The Factory cannot earn only at the profit index. It must distribute wealth, culture, services and democracy. - Adriano Olivetti (Italian Entrepreneur, industrialist, publisher, intellectual, politician, social innovator and pioneer of urban planning, Ivrea in 1901 – Aigle 1960).
In the past, businesses have begun to engage in activities that were traditionally considered government’s turf. Multinationals adapted in operating in markets with minimal or low performing welfare and have learned how compensate for it. Today, businesses know that there can be no business without ethical and social commitment.
In 1953 the American economist Howard R. Bowen published an article called "Social Responsibility of Businessman." It pushed to rethink the role of business and what responsibilities it should bear. Bowen’s world was then very different from today. That concept of social responsibility has evolved, yet today is no longer sufficient as modern times require something extra-ordinary.
The criterion of CSR as defined by the European Union in 2011 "the responsibility of companies for the impacts they have on society" is out of touch, inadequate.
Why is it inadequate?
The working hypothesis of CSR was a working and functional institution whose elected officials were capable and exercised leadership. Complexity was managed with competence through compromises, problem solving and, at times, anticipating probable crises. This ensured social peace and economic growth.
This model was ousted by the swift unfolding of the 90’s globalization and of its paradigm. Because it leveraged the rule of law and no war was waged, government’s role and the primacy of politics have begun to fade. In 2005, Thomas L. Friedman wrote a bestseller called The World Is Flat, a metaphor for viewing the world as a level playing field for commerce. According to the author, historical and geographic divisions were becoming increasingly irrelevant. This was the euphoria then.
During this period, the pool of talents has been largely, if not exclusively, attracted by the private sector. Its value proposition – compensation, quality and scope of the work, fast career tracks—was and is irresistible. Corporations have become truly global with unprecedented financial strength and know-how. Western governments and the political apparatus, to the contrary, lost three decades worth of know-how and, still today, are short of talents.
Companies have since been called upon to contribute to social and environmental initiatives. In a way, the once clearly defined boundaries between business and politics have become blurred. This has generated confusion and, especially in the US, messianic expectations by stakeholder’s vs corporations.
CSR beyond CSR and the birth of ESG
CSR has led to ESG (Environmental, Social, and Governance criteria). ESG offers a set of standards by which investors concerned about environmental and other issues can screen potential investments. Increasingly, it is also being seen as a public measurement. Addressing the challenge of global warming has become preeminent. ESG has been recently stretched, however, to solve the structural problems of the modern democratic society, one characterized by the imbalance among the four constituencies described earlier and to compensate where governments have abdicated. It was not its purpose. It is hence necessary to start thinking about an operating model that allows corporations’ wealth and gravitas – primarily know-how and thorough understanding of complex problems to transfer this knowledge and to inform policy.
In this scenario, companies must quickly find new ways to legitimize their license to operate if they are to continue to thrive.
NEWEST Newsletter, May 31 2023