Essay - Changing Relations

Changing Relations

By: Student No.: Instructor: Class:

Carsten Kaefert 3012875 Allan Wise POL-2320 Government...

Table of Contents Changing Relations..........................................................................................................................1 Abstract.......................................................................................................................................3 Self Interest or Morality?............................................................................................................4 Safe in the International Sphere.............................................................................................4 Responsibility as Self-Preservation........................................................................................5 Corporate Morality.................................................................................................................7 Replacing Relations..................................................................................................................10 Bibliography..............................................................................................................................13

Abstract This essay argues that corporate social responsibility forms not only a new chapter in government-business relations, but in cooperation with changes in governance and civil society, call for a new social contract. As corporatism in Canada becomes more and more predominant and globalization puts corporations increasingly out of the reach of national governments, national polities lose influence on the economy they are supposed to govern. Thus the – especially in Canada – traditionally rather intimate relationship between government and business grows more distant and lopsided. Still, the notion of corporate social responsibility is gaining popularity and it is of increasing importance to companies to appear ethically, socially and environmentally responsibility to the general public and their customers.

Carsten Kaefert: Changing Relations - Abstract 3

Self Interest or Morality? Safe in the International Sphere Globalization has changed the world we live in and continues to shape it in various ways. Multi-national companies are major players in this new world and pose new challenges to the amount of control governments can exercise over the economies. Being transnational in their nature, it is only of secondary importance to these companies where they conduct their business – too strict legislation or anything that is perceived as detrimental to a company's profit interest can easily be evaded by just moving that part of business to another country with more favorable legislation or even by just threatening to do so, as governments tend to be sensible towards capital flight and job loss. Thus companies can take refuge from governmental influence in the international sphere: some country will always be persuaded by the perspective of jobs and investment to provide a safe haven even for the most unethical, immoral or environmentally unsound company. Yet policies geared towards corporate social responsibility are gaining popularity among businesses.1 This might be explained by the rise of new instances policing businesses' behavior, namely its customers. Social movements have been a concern for corporations since the 1960s and 1970s and, according to Brownlee, “they [the businesses] are now increasingly aware that their conduct and activities are under a microscope.”2 This unwanted attention and resistance has found its probably most clear expression in the protest against the 1999 WTO ministerial meeting in Seattle3 or the 2001 G8 summit in Genoa, Italy, and organizations such as attac. From 1 Cf. Jamie Brownlee, Ruling Canada. Corporate Cohesion and Democracy (Halifax: Fernwood Publishing, 2005): 122. 2 Ibid. 3 Ibid. 123.

Carsten Kaefert: Changing Relations - Self Interest or Morality?

4

this point of view, all efforts towards greater corporate social responsibility by corporations happen out of mere self-interest and are means towards an end instead of an end in itself.4

Responsibility as Self-Preservation According to Nobel prize laureate Milton Friedman corporations have one, and only one responsibility: maximizing their profit. Thus corporate social responsibility to him is immoral, as long as it does not serve the aim of profit maximization.5 Accordingly, corporate social responsibility is “a rational response on the part of the business community to the fact that on the very issue of survivability, time is running out.” 6 To survive, however, companies must be profitable. They have to be able to afford both “the costs of doing business and the cost of staying in business – the costs of surviving.”7 The need for businesses to remain profitable is out of question, but do companies have to conduct socially responsible or ethical business in order to earn profits? As some studies show, they have to. A majority of Canadians, for example, distrusts the business community enough to feel that consumers are better protected by government than by businesses.8 A majority of Canadians, too, expects the acceptance of a certain social responsibility from businesses that goes beyond mere profit interests and is willing to punish companies that fail to accomplish this. 9 From this one can safely assume that there is a demand for socially responsible entrepreneurship in Canada and that it is in business' best interest to fulfill this demand. 4 Ibid. 5 Ibid. 6 David Macfarlane, “Why Now?,” Globe and Mail Report on Business 20,9: 45, as cited in: Brownlee, Ruling Canada: 122. 7 D. Wayne Taylor, Allan A. Warrack and Mark C. Baetz, Business and Government in Canada. Partners for the Future ( Scarborough, On: Prentice Hall Canada, 1999): 227. 8 Cf. ibid. 9 Brownlee, Ruling Canada: 122.

Carsten Kaefert: Changing Relations - Self Interest or Morality?

5

Not very surprisingly, Canadian business has so far done rather well in this field. In almost any field (with the notable exception of human rights), more Canadian companies have written policies than their counterparts from the United States. 10 Welford's survey measured the presence of written corporate policies relevant to corporate social responsibility within the thirty largest corporations of selected countries in Europe, North America and Asia. He investigated policies according to the UN Human Rights declaration, several ILO Conventions, the UNESCO Project on Technical and Vocational Education (UNEVOC), the International Programme on the Elimination of Child Labor (IPEC), the UN Global Compact, the UNESCO World Heritage and the Global Reporting and Ethical Trading initiatives, Transparency International guidelines as well as industries' best practices.11 The favorable results for Canada are in accord with the previously stated public expectations and the market opportunities resulting from them, which is confirmed by international comparison. Countries that rather lean towards a laissez-faire interpretation of capitalism such as the United States or the Asian tiger states tend to have lower levels of corporate social responsibility policies than Canada.12 At the same time, such policies are constantly more common within European countries,13 whose systems traditionally rather leaned towards social than free market economies and where presumably the population has higher expectations towards the businesses. The significant overlap between a marketable demand for responsible behavior from companies and it precedence implies that companies further their profit interests by adopting 10 Richard Welford, “Corporate Social Responsibility in Europe, North America and Asia. 2004 Survey Results,” Journal of Corporate Citizenship 17 (2005): 48. 11 Ibid. 35. 12 Ibid. 46-48, 49-50. 13 Ibid. 43-45.

Carsten Kaefert: Changing Relations - Self Interest or Morality?

6

corporate social responsibilities. Thus responsible policies would be means to improve the bottom line instead of end in themselves. While this would make corporate social responsibility acceptable to neo-liberal scholars such as Milton Friedman, it would also render them “insincere.”14

Corporate Morality Does the obvious presence of profit interests in corporate social responsibility policies mean there is no moral high ground for companies to do good for the sake of the world's betterment? This question is contested. First of all it presumes that companies are able to have morals and values. Both are capacities usually ascribed to human beings, to individuals. Therefore the mere search for corporate morality implies a personification of corporations, of structures and systems optimized to achieve a single goal, the creation of profit. In The Question of Organizational Consciousness Peter Pruzan sums this apparent contradiction up as follows: On the one hand, within the field of management parlance, it is common to speak of an organization's visions, strategies, goals and responsibilities. These are everyday phrases employed by both organizational theorists and business practitioners. On the other hand, it is also common to attribute competencies for reflection, evaluation, learning and considered choice solely to individuals. We tend to say that these are distinguishing characteristics of human beings as opposed to other life forms. This suggests that the attributing to organizations of competencies ordinarily associated with consciousness is metaphorical rather than literal in nature.15

14 Brownlee, Ruling Canada: 123. 15 Peter Pruzan, “The Question of Organizational Consciousness: Can Organizations have Values, Virtues and Visions?” Journal of Business Ethics 29 No. 3 (Feb. 2001): 271.

Carsten Kaefert: Changing Relations - Self Interest or Morality?

7

Thus, she argues, “all talk of organizational values and ethics is metaphorical (perhaps even euphemistical).”16 She further argues that “the values etc., although referred to as 'corporate', are accepted rather than shared.”17 This is important because these values are communicated “via a top-down process”18 resulting in members of the organization, in case of a corporations its employees, fulfilling the expectation to abide by codes and standards instead of fully adopting the ethics and values behind them. However, companies articulating “a core ideology, defined (...) as consisting of core values and purposes”19 have been found to be more successful and enduring as well as perceived far more positively. This is at least in part due to companies depending on motivated and energetic employees, which evidently seek not only traditional benefits such as good wages and opportunities for advancement, but also meaningful work in socially attractive environments in a company they can be proud of.20 The influence that has on organizational health is obvious, and that the effects on personal health stated by Pruzan,21 feed back onto the organization seems also reasonable. The preference of the public to patronize responsible companies established in the previous chapter adds another dimension in which it is beneficial to businesses to honor values and standards. After having established that organizations in fact can have values and ethics, it is important to investigate whether businesses actually do engage in corporate morality. To conduct this investigation, a comprehensive set of tools to measure corporate social responsibility and corporate social performance is necessary. One effort at operationalizing the aforementioned 16 17 18 19 20 21

Ibid. 272. Ibid. Ibid. Ibid. 275. Ibid. 274. Ibid. 275.

Carsten Kaefert: Changing Relations - Self Interest or Morality?

8

principles has been laid out in the previous chapter. However, measuring only the presence of codes and rules falls short of the definition of corporate morality as internalized, stable moral standards and ways to do business presented in this chapter. More promising is the attempt at defining corporate social performance as suggested by Kim Davenport. She suggests a set of three principles by which corporations should be assessed: The majority of study participants agreed on three things as indicative of good corporate citizenship: 1. Ethical business behavior. The company is guided by rigorous ethical standards in all of its business dealings. 2. Stakeholder commitment. The company is managed for the benefit of all stakeholders: community, consumers, employees, investors, and suppliers. 3. Environmental commitment. The company moderates its overall environmental impact through programs such as recycling, waste and emission abatement, and impact assessment via environmental audits.22 It has been found that since the 1990s, corporations concerns for ethical and environmental issues has been growing,23 thus most of the qualifiers above have been met. Furthermore, it has been found that companies are increasingly expected to address societal problems even beyond their profit interests and have thus been put under considerable social tension.24 So far acting upon this pressure has not been detrimental to companies' bottom lines, as Margolis and Walsh found out in a compilation of 127 studies linking social to financial

22 Kim Davenport, “Corporate Citizenship: A Stakeholder Approach for Defining Corporate Social Performance and Identifying Measures for Assessing It,” Business & Society 39 (2000): 216. 23 Leonard J. Brooks, “Business Ethics in Canada: Distinctiveness and Directions,” Journal of Business Ethics 16 No. 6 (April 1997): 601. 24 Joshua D. Margolis and James P. Walsh, “Misery Loves Companies: Rethinking Social Initiatives by Business,” Administrative Science Quarterly 48 No. 2 (June 2003): 271.

Carsten Kaefert: Changing Relations - Self Interest or Morality?

9

performance.25 High degrees in social performance also coincide with low levels in misappropriation of funds,26 which implies that ethical behavior affects not only companies' dealings with society at large, but also in its internal processes. The fact that companies which behave ethical as a whole are treated more ethical by their employees implies that both structures and individuals have embodied their responsibility. Corporate morality, after all, is possible and at least in some cases a reality.

Replacing Relations With corporations acting in a global arena and thus being to a large degree out of national governments' reach while at the same time starting to follow their own moral standards the question about the function of government in the economy and therefore its relationship with the business world arises. Do governments still have a say about how companies run their businesses or have the relations that once influenced corporate behavior been replaced by a post-democratic, self-governing kind of neo-corporatism? The answer to this question might go deeper than just the relationship between two spheres of society. In fact, Wesley Cragg suggests that a new social contract might be emerging. To this purpose, he sketches the post-World War II social contract as one of split responsibilities: One consequence of the assumption protecting and enhancing human rights was a government responsibility, however, was a de facto division of responsibilities between governments and the private sector. The private sector assumed primary responsibility for generating wealth while the public sector

25 Ibid. 277. 26 Ibid.

Carsten Kaefert: Changing Relations - Replacing Relations

10

accepted responsibility for ensuring human rights including freedom from “fear and want”.27 This, however, is changing – a change pushed forward by more than half a century of experience with the old social contract. Among the lessons learned is that many issues affecting more than on sphere of society cannot be solved by government, the public or businesses alone. Issues such as corruption are hurting every single part of society and have to be addressed by all the actors together.28 Globalization of governance through organization such as the OECD and the rising stake civil, non-governmental organizations have in decisions made by both governments and businesses profoundly change the relations among the actors.29 Another signifier is the change in behavior on the side of the companies that was described in the earlier parts of this paper – companies such as Levi Strauss, who not only introduce their own ethical standards instead of having them enforced by the government, but also turn towards the public, in this case NGOs like Oxfam, to monitor their progress.30 Most obviously changes in the roles of all actors involved are occurring. Cragg makes a compelling argument for a new social contract by showing that the existing one embedded in post-World War II thinking, does not cover the reality of the day anymore. Given that he made these observations nine years ago and that the tendencies he described have, in part due to technological progress, accelerated, it is safe to assume that the paradigm shift he is describing is almost completed. More important than the mere fact of change occurring, however, is the road ahead. How should – or does – the new social contract look like? He therefore demands business 27 Wesley Cragg, “Human Rights and Business Ethics: Fashioning a New Social Contract,” Journal of Business Ethics 27 (2000): 206. 28 Ibid. 211. 29 Cf. Ibid. 30 Ibid. 212.

Carsten Kaefert: Changing Relations - Replacing Relations

11

to acknowledge its role in advancing human rights and adhering to codes and standards, government and business to realize their dependency on each other and their need to form partnerships to advance common interests, civil society to pick up its task at monitoring this process and “finally and perhaps most important, we need to remind ourselves, as Gandhi and others have pointed out, that commerce without conscience is a formula for human exploitation, not human development.”31

31 Ibid. 213.

Carsten Kaefert: Changing Relations -

12

Bibliography Brooks, Leonard J. “Business Ethics in Canada: Distinctiveness and Directions,” Journal of Business Ethics 16 No. 6 (April 1997): 591-604. Brownlee, Jamie. Ruling Canada. Corporate Cohesion and Democracy. Halifax: Fernwood Publishing, 2005. Cragg, Wesley. “Human Rights and Business Ethics: Fashioning a New Social Contract,” Journal of Business Ethics 27 (2000): 205-214. Davenport, Kim. “Corporate Citizenship: A Stakeholder Approach for Defining Corporate Social Performance and Identifying Measures for Assessing It,” Business & Society 39 (2000): 210-219. Margolis, Joshua D. and Walsh, James P. “Misery Loves Companies: Rethinking Social Initiatives by Business,” Administrative Science Quarterly 48 No. 2 (June 2003): 268-305. Pruzan, Peter. “The Question of Organizational Consciousness: Can Organizations have Values, Virtues and Visions?” Journal of Business Ethics 29 No. 3 (Feb. 2001): 271-284. Taylor, D. Wayne, Warrack, Allan A. and Baetz, Mark C. Business and Government in Canada. Partners for the Future. Scarborough, On: Prentice Hall Canada, 1999. Welford, Richard. “Corporate Social Responsibility in Europe, North America and Asia. 2004 Survey Results,” Journal of Corporate Citizenship 17 (2005): 33-52.

Carsten Kaefert: Changing Relations - Bibliography

13