambling, and conferences and publications abound. Perhaps marking the latest sign of a movement's growing up, its core language has shifted from the arguably self-marginalizing language of "corporate social responsibility" to the broader, all-encompassing headline "corporate responsibility."

Of course there is nothing really new about the topic. Some would argue that the role of business in society has always been core to mainstream debate, policy, and practice. After all, industrial history is littered with experiments of businesses "doing good," from the 19th-century Romantic Socialists such as Robert Owen, who sought to embed ethics into business practice, to American’s industrial tycoons such as Rockefeller, who saw a different logic in making money through hard business practices and then becoming philanthropic leaders. Indeed, many of our most important institutions--particularly across Europe within the social partnership model-- were built on a vision of a progressive social contract between business and society.

Corporate responsibility is therefore certainly far more than some "post-neoclassical" fashion. But that does not mean it will become truly important. The Romantic Socialists, after all, disappeared along with their leaders and failed business models, as have most other experiments in "alternative business." To understand whether corporate responsibility is important or just "interesting," we need to understand its root causes and potential.

Roots of Corporate Responsibility

The alchemy of success certainly needs innovation through leadership practice, as popular thinking about "tipping points" make clear. Leadership is part of how change happens, crucial to our learning, showing others what is possible. Cases such as the Ethical Trading Initiative and BP’s actions in relation to the Global Climate Coalition may indeed prove to have been tipping points that pushed aspects of corporate responsibility into the mainstream. But "extraordinary" practice is also a sign of an idea’s continued marginal status. After all, we do not (or should not) give prizes to companies for producing accurate financial statements, or for achieving acceptable health and safety records. The mainstream is characterized by what is unexceptional and unnoticed.

The mechanics of corporate responsibility (e.g., reporting, codes) in the main address symptoms, or at best outcomes, rather than the deeper causes that can underpin the mainstreaming process. The alchemy of success requires that we understand the latter and its links to the former. Several macro-shifts support the view that corporate responsibility is part of a deeper change in our society: for example, the emergence of a global civil society linked inextricably to the globalization of markets; the increasingly visible levels of inequity, poverty, and environmental insecurity; and the underlying loss of trust in the institutions we have built both to govern us and to deliver private goods and services as well as such public goods as health and security. Numerous more business-specific shifts are also taking place: the extension of business into the delivery of public services and into the management and ownership of what were previously public assets; and the transformation of how businesses are managed and economic value created, with a far greater focus on networked people and institutions requiring cohesive values and higher levels of trust.

These are some of the core factors determining the underlying relevance of corporate responsibility. One further orientation emerges from AccountAbility’s current program of work exploring the links between national competitiveness and corporate responsibility. For corporate responsibility to create a significant future, it has to be consistent with and enhance not only business success but also the competitiveness of communities and nations. For this to be possible, it has to offer effective linkages between a community’s economic competitiveness and its wider understanding of and approach to social inclusion in its broadest sense. I would argue that corporate responsibility offers an approach to creating a social contract between business and society that seeks to overcome the failures of both the continental European and Anglo-Saxon variants. Indeed, in some ways, corporate responsibility can be seen as a peculiar hybrid between the Anglo-Saxon and European social partnership models, seeking to build on their respective strengths and overcome their respective weaknesses.

The challenge for the Anglo-Saxon model is that its transactional approach to business is short-termist and breeds distrust at a time when trust is exactly what is needed for the realization of economic value in brand intangibles, social relationships, and intellectual capital. The Anglo-Saxon model assumes that economic assets can be easily bought and sold, and so places little value on in-market solidarity, empathy, etc. This model, within a pluralist, electoral democracy, seeks to externalize the very conflicts between labor, capital, and the state that it creates (or at least exacerbates), thus establishing either conflictive or compromised relationships between society’s key institutions.

The European social partnership model relies less on markets and more on politics for economic flexibility and productivity. Consensual decision-making is intended to establish a social compact that secures flexible markets in exchange for societal support for those thereby damaged. Over time, however, the social dialogue has become petrified within and between institutions that have developed distinct, self-perpetuating rationales and thus negotiating platforms. The dialogue itself becomes inflexible, and therefore no longer serves to secure the required economic adaptability that is needed to sustain the social compact.

Corporate responsibility is at its core a social partnership model embedded within and framed by markets and business models. By establishing the legitimacy of non-financial objectives for business, corporate responsibility enables new forms of partnerships to emerge that are neither transactional nor traditional forms of social partnerships. By seeking to build trust between companies and their stakeholders, corporate responsibility offers ways to transparently and progressively link the conventional separation of the realms of economic and political debate.

From Theory to Practice

These deeper and more profound societal changes provide a basis on which corporate responsibility could come of age, maturing from the exceptional to the unnoticed. But this does not in any way guarantee the result. Mainstreaming is not a "done deal" just because the conditions are right. The key is to understand the dynamics that can link the experience in the margin to the mainstream. For mainstreaming to mean something, there is a need to challenge "holy cows" developed in the margin, as well as developing and promoting means to amplify what works.

AccountAbility’s own work illustrates some of the dynamics of mainstreaming. Our work with CSR Europe on the "impact of reporting" highlights areas where hard work is required to mainstream the intended impacts on business performance and societal outcomes. It points out in particular that the considerable steps that have been taken in increasing the quantity and quality of social and sustainability reporting will bring long-term gains only if these reports are useful to business and their stakeholders. Similarly, our recent publication, "Redefining Materiality: Practice and Public Policy for Effective Corporate Reporting" (prepared as a contribution to the UK Government’s development of UK Company Law), points out the need for reports to be "material" and offers recommendations as to how best this might be achieved through both company practice and public policy on corporate disclosure. Equally, the whole area of standards that evolved to simplify instead in many ways has confused. AccountAbility has been very active in this field, supporting the development of the Global Reporting Initiative Sustainability Reporting Guidelines and also of course focusing on the AA1000 Series. This work has highlighted the importance of filling the credibility gap around disclosure, and has in particular offered up the AA1000 Assurance Standard as one crucial basis for enhancing the quality and credibility of corporate reporting as part of the mainstreaming process.

The alchemy of success is a somewhat mysterious process. But even mysterious processes can be affected to make success more likely. Moving corporate responsibility from the margins into the mainstream requires above all a shift in attitude of both its advocates and critics. Success requires asking (and answering) the brutal questions about what does and does not work while maintaining a driving optimism about what is possible. Success also requires that the drive toward mainstreaming is aligned to the dynamics created by deeper structural changes, going beyond celebrating and encouraging the extraordinary exemplars created through vision and leadership. Mainstreaming happens when the radical and pragmatic coincide in practice and action, if not in vision or interest. With these points in mind, recent events may yet signal not merely the growth but the growing up of corporate responsibility practices and outcomes.

Notes

* Simon Zadek (simon@accountability.org.uk) is the Chief Executive of AccountAbility and the author of The Civil Corporation: The New Economy of Corporate Citizenship. More information about AccountAbility’s work can be found at www.accountability.org.uk, including its "Responsible Competitiveness" program. This article originally appeared in the Autumn 2003 issue of the Social Economy and Law (SEAL) Journal, published by the European Foundation Centre. We are grateful to SEAL for permission to reprint it.

 
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ISSN: 1556-5157