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Birch, David --- "Social, economic and environmental capital: corporate citizenship in a new economy" [2002] AltLawJl 2; (2002) 27(1) Alternative Law Journal 3

Social, economic and environmental capitalCorporate Citizenship in a New Economy

David Birch[*]

Rethinking traditional economics to include the value of relationships and the way that wealth is created.

Corporate citizenship

In the last few years there has been a marked increase in interest in issues of corporate citizenship.[1] More and more people, individuals and groups, are increasingly calling on business to be more economically, environmentally and socially sustainable; to be accountable and transparent; to be inclusive; to be ethical and more equitable. These are some of the key issues within the corporate citizenship discussions as they have developed since the 1940s, and which have gained momentum again in the late 1990s and beyond. It is becoming clearer that the social (and environmental) has to be incorporated, not as an add-on to a company’s economic activities, but as an essential, integral, more social redefinition of that company, in order to better reflect the rapidly changing post-industrial economy we now find ourselves operating in.[2]

Peter Drucker in his classic The Concept of the Corporation wrote over 50 years ago that what is needed in a redefining of a corporation as a social institution, ‘is an integration of the worker as a partner in the industrial system and as a citizen in society’,[3] arguing strongly that ‘the relationship between the self interest of the citizen and the interests of society is the most fundamental question of a free society’.[4] That argument has since been applied well beyond the individual to the corporate world, and is where corporate citizenship, as a significant way of rethinking business, most significantly functions today.[5]

David Korten challenges business, uncompromisingly, by asking:

If our concern is for a sustainable human well being for all people, then we must penetrate the economic myths embedded in our culture by the prophets of illusion, free ourselves of our obsession with growth, and dramatically restructure economic relationships to focus on two priorities:
1. Balance human uses of the environment with the regenerative capacities of the eco system, and
2. Allocate available natural capital in ways that ensure that all people have the opportunity to fulfil their physical needs adequately and to pursue their full social, cultural, intellectual and spiritual development.[6]

Rethinking business strategy, therefore, along these lines requires a change in the culture of an organisation but it also opens up ‘new opportunities to reassess other aspects of business’.[7] The challenge is to establish a corporate culture ‘consistent with the concept of sustainable development’.[8] What is needed, Welford and others argue, in order to achieve objectives like this is to work much ‘smarter’ and to think more systemically than perhaps we have done before.

Tilman Peter Oehl, for example, recognises that ‘A corporation that regards itself as a corporate citizen is necessarily more political. It cannot remain neutral if something goes wrong in a society its success is based on.’[9] To that end, Will Hutton argues persuasively that an imperative for sustainability, and, therefore, effective, holistic, corporate citizenship, ‘must be to build a free moral, socially cohesive society based on universal membership, social inclusion and organised around the market economy’.[10] Society, therefore, at least western developed society, can no longer be considered in unitary terms — it needs to be understood as pluralistic,[11] not only in its make-up, now, but also in its expectations. But, as Charles Fombrun suggests, moral principles alone constitute a relatively fragile defence for encouraging corporate social responsibility, and he proposes that ‘the argument for corporate citizenship is significantly strengthened when buttressed by two additional structural pillars, social integration and the long term sustainability of the business enterprise’.[12] Social integration and long-term sustainability, in Fombrun’s terms, cannot happen without serious redefinitions of some of the key defining imperatives of contemporary western society.

Sustainability and New Economics

The New Economy ‘is fundamentally an organisational phenomenon, characterised by shifts in speed of change; the relevances of knowledge, innovation and communication; and shifting proximity’.[13] Corporate citizenship and sustainable development are integral to this understanding of the New Economy ‘in that companies will take greater account of their impact on society as a business basic,’ although, as Simon Zadek and others point out, ‘this does not mean that business behaviour will necessarily be better or worse’, because there are elements within the New Economy that can just as easily undermine good corporate citizenship and sustainable development as encourage it.[14]

Seen as ‘an organisational revolution’, the New Economy:

embraces increased volatility and insecurity, shorter term and contingent careers and jobs, and shifts the basis on which people interact with each other as individuals and communities. But it also opens up amazing opportunities for generating economic wealth, and indeed, social and environmental gains. The New Economy, like all social phenomena, does not therefore create necessary goods or bads, but rather new patterns of possible outcomes that need to be variously pursued and offset, which is where corporate citizenship comes of age.[15]

At the heart of the New Economy, then, is a much deeper understanding of the importance of stakeholder (including shareholder) dialogue and influence. Corporate citizenship, as part of the New Economy therefore ‘implies a strategy that moves from a focus on short-term transaction to longer term values-based relationships with these stakeholders’. According to Zadek, and others, this ‘is exactly what one would expect in the New Economy, where loyalty will be based on a company’s ability to build a sense of shared values and mission with key stakeholders’.[16] As James Wolfensohn, President of the World Bank, says, ‘The New Economy is shorthand for nothing less than a revolution in the way business works, economic wealth is generated, societies are organised, and individuals exist within them’.[17]

Corporate citizenship, as an integral part of the New Economy, then, is about communication between all stakeholders in society in order to build social capital in order to build sustainable societies. To do this involves business, government and community recognising that business is a significant social enterprise shaping community values, attitudes and cultures. But, recognition of this is not enough. We need to know the extent to which business shapes culture. We need to know where the real drivers of change will come from, where they will go and what they will achieve.

As The New Economics Foundation (NEF) founded in 1984 by the leaders of the Other Economic Summit (TOES) as a challenge to the economic thinking of the G7 Summit type, makes clear in all of its work:

conventional economics is the story of cash-flow. It leaves out the fact that every economic activity — from the corner-shop to the multi-national economy — has an impact beyond money alone. Money is only part of the whole economy. [NEF publicity material]

New Economics, according to the NEF:

looks at the whole way we create wealth, and what we mean by wealth … It demonstrates the need for an economy where:

• Every economic transaction, however small, takes account of its environmental and social impact

• Every organisation is accountable to the people involved in it

• People of all backgrounds are respected

• Production, trade and consumption operate on a more local, human, scale

• Unpaid work and care are valued. [NEF publicity material]

But the NEF recognises that ‘building a new economy takes tools’. These include:

• social accounting

• sustainability indicators

• social investment

• alternative currencies.

The NEF has six main areas of action research and policy work:

1. Values Count — Building Corporate Accountability

2. The World View — Reshaping the Global Economy

3. A More Civil Society — Redefining the Third Sector

4. Small is Bankable — Growing Community Finance

5. People at the Centre — Participation

6. Telling it like it is — Asserting the New Economy

It is the underlying concerns of these six areas that are likely to be the main drivers for the corporate world, in closer partnership with government, civil society, a wider range of stakeholders, and the increasing number of shareholders, especially indirect shareowners, for achieving sustainable growth economically, environmentally and especially socially, in the future.

Social responsibility: individual aspiration and institutional change

In May 1999 Environics International Ltd, in cooperation with the Prince of Wales Business Leaders Forum (UK) and The Conference Board, Canada conducted a survey involving 1000 citizens in each of 33 countries, the results of which were published as, The Millennium Poll on Corporate Social Responsibility. Two in three respondents wanted companies to go beyond their historical role of making a profit, paying taxes, employing people and obeying all laws, wanting companies to contribute to broader social and environmental goals as well. Business actively contributing to charities and community projects was not considered sufficient as an expression of corporate social responsibility.

This poll underlines what has been a growing awareness in many countries in recent years, which is that ‘ordinary’ citizens are increasingly insisting that the corporate world plays a more active, and strategic, role in contributing to the social and environmental, as well as the economic agendas of the societies in which they operate. Respondents were asked in particular to decide which of the following they preferred to see a company doing:

• making a profit, paying taxes, employing people and obeying all laws (position 1);

• exceeding all laws at a higher ethical standard than required (position 2); or

• helping to build a better society for all (position 3)

In Australia 8% accepted the first proposition that a company should make a profit, pay taxes, create jobs and obey all laws, with 43% arguing that a company should operate somewhere between position 1 and 2 with a further 45% arguing that companies should set higher ethical standards and help build a better society.

Overall the main findings were that business should:

• demonstrate its commitment to society’s values and its contribution to society’s social, environmental and economic goals through actions;

• fully insulate society from the negative impacts of company operations of its products and services;

• share the benefits of company benefits with key stakeholders as well as the shareholders and demonstrate that the company can make more money by doing the right thing, in some cases by reinventing its business strategy.

The challenge, of course, is how to translate these individual concerns into real and effective institutional change. NGO advocacy has been one of the routes taken, sometimes successfully, but mostly not. Another, more effective route, which many are now exploring, is the building of Business/NGO partnerships, based on mutual benefit and not simply antagonistic relations as has often been in the past.[18]

Business as a public culture

Communication is key, because adequate communication flows for growing a business (and society) in sustainable and synergistic ways is becoming more and more important. Not simply as a means of passing on information, but as a significant way of enabling a growing number of stakeholders, including direct and indirect shareholders, to actually engage in meaningful ways with a company — and just as importantly, for the company to engage with those stakeholders. Recognition of this engagement marks the difference between business as a private culture in old economic thinking to the beginnings of a company understanding itself as a public culture in New Economics thinking.[19]

Charles Handy, in the Harvard Business Review made the important observation that ‘A public corporation should now be regarded not as a piece of property but as a community — although a community created by common purpose rather than by common place. No one’, he rightly points out, ‘owns a community’.[20] Understanding business as community (after all ‘company’ means community) in this way effectively inverts more traditional ways of thinking about a company as property and, in turn, inverts thinking about the ownership of that property. This then requires quite different ways of thinking about the ways in which the business as community is governed. Handy puts it like this:

It requires a clearer definition of the bond between individual and organization — something that could be called the citizen contract — as well as of the relationships with the other stakeholders, particularly the providers of capital, who must receive their due rewards.[21]

Easier said than done. But what is clear is that achieving sustainable success is an organic, risky, process, requiring more than just a few nips and tucks to the strategic plan of an organisation. Such a commitment, if made, accepts the view that long-term benefits (not just financial) will accrue to the business, and to the community as well. This is the base of ‘sustainable capitalism’. Sustainable capitalism needs to be at the heart of New Economics — it is about investing in the long term.

Conclusion: the cultural politics of change

If there is a message, then, louder than many of the others within this debate, it is the need for serious sustained and significant cultural change to take place within corporate, government and community sectors. This change is not simply to satisfy some call from left field to make business more accountable, nor is it to satisfy some new ageist whim for more environmentally and socially responsible companies. This change is designed to increase the rewards for all, including financial profit, in a world that must seek sustainable success for more and more people if fewer and fewer people are to be disadvantaged and marginalised.

The challenge is to find, and act on, serious new economics business case catalysts for change; to recognise that not all stakeholders, especially indirect shareholders, have, or are able to gain, a voice, as easily as others; that they are not always equal, and yet companies do have to prioritise stakeholder needs often at the expense of other needs. This desire for change presents challenges for business in how it manages stakeholder and shareholder priorities, while at the same time finding ways of speaking on behalf of disempowered stakeholders. Furthermore, the desire for change presents challenges:

• in how we encourage the corporate world to disengage with those it is currently aligned with when it sees exploitation and unethical practices;

• to have in place overt codes of practice;

• to form partnerships only with those who match those codes of practice;

• to change the culture so that the principles of corporate change and the imperatives of New Economic thinking inform every decision from every member of the organisation at every level, irrespective of the role they perform, and everyone who, in any way whatsoever, comes into contact with the organisation.

Peter Schwartz and Blair Gibb, in When Good Companies Do Bad Things — Responsibility and Risk in an Age of Globalisation argue that a company’s goal has to be ‘in the end, not discovery of a model of social responsibility, but development of a process that will create its own living understanding of its place in the wider world’.[22] Activating that change requires trust, commitment and cooperation, across many sectors of stakeholder and shareholder engagement. UK commentator, Will Hutton talks of the moral economy, arguing that what is needed to redress some of the imbalances is ‘a recognition that firms are formed by human beings with human as well as contractual claims upon each other and behind this social world lies the moral domain’.[23] These are variables, still uncomfortable to many in business, which lie at the heart of a public culture approach to growing business and society in sustainable ways. British academic Richard Welford suggests the following ways of organisations — specifically business, but applicable to all — moving forward in this:

• shift from objects to relationships;

• shift from parts to the whole;

• shift from domination to partnership;

• shift from structures to processes;

• shift from individualism to integration;

• shift from growth to sustainability.[24]

Peter Senge has made similar points arguing that business is disabling itself if it continues to:

• think in terms of individual jobs rather than in terms of the whole organisation;

• blame problems on people or things that are outside the organisation;

• believe that organisations can always solve their problems by taking aggressive action against whatever external force they believe is causing problems;

• become fixated on specific sudden events;

• be unable to perceive threats that result from slow gradual processes;

• believe that they immediately experience the consequences of their decisions;

• operate under the myth that management teams interact cross-functionally to solve problems when in reality these teams often spend tremendous energy defending the self-interests of individual members.[25]

It is clear, then, that we have to change the narrow emphasis on old economy growth if we are to be sustainable in the future, and the moves, preliminary though they may be, towards socially reponsible/ethical investing, increased stakeholder and shareholder engagement and greater transparency, accountability and inclusivity in business, government and civil society overall, signalled as significant in the Shareholders’ Project surveys, are going to become increasingly important in the future. As Handy suggests, trapped though we may be in the rhetoric of an older modernist economics, ‘there is a hunger for something else which might be more enduring and more worthwhile’.[26]

[*] David Birch is Director, Corporate Citizenship Research Unit, Deakin University, Melbourne.

© 2002 David Birch

[1] See Carroll, A.B. ‘The Four Faces of Corporate Citizenship’, (1998) 100 Business & Society Review 1-7; Carroll, A.B. ‘Corporate Social Responsibility: Evolution of a Definitional Construct’, (1999) 38 (September) Business & Society 268-295; Elkington, John, Cannibals with Forks, The Triple Bottom Line of Twentieth Century Business, Oxford:Capstone, 1997; McWilliams, A. and Siegel, D., ‘Corporate Social Responsibility: A Theory of the Firm Perspective’, (2001) 26 Academy of Management Review 117; Birch, David and Batten, Jonathan, ‘Corporate Citizenship In Australia: A Survey of Corporate Australia’, Corporate Citizenship Research Unit, Deakin University, Melbourne, 2001.

[2] Beesley, Michael and Evans, Tom, Corporate Social Responsibility — A Reassessment, Croom Helm, London, 1978, p.16; see also Logan, David, Delwin Roy and Regelbrugge, Laurie, New York, 1997; McIntosh, Malcolm, Leipziger, Deborah, Jones, Keith and Coleman, Gill, 1998 Corporate Citizenship, Successful Strategies for Responsible Companies, Financial Times and Pitman Publishing, London, 1998.

[3] Drucker, Peter F., The Concept of the Corporation, The New American Library, 1946, 2nd edn, 1964, p.137.

[4] Drucker, Peter F. above, ref 3, p.214.

[5] Moon, Jeremy, ‘The Firm as Citizen? Social Responsibility of Business in Australia’, (1995) 30(1) Australian Journal of Political Science 1-17; Marsden, C. and Andriof, J., ‘Towards an Understanding of Corporate Citizenship and How to Influence it’, (1998) 2(2) Citizenship Studies 329-52; Birch, David (ed.), Corporate Citizenship: Awakening the Possibilities. The Proceedings of the First National Conference on Corporate Citizenship, Melbourne 19-20 November 1998, Corporate Citizenship Research Unit, Deakin University, 1999; Birch, David (ed.) (2001) Strategic Corporate Citizenship. Proceedings of the 2nd National Conference on Corporate Citizenship, November 2000, Corporate Citizenship Research Unit, Deakin University, Melbourne and Rio Tinto, Melbourne; Moon, Jeremy, ‘The Australian Public Sector and New Governance’, (1999) 58(2) Australian Journal of Public Administration 112-21.

[6] Korten, David C., When Corporations Rule the World, Kumarian Press and Berrett-Koehler Publishers, 1995, p.50.

[7] Welford, Richard, Environmental Strategy and Sustainable Development, The Corporate Challenge for the Twenty-First Century, Routledge, 1995, p.77.

[8] Welford, Richard, above, ref 7, p.114.

[9] Oehl, Tilman Peter, ‘Thoughts about the Changeability of Corporate Cultures’ in D. Koechlin and K. Muller (eds), Green Business Opportunities. The Profit Principle, Financial Times and Pitman Publishing, 1993, pp.207-225, p.211.

[10] Hutton, Will, in The Stakeholding Society, Writings on Politics and Economics, David Goldblatt (ed.), Polity Press, 1999, p.88.

[11] Drucker, Peter F., Post Capitalist Society, Harper Business, 1993, p.51.

[12] Fombrun, Charles J., ‘Three Pillars of Corporate Citizenship — Ethics, Social Benefit, Profitability’ in N. Tichy, R Andrew, R McGill and Lynda St.Clair (eds), Corporate Global Citizenship: Doing Business in the Public Eye, New Lexington Press, 1997, pp.27-61 at 35.

[13] Zadek, Simon, Hojensgard, Niels and Raynard, Peter (eds), Perspectives on the New Economy of Corporate Citizenship, The Copenhagen Centre, Copenhagen, 2001.

[14] Zadek, Simon and others, above, ref 13.

[15] Zadek, Simon, Hojensgard, Niels and Raynard, Peter, The New Economy of Corporate Citizenship, The Copenhagen Centre, Copenhagen, 2000, p.7.

[16] Zadek, Simon and others, above, ref 15, p.8.

[17] Zadek, Simon and Tuppen, Chris, Adding Values. The Economics of Sustainable Business, Corporate Reputation and Social Policy Unit, British Telecommunications, London, 2000, p.9.

[18] See Birch, David, ‘Corporate Citizenship: Rethinking Business Beyond Corporate Social Responsibility’ in Perspectives in Corporate Citizenship, J. Andriof and M. McIntosh (eds), Greenleaf Publishing, London, 2001.

[19] See Birch, David and Glazebrook, Mark, ‘Doing Business — Doing Culture: Corporate Citizenship and Community’, in Stuart Rees and Shelley Wright (eds), Human Rights, Corporate Responsibility. A Dialogue, Pluto Press, 2000, pp.41-52; Birch, David and Glazebrook, Mark, ‘Stakeholder Relations: Corporate and Community Perspectives from Australia’, (2000) 12 AccountAbility Quarterly 25-28.

[20] Handy, Charles, ‘The Citizen Corporation’, (1997) 75(5) Harvard Business Review 26-27 at 26.

[21] Handy, Charles, above, ref 20, p.27.

[22] Schwartz, Peter, and Blair, Gibb, When Good Companies Do Bad Things — Responsibility and Risk in an Age of Globalisation, John Wiley and Sons, 1999, p.82.

[23] Hutton, Will, The State We Are In, Jonathan Cape, 1995, p.23.

[24] Welford, Richard, above, ref. 7, p.117.

[25] Senge, Peter M., The Fifth Discipline. The Art and Practice of the Learning Organisation, Currency Doubleday, 1990, p.142.

[26] Handy, Charles, The Hungry Spirit: Beyond Capitalism: A Quest for Purpose in the Modern World, Arrow Books, London, 1997, p.73.

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