The Infiltration of Business by Socialists

 

Corporate leaders seem not to grasp that their embrace of ‘socially responsible’ agendas — be it gay marriage, expensive electricity or any other fashionable crusade of the Left — inherently embraces the values of some groups while alienating others. Daft indeed, yet that is happening time after time, company after company

Public attention in Australia has only recently started to focus on the Corporate Social Responsibility (CSR) activities of business, and mainly in response to the high-profile and unprecedented involvement of major companies in the same-sex-marriage debate. A common perception therefore is that involvement by corporations in social issues in the name of CSR is a recent phenomenon. In reality, the growing range of CSR activities undertaken by Australian companies is a product of decades of evolution and development of an extensive body of corporate management thought and practice internationally since at least the 1960s.

CSR is based on the belief that in order to hold a “social licence” to operate, companies must fulfil a range of social obligations beyond their traditional profit-making role. This includes ensuring that corporate decision-making considers the social impact of company activities on the interests of wider groups of stakeholders in the community.

The rise of CSR—and its institutionalisation within business—is a product of intersecting economic, social and cultural factors in contemporary society that have led to greater scrutiny of corporate conduct. In a more complex, more questioning and more globalised world, factors such as the concentration of economic and political power in large corporations, the emergence of counter-cultural attitudes towards established authority, and the growth of the international environmental movement, have combined in the marketplace of public opinion to shape how the community expects modern corporations to be accountable for, and transparent about, their social impact.

Nevertheless, much of the recent critical attention paid to CSR has focused—and for good reason—on accusing corporate elites of abusing their company’s brands to indulge in gratuitous political diversions from their core business in favour of meddling in politically contentious social debates. What is less well-known is that current levels of corporate meddling in politics will prove to be just the tip of the politicisation of Australian companies, if the expanding “industry” of CSR activists in Australian business achieve their objective and transform corporations into key participants in achieving “systemic change” on contentious social issues.

The Australian business community was a relative latecomer to the issue of corporate social responsibility. It was only in the 1990s that major local companies started to develop CSR policies, in line with international business trends, but mainly in response to corporate scandals. This led to criticism that most CSR activities were mere “window dressing” to cover tarnished company reputations. The response by Australian business has been to encourage a more meaningful approach.

In 2002, the Corporate Governance Council of the Australian Stock Exchange (ASX) formulated The Principles of Good Corporate Governance and Best Practice. Each of the three revised iterations of ASX’s best-practice guide has presented CSR as a “core business” feature of good corporate governance.

ASX has endorsed what is known as the “material business risk” approach, which seeks to “mainstream” and “integrate” CSR into strategic decision-making and operational practices at all levels of company management. Under ASX’s guidelines, consideration of the social impact of company activities on the legitimate interests of stakeholders is viewed as a form of “risk management” of non-financial risks relating to environmental sustainability or other social issues considered “material” to the long-term success of the business.

There is merit in the business case for CSR: in well-managed corporations it is reasonable for company directors and managers to exercise judgment to manage social risks to the company’s interests in the best interests of shareholders. However, in the current debate there has been insufficient discussion of the risks and negative brand and reputational consequences of corporate involvement in CSR embroiling companies in politically-charged issues.

The mainstreaming of CSR has been accompanied by the growth in the corporate landscape of an influential and strategically-placed “industry” of CSR professionals, either in the relevant company teams and divisions, or in the professional services and consulting sector. This is typified by the elevation in management structures of HR departments transformed into “People and Culture” divisions in charge of CSR policies such as promoting gender, sexual and racial “diversity”.

CSR has also been heavily promoted by the “Big Four” consultancy and professional services firms because of the potential to drive growth in new business such as external audits of corporate sustainability reports. So the corporate landscape is populated with internal and external actors with powerful motives to promote the mainstreaming of CSR practices. The more CSR is treated as the core business of business, the more the allocation of larger amounts of corporate resources can be justified—for such is the nature of the internal scramble over the allocation of scarce resources in bureaucratic organisations—to address these strategic and management issues; and the higher the status, authority and rewards in the corporate hierarchy CSR professionals can acquire. Hence the discussion of CSR in business circles tends to consist of companies being criticised for not doing enough, while emphasising the supposed benefits of doing more.

The foundational principles, logic and practice of CSR—the notion that companies are part of society and must be responsive to social issues—also encourage the escalation of CSR activities. Standard CSR practice invites lobby groups to engage with corporate entities to adopt and endorse their agendas, or risk the reputational consequences (such as public shaming on social media) of a refusal by losing “good standing” with stakeholders. CSR professionals see such engagement with stakeholders as their core role, integral to the process of mainstreaming and integrating CSR in management structures.

The notion that companies have a social responsibility to operate in the interests of a range of stakeholders means, in practice, that CSR activities can be justified beyond the obvious terms of any business case, in ways that inherently politicise companies’ roles and brands. CSR therefore has promethean qualities that render companies vulnerable to being forced to become involved in social issues that appear to have only tenuous links to their business interests. Witness the fact that the campaign to legalise same-sex marriage by the lobby group Australia Marriage Equality ultimately gained the backing of over 1300 Australian businesses that agreed to have their logos published in a show of support.

Of even greater significance is the activist mindset of many CSR professionals, who are able to shape not only internal CSR practices but also the official attitude companies take to external debates about CSR in business forums such as ASX.

Indicative of the aims and objectives of professional CSR activists is the 2018 Deloitte Global Human Capital Trends report. This survey of Australian business leaders, conducted by one of the leading business consultancies, found that only 23 per cent said that “social responsibility is a top priority reflected in their corporate strategy”. These results were presented by Deloitte as a “wake-up call” for Australian business that was “falling short when it comes to building a strategy to making a difference in society”.

Further insight into this activist mindset can be gained from the State of CSR in Australia report prepared by the Australian Centre for Corporate Social Responsibility (ACCSR). Until it was (tellingly) absorbed by professional services giant Deloitte in November 2017, ACCSR was a consultancy specialising in CSR strategies. Its 2014 State of CSR report was based on a survey of almost 1000 respondents on the ACCSR mailing list. This was hardly a scientific survey. But the findings of the report are significant based on what it tells us about the aspirations of the CSR professionals who responded.

The findings reflected the aspirations of ACCSR itself, whose managing director argued in the foreword to the report that the “professionalisation of CSR” is needed to extend beyond internal processes and operations because:

It’s not enough to do well at CSR any more. CSR leaders need to participate in systemic change, not just organisational change. Only in this way can we address deep-rooted social, economic and environmental problems to create lasting value for both organisations and their stakeholders.

The notion of driving “meaningful change” on social, environmental and economic issues identifies the inherent—but under-examined—potential risks of corporate involvement in CSR. What the ACCSR report suggested was that the professionalisation, integration and mainstreaming of CSR processes within business is conceived of by activist CSR professionals not simply as means of ensuring companies effectively manage their social impact in the best interests of the business. Rather, the development of internal CSR capabilities and practices is conceived of as “the first steps of the journey” of enabling companies to participate in systemic change.

The suggestion thereby is that the business of business is to be actively involved in politics—an objective reflected in the extraordinary statement made by one survey respondent and prominently quoted by the ACCSR report: “For all the good work that’s been done it still feels like we haven’t made much difference. Minimal systemic change has occurred and the future under the current political climate seems very bleak.” This quote suggests that the ambition is that the integration of CSR into organisations will ultimately lead to contributing to systemic change, which will inevitably entail the politicisation of corporations. In the words of the report: “CSR will be strategic and action-oriented and make a real impact.”

One international advocate has described this Rubicon as the point at which companies seeking to promote collective action to address social concerns shift CSR “from being an object of civil activism to a key participant in civil society initiatives and processes”. Or as Deloitte Human Capital Leader, David Brown, put this in relation to the alleged wake-up call delivered to businesses about “their broader role in society” by the 2018 Deloitte report:

The focus is now clearly on business’s role in society as a driver of change. Just look at the role they played in the marriage equality debate in Australia late last year … Companies’ reputation, relevance, and bottom-lines increasingly hinge on their ability to act as good citizens and influence pressing public issues.

On this understanding of the ultimate “focus”, the business of business will not just be CSR. Under the envisaged escalation and transformation of CSR activities, the business of business will be politics.

Other aspects of the ACCSR report also reveal the other elements of the same outlook and ambitions. The survey found CSR professionals felt that while progress had been made, it had been slow, insufficient and focused internally.

The notion that respondents wanted CSR to entail “developing multi-stakeholder partnerships on issues of common interest” employs, inappropriately, the language and concepts of politics and coalition-building. This notion of stakeholder engagement goes beyond a process of establishing relationships to create internal awareness of the importance of CSR to the business. The aims and objectives of CSR professional activists speak of a process of internal subversion—diversion of companies from traditional business endeavours towards open political activism.

The politicisation of Australian companies is hardly an abstract concern. The revised corporate governance standards that have been proposed by ASX’s Corporate Governance Council reflect the mindset, ambitions and influence of the CSR industry.

The proposed new governance standards are designed to encourage company boards of directors to cement CSR principles at the heart of corporate governance by recognising “the fundamental importance of a listed entity’s social licence to operate and the need for it to act lawfully, ethically and in a socially responsible manner in order to preserve that licence”. Compliance with new standards would, in practice, aim to qualify the primacy of shareholders’ interests and maximising returns on investments, and would escalate responsibility for CSR to board level by explicitly requiring company directors to acknowledge and consider the views and interests of stakeholders.

More importantly, the draft guidelines also contain prescriptive commentary setting out the kinds of “socially responsible” behaviour allegedly required to earn a “licence”, including avoiding tax minimisation, respecting human rights, disclosing climate change risk, paying a living wage, and meeting a range of diversity targets across companies.

Notwithstanding the typical CSR appeal to the abstract notion of a “social licence”, the proposed guidelines suggest that companies must act “socially responsibly” with regards to what are inherently politically contentious issues.

The proposed ASX guidelines, in combination with the rhetoric emanating from the CSR industry should alert corporate leaders to the willingness of CSR professionals to play politics with shareholders’ money. Meddling in political issues for the sake of interests that are faintly—if at all—connected to shareholders’ interests is the Rubicon that the CSR activities of Australian business should not cross if we are to avoid companies becoming inappropriately politicised.

Given that well-organised “progressive” advocacy organisations have newfound ability to influence corporate reputations through social media, it may be difficult for corporate leaders to tell the difference between CSR activities justified by a business case and those that should be rejected as inherently politicising. Corporate leaders may also be blind to the political risks and feel that they are simply acting in a socially responsible way by reflecting popular positions on social issues. But companies are politicised by taking sides on questions for which there is no community consensus. This is underlined by the political polarisation evident in many Western countries—including Australia—between “elites” holding progressive views on social issues and “ordinary” citizens holding more conservative views.

Corporate leaders would have to be politically tone-deaf not to realise that activities conceived of as socially responsible are inherently politicising of company reputations; and that by embracing the values of some groups in the community they will be rejecting the different values of others. Yet a key feature of the new social polarisation is that “insider” elites—who work, live and socialise in a “bubble” of other elites who think the same way—often don’t appreciate that “outsiders” think, speak and act differently.

Regardless of the generic CSR gloss that might be spouted by insider professionals, associating a company with a political position or worldview will inevitably repel dissenting employees, customers, shareholders and stakeholders from that brand. Associating a corporate brand with a divisive political position is hardly in the best interests of the company.

The reputational risks of CSR also are that companies will risk being perceived as not only political players, but as agents of social and political division. It might be said that companies, being part of society, are simply reflecting the cultural polarisation that is occurring throughout society. However, public companies, given their special legal rights and privileges, should aspire to be pluralistic institutions that serve the whole community equally; which is impossible if companies acquire reputations for “being political”.

Hard-headed corporate decision-makers who might want to counter the CSR management doctrines and structures that are now institutionalised in business, and combat both the activism and inertia of the CSR industry, are at a disadvantage due to the absence of anything resembling a counter-institutional framework to compare with ASX’s pro-CSR governance principles. They need guidance and support to shape and justify decisions to limit a company’s CSR activities.

The overarching purpose of articulating and disseminating such a counter framework would be to stem the politicisation of companies that might otherwise occur through the escalation of CSR activities. The framework therefore needs to overtly qualify and clarify existing CSR philosophies by flagging the importance for companies of avoiding the risks of politicisation.

Ideally, this needs to be the kind of statement that can shape and guide corporate decision-making by being inserted at the relevant place into ASX’s Corporate Governance Principles. It should also be the kind of statement that could be taken up by shareholders and shareholder organisations as a means of exerting greater authority over company directors and managers. If voted on at annual meetings and inserted into company constitutions, this would allow a hitherto silent majority of shareholders (who might wish to question what value is being generated by CSR divisions and activities) to tell directors and managers what the owners believe are the appropriate limits of CSR. It also needs to be the kind of statement to which companies, under the direction of their boards, might voluntarily subscribe to protect their brands.

A guiding statement of principle that could serve these purposes is the “Community Pluralism Principle”:

It is important for modern corporations to consider their impact on all genuine stakeholders in the best interests of shareholders. It is also important that engagement on social issues cannot be perceived to distract from a company’s core business mission, duties and accountabilities, nor negatively affect its brand and reputation in the market of opinion in a political sense. It is a matter for boards of directors and other corporate decision-makers to manage these risks by ensuring that companies respect and reflect the pluralism of Australian society and remain open to the views and values of all employees, customers, shareholders and stakeholders across the community.

To be effective, the Community Pluralism Principle needs to take a balanced approach to CSR. Hence the principle, as drafted, recognises CSR as a legitimate area of discretionary management by boards and senior executives, when acting in good faith and in a reasonable manner for the benefit of the company. It also reflects the cultural reasons and realities why modern companies do—and should—consider the social impacts of their activities. It also embodies the business case for CSR as a matter of commercial judgment, and hence seeks to firmly link and limit CSR to considering stakeholder interests that are directly relevant to shareholders’ interests.

However, it is also expressly designed to rule out any question of CSR crossing the Rubicon of participating in systemic change. In this vein, the principle is also crafted with the purpose of encouraging the view that decision-making on CSR should focus on managing the business risks of politicisation. The hope and expectation are that by following the standard business language and practice of risk management, this may enhance the applicability of the principle to corporate decision-making, and thereby help facilitate its incorporation into corporate governance.

One reason external support and justification for sound business-based corporate decision-making on CSR are needed is that, in these polarised times, those who oppose “progressive” agendas risk professional repercussions and social “death”. This particularly applies in “big corporates” in relation to CSR, especially as People and Culture departments remain responsible for HR decisions related to hiring, firing and promotion. Subscribing to a set of social or political values should not be an employment prerequisite; it represents a (normative if not legal) violation of the democratic rights and freedoms that all citizens should enjoy in Australia. What you can contribute to the mission of the company—not political considerations—should be the criterion for employment and advancement.

Avoiding the politicisation of the workplace is a strong argument for curbing CSR. Yet the fact that quasi-political tests already play a role in employment practices—in violation of the bedrock principles of a free society that respects the rights and freedoms of speech, thought and conscience of all citizens—means that few in corporate Australia may be brave enough to challenge CSR orthodoxies.

Hence, it is unclear whether there is an appetite in the business community for curbing CSR. One view is that most company directors and senior managers are too timid to speak up on this issue. On the other hand, 53 per cent of respondents to the Deloitte Global Human Capital Trends survey said social responsibility is not a focus for them.

So perhaps there is a silent majority in corporate Australia with a dissenting opinion, which is looking for something to say, and a way to say it, in order to push back against the CSR trend. If there is an appetite for this, company directors and managers would benefit from being able to readily explain their decision by reference to an established, recognised and countervailing rationale such as the Community Pluralism Principle.

Recent pushback by some corporate heavyweights—led by the new Chairman of AMP, David Murray—against ASX’s revised corporate governance guidelines suggests that business is slowly waking up to the danger posed by the abstract concept of a “social licence” to the traditional role and functions of companies.

This has led the chair of ASX’s Corporate Governance Council to back away from the proposal to introduce a “social licence to operate” into the guidelines. However, it would be wrong to draw false comfort from this, for the chair went on to say that the issue “can be addressed in different terms, such as reputation, brand and trust”. Such linguistic backtracking bears the hallmarks of a tactical withdrawal. It would, moreover, be naive to think the proponents of CSR will simply give up after encountering one setback.

Even more importantly, a (temporary) retreat on the language front by pro-CSR forces will not alter the fundamentals of the corporate landscape (the motives and methods of the burgeoning CSR industry) that got us to the brink of ASX fully endorsing the social-licence concept. Rather than be content with simply winning a short-term battle that will almost certainly have to be fought again in the future, those who genuinely wish to curb the role of CSR in Australian business need to focus on “winning the war”. They should therefore fully support introducing into the language and practice of corporate governance an institutional framework—the Community Pluralism Principle—that embodies a sound and sensible approach to curbing CSR and promoting the proper role of companies.

Introducing the Community Pluralism Principle into corporate governance would not restore a golden age when a business’s business was only business. Nor would it, of itself, guarantee that CSR activities are limited to legitimate business interests, and do not extend into overt political interests—particularly when outcomes would continue to depend on the appetite among corporate elites to challenge the thrust and momentum of the CSR industry.

However, if the will exists to exercise some enlightened self-regulation—or that will is fostered by greater awareness of the business risks of politicisation—the ability to refer to the Community Pluralism Principle as part of good corporate governance might help curb CSR and prevent companies from inappropriately straying into politics.

Dr Jeremy Sammut is a Senior Research Fellow and Director of the Culture, Prosperity and Civil Society Program at the Centre for Independent Studies. This is an edited extract from his report, Curbing Corporate Social Responsibility: Preventing Politicisation—and Preserving Pluralism—in Australian Business, which was published in July.