Moral Mentors: Sustainability and Corporate Responsibility in Era of Covid-19 and Black Lives Matter

posted by Marsha Vande Berg on June 19, 2020 - 11:22am

Well before Nike or Starbucks was even a glimmer in the eye of their founders, a little-known economist sat down at his desk in the 1950s in America to write why he believed companies are obliged to be responsible citizens.

It was 1953 when Howard Rothmann Bowen’s Social Responsibilities of the Businessman was published, unique to its time in history.Three years prior, he had been ignominiously forced out of a prized deanship at the University of Illinois. The young academic had tried to integrate social responsibility into the business school’s curriculum but had run headlong into an old guard faculty who wrapped Bowen’s ambition in the Red Scare tactics of 1950s McCarthyism. 

Bowen recovered to take up a successful career as president of three prestigious institutions of higher education – Grinnell College, the University of Iowa and the Claremont Graduate University. And while his academic legacy centered ultimately on spending in higher education, Bowen is long since credited with coining the phrase, corporate social responsibility - or CSR.

Then as now CSR eludes precise definition in part due to the impossibility of successfully describing any dynamic set of factors. COVID-19 and now the spreading social unrest across American cities and elsewhere in the world in reaction to racial injustice and violence are accelerating demands that all institutions and particularly the private sector identify and act in ways that go beyond being simply responsible citizens.

What is now becoming crystal clear is that the pandemic and the recent unrest are the “elephant in the room”. While the private sector’s CSR capacity may involve intangible factors, crystal clear is its materiality for the bottom line, said a sustainability executive for a US airline during a recent Zoom meeting hosted by the Sustainability Accounting Standards Board (SASB) in San Francisco.  “The world doesn’t need another diversity report. It needs action, and the private sector has the tools it needs to address injustice as well as the inequalities magnified by COVID 19,” the airline executive said.

Bowen’s orientation to CSR – as a “form of service to consumers (and) encouragement in all sectors of the economy of the nonfinancial human incentives that temper acquisitiveness and make for social harmony” – resonated with a much earlier time in US history.

The Gilded Age of the 1920s produced a string of corporate titans with outsized wealth – and an awareness that their largess and that of their industrial namesakes risked public backlash. The millionaire and even billionaire status of Andrew Carnegie, John Pierpont Morgan, Henry Ford, Cornelius Vanderbilt and John Rockefeller tracked America’s own burgeoning growth into an industrial giant. The times subsequently paved the way for the 1933-39 New Deal program that included anti-trust laws, banking regulations and anti-competitive policies.

It was Carnegie who was among the most influential in setting a pace for mega-philanthropic contributions. He had gained millionaire status when he sold his namesake steel company to Morgan, who in turn merged it into what became US Steel – and established Morgan as America’s first billionaire. In return, Carnegie gave millions to underwrite the building of 2,500 public libraries and the Carnegie Institute for International Peace, to name two of his philanthropic enterprises.  He also authored the Gospel of Wealth, published in 1901 and espousing the principle, “to do well in order to do good” – enshrined as well in the “Giving Pledge” initiated by Microsoft founder Bill Gates and financier Warren Buffet.

America was not the only country where corporate philanthropy found its raison d’etre through the largess of wealthy industrialists. At the turn of the 20th century, a young lawyer was striding onto the India stage, later known to the world as Mahatma Gandhi and the father of the subcontinent’s independence from Great Britain in 1949. It was Gandhi who championed corporate responsibility via “trusteeships.”

Such was the practice of India’s famously large industrial houses both before and after liberation, with an orientation toward their wealth as trustees of society’s capital and with that, an obligation to underwrite at least in part, a safety net for society. It also helped that philanthropy dedicated to building society’s capacity for providing education, health and social welfare was also a means of securing a positive corporate reputation.

Today, business philanthropy is mandated in India under the Companies Act, 2013, the law that regulates private-sector companies and their governance. Section 135 requires that all businesses of a certain size must contribute annually two percent of net profits to charity. “CSR is not only about reducing the negative consequences of companies’ activities but about the manner in which a company can take part in a society in a meaningful way,” wrote two analysts, Neelmani Jaysawal and Sudeshna Saha, in CSR in India: A Review.

Still far from being universally embraced, the notion of corporate social responsibility globally took new shape under the leadership of the United Nations by the late Kofi Annan, secretary-general, 1997-2006. It was Annan who took his case for a Global Compact with the private sector based on shared values and principles directly to the titans of business, finance, and commerce meeting in January 2009 at the World Economic Forum. “Give a human face to the global market,” Annan told those who were gathered.

Presciently, he added, “The spread of markets outpaces the ability of societies and their political systems to adjust to them, let alone to guide the course they take. History teaches us that such an imbalance between the economic, social and political realm can never be sustained for very long.”  (Had Kofi Annan been alive to witness today’s pandemic and social protest, he surely would have replied publicly or privately, I told you so.)

Five years later, Annan, credited with setting in motion today’s sustainability movement, extended his Global Compact theme to a critical set of players in the marketplace – the large institutional investors. He invited them to integrate their need to de-risk the investment decision-making process against the really big social and human issues of the day – climate change and social inequality to name two. 

What followed was the impetus for investors world-over to set the pace with their trillions of dollars in assets under management for reckoning with the impact and the potential for impact of intangible externalities on investment and marketplace decision-making.

Today, these so-called intangibles, like climate change, workforce issues and racial and gender inequalities, are becoming increasingly central to C-suite and boardroom decision-making processes.  Leading companies are increasingly willing to embrace a sense of purpose in addition to maximizing profits, seek out new business opportunities that respond to society's needs and consider stakeholders' concerns. While investors focus on the long-term and take into account environmental and social impact, these forward-looking business leaders are recognizing the value in strategic purpose as part and parcel of profit-making.

Consider Starbucks now a multi-billion-dollar company since its founding in 1971 as one of America’s premier coffee shops. Sustainability is a part of its culture as well as its operations and governance. Its board of directors has stated publicly the company intends to cut its carbon emissions dramatically by 2030. It will conserve and replace one-half of the water it now uses in operations and coffee production. It will incrementally reduce the waste it sends to landfills.

Last year, the company issued its third sustainability bond, a 30-year issuance for $1 billion. It was oversubscribed.

Nike is another multi-billion-dollar corporation that is on target to be 100-percent dependent on renewables in all its facilities by 2025. It is also transforming billions of plastic bottles and recycled polyester for jerseys. It is endeavoring to eliminate footwear manufacturing waste to landfills and incinerators.

Why the urgency? Because purpose is profit for Nike, says John Donahue, Nike’s chief executive “If there is no planet, there is no sport.”