Social accountability more than just being responsible

Tuesday, 9 November 2004 Leave a comment Go to comments

Opinion and Editorial – THE JAKARTA POST, November 09, 2004

Yanuar Nugroho

The world-famous business strategy consultant, Peter F. Drucker, in a recent interview in Joel Bakan’s new book, The Corporation (2004), says “If you find an executive who wants to take on social responsibilities, fire him. Fast.”

Those who believe, or are in favor of, corporate social responsibility (CSR) may be shocked. But, bravery is indeed needed to scrutinize the very heart of business practice, without which we may be misled when addressing the role of business and corporations in our lives today.

During the last century, the world witnessed how nations embraced democratic ideals and expanded the government’s domain over society and the economy, toward greater public participation and shared humanitarian ideals. Social programs and economic regulations were created by governments to protect their citizens from neglect by the market and from exploitation by corporations.

While deregulation has freed corporations from legal constraints, privatization has enabled them to govern areas of society where they have never been before. Today, it can be argued the corporation has become the world’s dominant institution, undermining society and governments.

As a result, corporations are free to engage in questionable or even criminal behavior often without fear of censure.

Research conducted recently by international human rights organizations such as a 2003 study by Amnesty International and one this year by Human Rights Watch found international businesses were involved in many human rights violations in the countries they operated. These violations included torture, forced displacement of people, hostage-taking, violations against the right to form unions, involuntary resettlement, forced or bonded labor, and practices that infringed on the rights of women, children and traditional tribes.

The reports have highlighted the importance of corporate social responsibility (CSR) in business; an initiative taken up by many business leaders.

Principally, the CSR principal recognizes companies are responsible not only to their shareholders but also to their stakeholders — all parties affected by a business including workers, suppliers, the local community, government, NGOs and consumers. In recent developments, the environment has also been put into the equation.
The new understanding of CSR is known as the triple bottom line — profit, people and planet. That is that (1) business goals are always for profit, and that (2) business and corporations are supposed to take part in the efforts to fulfill people’s welfare and this (3) requires active participation in securing the planet’s sustainability.

There has been much evidence to support this thought. Corporations now highlight social and environmental initiatives on their websites and annual reports. Entire departments and executive positions are dedicated to these initiatives.

However, not everyone is convinced of CSR’s virtue. Milton Friedman, a Nobel laureate and world famous economist, believes that CSR, this new moralism in business, is in fact immoral.

He says, “A corporation is the property of its stockholders and its interests are the interests of its stockholders. Now, beyond that, should it spend the stockholders’ money for purposes which it regards as socially responsible but which it cannot connect to its bottom line? The answer I would say is no.”

In Friedman’s mind, there is but one social responsibility for corporate executives: They must make as much money as possible for their shareholders. This is a moral imperative.
There is, however, one instance when CSR can be tolerated, according to Friedman — when it is insincere. The corporate people who treat social and environmental values as means to maximize shareholders’ profit — not as ends in themselves — commit no wrong.
Central to the theory and success of neo-liberalism is that it puts profit above all else.
One could argue that because companies must maximize profit, everything is legitimate in the pursuit of this goal. Despoiling the environment or using child labor or firing thousands of workers is legitimate for maximizing profit.

Indeed, I would argue that the profit-focus is the root of the problem. If we realize how immense business power is today, it comes as no surprise that corporations feel they are “partners” with governments, which can rule and control society.

All “new” initiatives of public-private partnerships, for example, show exactly why business wants to be in this position. Is there any problem with this idea? Well, it seems compelling and innocent — until we think about what it really means.

If corporations and governments are indeed partners, we need to worry about the state of democracy. Why? Because as Monbiott and Hertz indicate, corporations have taken over the government’s sovereignty. Today corporations stand next to, rather than under, democratic governments. Their leaders believe they have a legitimate role, as partners with government, in governing society. Meanwhile, the government is believed to have a less legitimate role in governing corporations.

The last update of the Institute of Policy Studies this year shows transnational corporations? (TNCs) numbered 3,077 in 1914, jumping to 39,463 by 1994 and leaped again to 63,312 in 2000. Of the 100 biggest economic units in the world, 53 are corporations and only 47 are nation-states. The oil company ExxonMobil, for example, is much bigger than the combined revenue of poor 180 countries. Of course, money does not automatically reflect power, but it is certainly parallel to power.

About 85 percent of the world’s flour stock is controlled by only six TNCs. Five TNCs now control 90 percent of the music industry and seven companies own 95 percent of the world’s film industry, as disclosed in this year’s Global Inc. written by Gabel and Bruner.
This is why “Corporate Social Responsibility” needs a serious rethink.

To my mind, “Corporate Accountability” would be a more correct term, for accountability deals with the control of the exercise of power while responsibility merely counts on individual entities’ voluntary action.

And unlike the vague CSR, the “Corporate Accountability” concept is clear in its action plan — to make business practices not only socially responsible but also democratic and accountable.

The writer is director of Business Watch Indonesia. He is currently a research assistant and doctoral candidate at PREST, the University of Manchester in the United Kingdom.

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