Strategies for Responsible Businesses

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Corporate Responsibility Needs a Major Revamp

Right till September 2015, this company led the Dow Jones Sustainability Index automotive sector as a leader in sustainable practices. It had a fantastic sustainability report with commitments for disclosure and scalable year-on-year targets. The Reputation Index placed it top 11 in the world for good reputation.

Of course, we now know that this company is Volkswagen (VW), which purposefully rigged its cars through a so-called “defeat device” to circumvent environmental rules, releasing pollutants beyond permissible levels into the atmosphere. By falsifying emissions data on its diesel vehicles, Volkswagen claimed that it was cleaner than it is. Eleven million cars worldwide are believed to have been installed with the particular software to pass the emissions threshold.

Craig Smith, professor of Business Ethics, previously at London Business School and now at Insead, says this: “Audi’s US advertising slogan is: ‘Truth is Engineering’. It turns out ‘Engineering the truth’ would have been more accurate.”

VW has admitted that the scandal was perpetrated by a mindset of “tolerated rule-breaking” and resulted in the resignation of the then CEO. While VW has called the crisis an opportunity for VW to introduce “much-needed structural change”, the problem goes much deeper than any spin master can help them.

The WV case is not an isolated incident of a company purporting to promote disclosure and best CR (corporate responsibility) practices only to turn out to be a façade layered by deceit. Recall Enron, BP’s Deepwater Horizon and more recently, the collapse of Rana Plaza in Bangladesh.

Some of us may say this is nothing new – eventually another case study of corporate misdemeanour in business schools around the world. The automotive sector is merely following the banking and financial sector, they say. And industry wide misconduct can be attributed to rationalisation – a way to make an excuse to justify our misconduct.

This of course is a perfect time to pick up Hannah Arendt’s Eichmann in Jerusalem: A Report on the Banality of Evil written in 1963.

Arendt coined the term “banality of evil”. When tasks are so rigidly segmented and compartmentalised, actors can fail to see their responsibility in the final outcome of the collective action. Her book reported on the trial of Adolf Eichmann, a German-Nazi colonel and one of the organisers of the Holocaust. Arendt’s point is that the evil Eichmann perpetrated was based purely on his obligation or duty to his job.

What has happened at VW is an organised and systematic exclusion of responsibility of any one individual, bound together by a common thread of deceit. Sustainability in this case has been used to mislead and build a vague notion of credibility.

The missing currency is trust.

Does this mean that CR practices are redundant and not particularly useful? Have sustainability disclosures and reporting, increasingly made mandatory by regulators around the world, lost their credibility?

The main problem with CR is that a report is a by-product of internal and external practices – both good and bad. The report then becomes reflective of a fundamentally flawed idea about CR and companies: “Competitive pressure among corporations will lead to more corporations competing to embrace CR. There will be a competitive ‘race to the top’ among companies”.

Based on this flawed notion and in order to achieve this objective, larger companies increasingly capitalise on partnering under the guise of “stakeholder engagement” and produce glossy annual CR reports.

It is instructive that many CR programmes are run by department of companies with staff who have little knowledge of what CR actually entails. This kind of thinking only leads to a negative spiral – CR-related causes become a luxury and are often placed on the chopping block when the going gets rough.

The real transformation that needs to happen is a cultural change – for a culture of sustainability to be integrated in the organisation. With the exception of a few, companies talk about culture of excellence, sales-driven culture and a culture of performance. But there is no real thought on a culture of sustainability.

So, the simple answer is this: The CR that we know must end because it is based primarily on a bolted-on glossy reporting exercise. Such an understanding of CR has been used for spin-doctoring and publicity exercises. This is the type of CR, as a bolted-on initiative, that must end – fast.

How do we then move from this bolt-on thinking to have CR built-in throughout the organisation? In the next part, I will discuss the key ingredients that are needed to embed CR in an organisation and why hollow terms like “stakeholder engagement” must end.

-first published in The Sun Daily and edited for this site-

Jay DesanComment