Towards moral capitalism

by Stephen Young, in The World that Changes the World: How Philanthropy, Innovation, and Entrepreneurship are Transforming the Social Ecosystem, edited by W. Cheng, S. Mohamed; John Wiley and Sons, 2010

CSR plays a vital role in ensuring that corporate interests align with the broader social and environmental interests of the community in which businesses operate.  However the basis for CSR and what it entails is not well agreed among the players in the economy.  A fundamental question is:  Is CSR about good business or ethics?

Young proposes a return to moral capitalism which was the original vision of capitalism conceived by Adam Smith.  Over the last two decades different CSR guidelines and codes have been proposed.  Among these the United Nations (UN) , the Caux Round Table (CRT) and the International Organisation for Standardization (ISO) have three of the most comprehensive CSR models. 

The UN’s Global Compact for CSR establishes a set of guidelines for voluntary ratification by private firms, unions and NGOs.  Today it is the world’s largest corporate citizenship and sustainability initiative with 7,700 corporate participants and stakeholders from 130 nations.  The ISO has developed standards – such as the ISO 14000 series for environmental management systems.  A recent standard ISO 26000 covers subjects including governance, human rights, labour practices, environment, consumer issues and community involvement.  The CRT, an international organisation of senior business executives, aims to promote ethical business practices.  It consists of seven CRT Core Principles.

Young states that a real issue confronting business executives is why they should fully embrace CSR.  There are two distinct philosophical approaches:  Milton Friedman’s focus on the moral obligation of business to solely make money; and Aristotle’s ethical theory of responsibility to others, a stakeholder theory of enterprise. The latter proposes that any large firm is a de facto partnership of investors, customers, employees, managers and suppliers acting within a community and the environment.

Young outlines different approaches to ensuring the take-up of CSR.  Some advocates have formed coalitions such as the UN Global Compact and CRT to promote CSR.  Another approach is to blame and shame companies who fail to practice CSR such as occurred during the global financial crisis.  A third approach is to mandate CSR.  However most of mandated CSR occurs in specific areas such as labour laws, codes of governance and environmental regulations.

He states that two recent approaches show promise:  CSR disclosures to the investment community and financial analysis.  The current movement to get companies to disclose their CSR efforts to all their current and potential investors will help to broaden the base of companies that recognise the importance of CSR.  The UN has developed the Principles for Responsible Investment (PRI), a set of guidelines for investors who wish to address environment, social and governance issues.

The next wave of CSR must work on getting disclosure that converts environment and social costs into financial costs.  Young says the risk components of a business can be averted by investing in five types of company capital:  reputation capital, social capital, financial capital, human capital and physical capital. What brought down Bear Stearns and Lehman Brothers in the recent global financial crisis was their focus solely on financial capital.

CSR aligns business decisions and actions with the well-being of the community, the key stakeholder for government and civil society.  It ensures that businesses are a responsible part of the overall ecosystem in which they operate.

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