Corporate social responsibility: A third way? An interview with Sir Geoffrey Owen

Corporate Social Responsibility: A Third Way?An Interview with Sir Geoffrey Owen V IRGIN IE V IAL

Sir Geoffrey Owen has been a Senior Fellow at theInstitute of Management of the London School ofEconomics since 1996. From 1991 to 1996 he wasDirector of Business Policy in the Center for Eco-nomic Performance at the London School of Eco-nomics. He has held various senior positions in theindustry sector and spent many years as IndustryCorrespondent as well as Deputy Editor for theFinancial Times. In this interview, he answers 11questions discussing the context in which corporatesocial responsibility is becoming a business concern.© 2007 Wiley Periodicals, Inc.

Virginie Vial: Corporate Social Responsibility(CSR) is on the agenda of an increasing numberof corporations around the world. Some say thisis just a fad, while others argue that this repre-sents a deep change in approach to modern busi-ness. Corporate Social Responsibility covers the in-teractions and the relationships that exist betweena company and its stakeholders. It is also used toname the actions companies undertake in the do-main of sustainable development, both from an en-vironmental and a social point of view. It is generallyagreed that Corporate Social Responsibility actionsshould go beyond environmental and social compli-ance, making the corporation the agent in chargeof innovation in terms of environmental and socialprotection. In the 1970s and the 1980s, as Multi-national companies (MNCs) started to gain promi-nence, both through their turnover that exceededthe revenues of some countries in terms of GDP,and through their global reach, the world discov-ered that states and governments do not rule theworld alone. Business has an increasing influence onpublic decision-making, and the growth of businesstranslates into the growth of negative externalities,coupled with a redesign of societies’ structure. Still,

governments seem to be in charge of the provisionof public goods. Since the early 1990s, MNCs areunder the increasing scrutiny of civil society, and areincreasingly held accountable for the protection orthe provision of public goods. Between the extremelyliberal interpretation of Milton Friedman’s view that“the social responsibility of business is to increaseits profits” (1970) and the sometimes extreme pointof view of the anti-globalization movement, wheredoes the Responsible-and-Yet-Profitable-Companystand? Confronting the latest academic research onCorporate Social Responsibility (CSR), and carefulobservation of large companies’ initiatives and re-sults, we raise a series of issues that have becomecritical to understanding the CSR movement. Hereare some pivotal questions that we would like youto answer:

1. Corporate Social Responsibility issues are receiv-ing increasing attention from the business commu-nity. This attention is emerging as a response tothe pressure from global civil society, representedby large international not-for-profit organizations,such as Oxfam, Amnesty International and Trans-parency International. From a historical perspec-tive, how do you explain the emergence of theCorporate Social Responsibility movement?

Sir Geoffrey Owen: There have been several factorsat work. One important development in the 1970swas the campaign, especially in the US, but also inEurope, on the subject of Apartheid in South Africa,in which those organizations who were anxious tobring about reform in South Africa saw internationalcompanies as a vehicle through which to promotethese reforms. These organizations put a lot of pres-sure on companies to pull out of South Africa be-cause of the Apartheid regime, and thus damage theSouth African economy in the hope to bring about

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genuine reforms. This was one element. A secondelement, also in the 1970s, was a growing aware-ness of environmental damage that was being causedby industrial activity around the world, and a littlebit later in the 1980s, you had some big episodessuch as the Exxon Valdez oil leak near the UnitedStates, and then the great tragedy of the UnionCarbide factory in India, which focused attentionon the damaging effects that some companies werehaving. This greatly stimulated the environmentalmovement which became much more aggressive inpromoting the objectives of its members and puttingpressure on firms to improve their environmental be-havior. The movement gathered pace from that timeonward. Other organizations such as Oxfam, andpeople concerned with Human Rights and poverty,realized that companies had a role to play regardingthese issues and that they themselves were vulnerableto attack, or that one could put pressure on them tochange the way business is conducted. Furthermore,because of globalization and the greater visibility ofinternational companies around the world, MNCshave become easy targets. The emergence of the CSRmovement has resulted from a mixture of factorsalong those lines.

Because of globalization and the greater visibilityof international companies around the world, MNCshave become easy targets.

Virginie Vial: One could of course also add to thisthat the emergence of the CSR movement, on thecompanies’ side, is the result of the reaction ofbusiness lobbies to the mounting concern of de-veloping countries regarding some of the negativeexternalities of MNCs. In the 1970s MNCs were in-creasingly seen as the symbol of US power, Westerneconomies faced a crisis following the oil shock in1973, and MNCs were often singled out for theircontribution to the crisis through capital and jobflight abroad. Developing countries were also will-

ing to complement their political independence withrelative economic independence, and started regulat-ing the entry of foreign firms. The mounting scrutinyand control of MNCs triggered a reaction wherebyMNCs developed and set up voluntary codes of con-duct in the area of Corporate Social Responsibility.These voluntary codes were set up to prevent formaland binding regulation that could emerge massivelyaround the world.

2. In some countries more than in others, and forsome companies, Corporate Social Responsibility isconsidered as a vogue. There seem to be two dif-ferent arguments. In one, Corporate Social Respon-sibility is considered as a short-lived fashion thatcan cost a lot of time and money to implement andwill not bring much return on investment. In theother, proponents of Milton Friedman’s argumentare convinced that “the social responsibility of busi-ness is to increase its profit.” If we look at concretebusiness cases, can one still say that CSR is worththe money and is it really the business of business?

Sir Geoffrey Owen: It is very hard to general-ize about companies and there is a great range ofresponses to this Corporate Social Responsibilitymovement. Virtually all companies recognize thatthey are operating in a more transparent environ-ment, and the things that they do, especially bigcompanies, are liable to become public knowledge,and therefore they are more conscious of the dam-age to their reputation, which could arise if theyare seen to be behaving in an irresponsible way.There is a general increase in transparency, visibil-ity, scrutiny by the press and by non-governmentalorganizations. Large companies that operate inter-nationally are aware of this environment and pres-sure. But then, beyond this, you have a variationbetween, at one end, those companies who reallythink that Corporate Social Responsibility must beintegrated into their decision-making at all levels,and a broad range of guidelines and instructions aregiven to their managers to take this into account.That is not to say that this is necessarily to the detri-ment of shareholder value. But it is certainly a strong

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additional requirement for managers. At the otherend, you have quite a lot of people who are some-what skeptical. I am not sure they think necessarilythat it is a fad, but they believe that, at this endof the spectrum, their contribution to society comesmainly from their ability to provide goods and ser-vices which people want to buy and their ability toprovide a return to the shareholders who have in-vested their money in the business. The variation isbetween those who feel that the promotion of share-holder value does need to be tempered in some fairlysignificant way by CSR considerations and the oth-ers who feel that there are dangers in going too farin that direction because it might damage what theyregard as their fundamental task.

Indeed, one can consider that CSR actions, such asthey are practiced in today’s corporations, can beconsidered as “taxation without representation.”

Virginie Vial: Indeed, one can consider that CSRactions, such as they are practiced in today’s cor-porations, can be considered as “taxation withoutrepresentation.” Lantos, for example, argues thatthere are ethical, altruistic and strategic forms ofCSR—and that altruistic CSR corresponds to “tax-ation without representation.” In this case, one canargue that part or the totality of the value addedcreated by the firm is redistributed according to per-sonal interests—interests carried by certain agents incompanies—that can diverge from those of the firm,that are, in a narrow definition, the convergenceand balance of direct stakeholders’ interests, namelyshareholders, managers, employees, customers, andsuppliers. This balance is something that is difficultto achieve and is generally a precarious equilibrium.Of course, if the economy was working under per-fect competition conditions, this equilibrium wouldbe achieved mechanically through market mecha-nisms. However, as firms, and by extension mar-kets, are organized as a complex nexus of contracts,balance of interests is achieved through a periodi-

cal renegotiation depending on both the evolutionof market and social conditions. Given these diffi-culties, it is easily understandable that some com-panies do not wish to include more stakeholders,i.e., indirect stakeholders, in the negotiation pro-cess. Indeed, as the number of stakeholders, andtherefore of potentially diverging interests increase,the complexity and length of the negotiation pro-cess increases, thereby pushing transaction costs up.If the anticipated transaction costs outweigh the an-ticipated cost of not taking into account more stake-holders (for example the potential costs linked to therisk of reputation), companies will make the strate-gic choice of having very little involvement in CSRactivities.

3. Practical evidence of the direct profitability ofinvestment in CSR is sometimes difficult to find.For example, Aupperle, Carroll and Hatfield findno correlation between CSR and profitability, whileMcGuire, Sundgren and Schneeweis find that goodfinancial performance triggers CSR involvement,but that CSR activities do not necessarily lead tobetter financial results. They also suggest that CSRserves best as an insurance against risk. One goodexample is that of listed companies which had builta positive CSR reputation and managed to with-stand the crisis that happened after the Seattle riotsin 1999, and saw their stock prices drop less thanthose of other companies. In your opinion, what arethe benefits of good CSR practices?

Sir Geoffrey Owen: A lot of attempts have beenmade to link commitment to CSR with financial per-formance, and nobody has really established a clearlink. In other words, it is not clear that companieswhich have been leaders in CSR have performed bet-ter for their shareholders; it is very hard to establishsuch a link. I suppose you could look at the oil indus-try; at one end you have a company, such as Shell,which is very much a leader in the CSR business, andat the other end, Exxon in the US, which is not ex-actly anti-CSR, but certainly has not made any greatefforts to satisfy demands from non-governmentalorganizations. It is certainly not obvious that Exxonhas suffered financially or in terms of the investment

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community because of its attitude, or that Shell hasgained. There may be a lot of good reasons for do-ing CSR, and there is the very important factor ofprotecting the company’s reputation, which appliesto everybody. Exxon is going to make a tremendouseffort to make sure that there is no more ExxonValdez-type of episode, and this is important, butthe direct link between CSR and stock market per-formance or profit performance or other financialperformance measure remains to date unproven.

Looking at a single company, it is almost impos-sible to establish what the performance of a com-pany would have been if it had not undertaken CSRactions.

Virginie Vial: It is true that an evident link betweenCSR and financial performance is difficult to estab-lish. One of the reasons why it is problematical toestablish such a link lies in the difficulty of buildinga counterfactual. Looking at a single company, it isalmost impossible to establish what the performanceof a company would have been if it had not under-taken CSR actions. There is of course the possibilityof comparing companies in the same sector, or fac-ing similar circumstances. Here, the difficulty is thedefinition and measurement of CSR initiatives. Asthere is, by definition, no global binding regulationon these issues, companies propose their own indi-vidual approach to CSR, and the approach, withinthe same company, can vary across countries or ac-tivity: No single definition or measure can captureCSR involvement. However, not being able to mea-sure the effects of CSR on performance does notmean that it does not exist. Furthermore, CSR in-volvement is said to bear fruit in the long run, whilestudies have been mostly focusing on the short ormedium run.

4. The global Corporate Social Responsibilitymovement is growing. However, there are strikingdisparities in approaches to CSR across countries

and regions. Differences in approaches to CSR areparticularly striking between the US and Europe.Do differences in corporate law, corporate gover-nance, and corporate culture play a central role inexplaining those different approaches?

Sir Geoffrey Owen: There are differences betweenthe US and most of Western Europe: One couldpoint to a greater commitment in Europe, especiallycontinental Europe, not so much perhaps the UK,to the concept of social partnership and the conceptthat companies have a role that goes beyond satis-fying shareholders. Obviously one example of thiswould be the co-determination system in Germanyand some other countries whereby workers, as onegroup of stakeholders, are directly represented onsupervisory boards. The concept of companies hav-ing responsibility to stakeholders other than share-holders is perhaps more accepted in Europe andtherefore there is probably a more receptive envi-ronment for some of the CSR ideas. One could alsoargue, maybe this is more dubious, that too manysuspicions of capitalism, profit motive, shareholdervalue and so on is greater in Europe than in theUnited States. To put it in an extreme way, a kindof anti-capitalist element is probably stronger inEurope than it is in the United States and that is oneingredient, I am not saying it is the dominant ingre-dient at all, but it is certainly an ingredient in someof the organizations that are promoting CSR. Thishas political consequences too, in the sense that thegovernment, for example the British government,takes CSR very seriously. And although it has notgone all that far in terms of legislation, it has takenone or two actions which are progressing somewhattowards spelling out if not in law, at least in somekind of guidance to companies, that they should bemuch more aware of environmental and social issuesto a greater extent than in the US. Perhaps the freemarket concept a la Friedman that you mentioned ismore readily accepted in the US than it is in Europe.

Virginie Vial: Here you are pointing at differ-ent elements. On the one hand, the historical


predominance of market mechanisms and the rel-ative lack of market regulation in the US result in a“quasi- perfect” market economy in the US case—at least comparatively to other economies. This re-sults in the widespread acceptance of the conceptof capitalism and liberalism, and of the goodnessof Adam Smith’s concept of the “invisible hand.”As Sen rightly underlines, self-interest is the basisof motivation for exchange; however, self-interestdoes not exclude taking ethics into account. And in-deed, what Friedman points to is the importance offreedom and individual choice, rejecting in partic-ular State intervention that could result in the lossof degrees of freedom. For Friedman, the responsi-bility of the companies’ executives is to maximizeprofit “while conforming to the basic rules of thesociety, both those embodied in law and those em-bodied in ethical custom.” In a quasi-perfect mar-ket economy, CSR is anchored in the ethical valuescarried both in the law and in society, individual re-sponsibility is stressed, and collective responsibilityis achieved through the interaction of each individ-ual responsibility.

As Sen rightly underlines, self-interest is the basis ofmotivation for exchange; however, self-interest doesnot exclude taking ethics into account.

Historically, in continental Europe, the economicrole of the State is central, market regulationis—even though decreasing because of globaliza-tion and widespread international competition—relatively more present than in the US, the existenceof organized social classes is more predominant,hence a relatively more developed confrontation ofthese social classes. This of course results in an ap-proach to CSR that differs from the one developedin the US. In continental Europe, the Welfare State ishistorically the entity that carries the bulk of socialresponsibility. Companies, some of which were pre-viously involved in a paternalistic approach of whatwe call CSR today, are also increasingly solicited.

The focus is shifting from old fashioned paternalismto modern CSR. However, in Europe where civilsociety has a lesser and different impact on busi-ness than in the US, pressure towards increased re-sponsibilities of business is channeled through Stateregulation.

Probably, one of the elements explaining the differ-ent approaches to CSR on either side of the Atlanticis the way we define freedom and ethics, and whowe believe carries social responsibility. This is ofcourse shaped by our social, political, and economichistories.

5. As mentioned earlier, measuring the degree ofinvolvement of a company in CSR is very difficult,both because of the nature of such actions, and be-cause of the various approaches. In the context ofa global economy and global communication, CSRissues seem however to call for international stan-dards. How do we reconcile a global standard withthe mosaic of approaches?

Sir Geoffrey Owen: I think it is very difficult and Iam not sure it is even worth trying. There are dan-gers in having global requirements in these matters,except maybe in the broad sense. It is perfectly rea-sonable that organizations such as the UN or theOECD should come up with some standards onissues such as bribery and corruption. This is ap-propriate and often reflected in national laws aswell. International discussion and some degree ofinternational consensus on these issues are fine, andthere is nothing wrong with that. It is when you godown to more specific areas, such as for examplelabor practices and recognition of trade-unions, oreven something more emotive such as child labor,that it becomes extremely difficult to lay down spe-cific rules at an international level, because countriesaround the world have such different economic cir-cumstances, social arrangements, and preferences.The search for some kind of global standard of CSRwhich all companies must adhere to is not a veryfruitful approach and may cause more problems


than it solves. I have certainly heard people from de-veloping countries or emerging markets being some-what unhappy about Western organizations layingdown rules which companies are then expected tofollow in their countries. They want to make theirown rules and decide how they want to handle inter-national companies. I would personally favor coun-tries reaching their own judgments about what isappropriate for them.

There is still a debate about the universality of CSRconcepts and issues, and it is of course with sus-picion that developing countries observe standardsdeveloped in a Western context.

Virginie Vial: There is still a debate about the uni-versality of CSR concepts and issues, and it is ofcourse with suspicion that developing countries ob-serve standards developed in a Western context, i.e.,according to Western values, standards, and con-siderations that emerge at a certain point in theireconomic and social development. It is, for devel-oping countries, understandably difficult to acceptconstraints that developed countries did not havewhen they were themselves developing, even moreso when these constraints are defined and imposedby the West. It is then tempting to view such in-ternational CSR standards—emanating from inter-national institutions or MNCs—as a new form ofimperialism. The second issue—that is linked to thefirst—is that international standards, such as theGlobal Compact, are difficult—if not impossible—to enforce, because there exists no such internationalorganization that has this power. Global enforce-ment would have, for instance, to rely on local en-forcement, which would presuppose the local accep-tance of a global definition of standards.

6. With regard to large listed corporations, whichare also very often operating as Multinational Com-panies in a wide range of countries across the globe,do you think that different regional approaches to

CSR could undermine the global credibility of lo-calized actions?

Sir Geoffrey Owen: This is a very difficult issue. Itgoes without saying, the companies operating in adeveloping country, or an emerging market, have toabide by local laws and regulations. Secondly theyhave to uphold the principles of ethics and good con-duct to which they are committed worldwide, andan issue such as bribery and corruption is important.Obviously, there are countries where some form ofbribery is common and I think it is very importantthat foreign companies do not go along with that.And indeed, in some countries such as the UnitedStates, companies are forbidden by law from gettinginvolved in such activities. But the expectations arevery different from one country to another and of-ten quite difficult to fulfill. An interesting exampleis a company such as Shell in Nigeria which is op-erating in an extremely difficult social environmentwhere there are conflicting ethnic groups who arecausing disruption, and in which Shell comes undertremendous pressure not simply to run its businessresponsibly and efficiently but also to help solve theproblems of that particular region of the country. Itis immensely difficult for such a company to meet allthe demands that are being placed on it, both fromlocal people and from foreign non-governmental or-ganizations that may not have a very clear picture ofwhat conditions in that country are like. So I think itis a very difficult problem to reconcile these local orregional demands with any kind of global approachto CSR.

7. In particular, more and more companies are un-der scrutiny because of the double standards theyuse. For example, Microsoft, Google and Yahooare suffering severe criticism regarding their activi-ties in China. Are multinational companies doomedto depart from their core code of conduct in the faceof various national approaches to CSR?

Sir Geoffrey Owen: One of the very big problems formultinational companies is when they are operating


in countries which have rather unpleasant or un-democratic regimes and the case of Myanmar is onecase in point, and the China story is another. Com-panies which are operating in Myanmar are underpressure from some NGOs to pull out, and haveto make their own judgment, taking everything intoaccount, including what value they may be provid-ing to the people of Myanmar, and the damage totheir reputation of being associated with the regime.They have to weigh it all up and it is for companies tomake those decisions rather than being regimentedor dragooned into a particular set of rules imposedfrom elsewhere.

8. So, the rise of civil society is a good thing, butthat should not overrule the basic aim of companiesin the first place?

Sir Geoffrey Owen: That is right. Companies shouldbe sufficiently self-confident to argue that their maincontribution to society lies in their business opera-tions, costs reduction, improvement of product qual-ity and so on, but that can be and should be com-bined with responsible and ethical behavior. It isperfectly reasonable and probably a good thing thatcivil society is pressing them on those matters andholding them to account.

Companies have to develop the ability to constructcounterfactuals.

Virginie Vial: This discussion refers again to theuniversality of CSR concepts and issues, as wellas the problem of uniform CSR actions in allcountries for MNCs. Companies face internationalscrutiny for their global action. However, interna-tional scrutiny is mainly Western scrutiny, whichfocuses on Western definitions of CSR that rest onexpectations of Western civil society of what is rightfor other countries. Of course, internationally rec-ognized issues such as Human Rights are difficult toargue against. However, as previously discussed, oneshould weigh as accurately as possible the value cre-

ated and the value destroyed in order to approachthe optimal decision in the context of both uncer-tainty and bounded rationality. In order to do so,companies have to develop the ability to constructcounterfactuals. In the example of Google Inc China,the decision maker has firstly to compare the totalsocial value created at the global level (utility stem-ming from the provision of service, even if partial,gain in market shares, employment in China andabroad, etc) with the social value destroyed (erosionor loss of reputation, social value destroyed by com-pliance with local law in contradiction with HumanRights, etc). Secondly, the decision-maker has tocompare the net value created with the net valueof a situation in which Google would refuse to pro-vide a service under the current conditions (maintainor increase of the value of reputation, gain of othermarket shares because of a strengthened reputation,loss of market share in China, loss of long-term com-petitive advantage, loss of social value through aneven more restricted access to the Internet via a lo-cal search engine, loss of opportunity for civil societyto push for change in terms of freedom of expres-sion, etc). Finally, in order to maintain credibilityand accountability, companies should stick to theircorporate values.

9. Again, it can be very costly for companies to getinvolved in negotiations with an increasing numberof stakeholders, even more so when those stake-holders belong to different countries and defendvery different interests. It seems that, as MNCsgain in importance, both in economic and politicalterms, society sees their role as increasingly over-taking certain responsibilities that were previouslyheld by the State, the Church, or civil society. Towhat extent is the role of corporations to go be-yond local regulatory compliance? To what extentdo governments and international institutions tryto pass social and environment responsibility andcosts on to corporations?

Sir Geoffrey Owen: That is a very important topic.My general view is, and this would apply to devel-oped or advanced countries as much as developingones, that the role of government and the role of


companies should be separate. Companies have ahard enough job competing in the market and pro-ducing goods and services that are going to sell at aprofit, without also asking them to solve the coun-try’s social or environmental problems. There aredangers, and I think we’ve seen a bit of that in theUK, in which the government looks to companies forsolutions or partial solutions to, for instance, theproblem of education; getting companies to investin schools. You can just about make an argumentthat improving the school system in an area wherethe company has a large number of employees anda large number of facilities is something to whichthe company could contribute. It can reasonably belinked to their own prospects and improving avail-ability of skilled people. But there are dangers there.More generally, thinking about developing countriesparticularly, I am not sure one can be too preciseabout it. When you have for example a big min-ing project or oil extraction project in a developingcountry, it might be supported by the World Bankor some international organization, and obviouslythe local government is involved because of its eco-nomic importance to the country. Companies haveto frame their project and handle it and implementit in a way that is in line with the objectives of thelocal government, which might include absolutelyminimal environmental damage, and which mightinclude some contribution to infrastructure that isnot directly relevant to their project, such as schoolsand hospitals. Companies, in promoting their ownobjectives, have to be as cooperative as possible withthe local government but they have to take initia-tives that, in the end, will promote the long-termhealth and prosperity of the company as an entity.Too much blurring of responsibilities between whatcompanies do and what governments do is danger-ous in all sorts of countries.

Virginie Vial: Corporations gain in political impor-tance because of their increasing economic impor-tance and vice versa. One could make the case that,since corporations benefit from their political influ-ence to increase their market share, value and prof-

its, they also bear increasing social responsibilities.In developing countries in particular but not ex-clusively, governments that lack budget resourcesmight find that they can exchange access to theirmarkets against the provision of public goods suchas transport infrastructure or education infrastruc-ture etc. However, one should also underline thatthe provision and control of public goods by pri-vate companies in the early stages of developmentof a country can be damaging, even more so whenincome distribution inequalities are high. What gov-ernment might want to insist upon is the complianceto high standards in terms of social and environmen-tal responsibility. This could surely benefit develop-ing countries, as compliance with these standardswould trickle down to local companies and improvenational, social and environmental conditions. Forthe company, this might result in increased produc-tivity, access to more skilled labor and a strength-ened reputation.

What government might want to insist upon is thecompliance to high standards in terms of social andenvironmental responsibility.

10. One of the important issues faced by CSR to-day is its dissemination to small and medium scaleenterprises (SMEs). Not all SMEs are yet under thepressure of civil society, and one of the objectionsraised by SMEs directors is that commitment to CSRcan have a high short-term cost with little prospectof long-term benefits. What would be the incentivesfor SMEs to become pro-active in the domain ofCSR today?

Sir Geoffrey Owen: It is just as important for SMEsas for large companies to behave in an ethically andsocially responsible way. SMEs may be less visibleto the world and their activities may be scrutinizedless closely, but quite apart from the moral case forbehaving in that responsible way, which I think isvery strong, you could also take a narrow business


argument. They too can suffer very serious damageto their reputation. It may not become a world head-line, but in the local areas or regions where theyoperate, where local newspapers can discover po-tentially harmful activities, they are at risk that theirreputation be damaged, just as much as large enter-prises. Going beyond that, it is quite obvious thatmost SMEs couldn’t possibly afford corporate gov-ernance teams or corporate governance departmentswhich now seem to exist in some of the large in-ternational companies, especially the ones involvedin raw materials and oil and so on. In a way, thistends to argue against governments laying downrules over corporate social responsibility, becauseyou then have the problem of certain rules only ap-plying to companies above a certain size or only tocompanies operating outside the country concerned.You get extremely difficult distinctions to make be-tween one sort of company and another. To the ex-tent that business ethics and responsible conduct aretaken more seriously around the place, this shouldcertainly apply to SMEs as well as large multination-als. But it would be unreasonable to expect SMEs tohave the kind of high-profile involvement in CSR assome big companies do.

11. Have you come across one specific or maybea combination of several specific companies thatfor you, could propose the current best practices interms of CSR?

Sir Geoffrey Owen: Companies are approachingthese matters in a wide range of ways and the factthat one company produces an annual report of CSRand another one doesn’t, doesn’t necessarily meanthat they are performing in a superior way. Thereis some danger that companies can get a bit overpreoccupied with CSR to the detriment of their ba-sic business. It has the effect of taking their eye offthe main ball and that is risky. It is very importantthat companies keep a balanced approach to thesematters. Of course they are aware of greater publicscrutiny, and of course they are aware that non-governmental organizations are active and looking

at what they are doing, but they must not necessar-ily do exactly what the NGOs tell them to do. Theyhave to be prepared to defend their case, and if theydisagree with the NGO on some environmental issueor other matters, they should be prepared to maketheir case and make it in public. Of course that is abig difference from 20 or 30 years ago when pub-lic scrutiny was much less and companies’ behaviorwas less visible.

There is some danger that companies can get a bitover preoccupied with CSR to the detriment of theirbasic business.

Virginie Vial: What you are pointing at here is thatprobably the best practice that can be applied toall companies, large and small across the globe, isto abide by the principle of transparency. Increas-ingly, transparency is becoming synonymous withCSR. Companies applying this principle generallyhave managed to limit their losses in case of cri-sis. Campaign Group FairPensions study large UKpension schemes and show that they benefit fromtransparency regarding their social responsibility,and that those failing to do so could face high poten-tial risk. Firstly, transparency pushes the companyto ensure compliance with regulation at all levels,making it less vulnerable to attack. Indeed, whena company decides to become more transparent, itnecessarily operates a complete checkup of compli-ance with the different areas of regulation. This isa prerequisite that serves as a solid basis for even-tual further CSR initiatives. Besides formal regula-tion, companies also go onto the second step thatconsists in complying with local social norms, so-cial expectations that are not necessarily written inthe law but are part and parcel of society. This alsoincludes the level of social and environmental re-sponsibility that other companies in the sector arewilling to take on. Secondly, transparency providesan incentive and an opportunity for the companyto value preexisting behavior and initiatives that


go beyond both legal and social compliance, thatwere previously not necessarily “classified” as CSR.It is probably dangerous to launch new CSR initia-tives before assessing past actions. Some companiescan discover that they are—in certain domains—going beyond compliance. A strategy that mightpay off is the one that identifies those domains,strengthens them, and communicates about them.Finally, transparency also represents a strong sig-nal to all companies’ stakeholders in terms of ac-countability. While a lack of transparency, of disclo-sure, and the cult of secrecy often engender foundedor unfounded suspicion, increased transparencytends to reassure stakeholders and strengthenreputation.

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Virginie Vial is assistant professor at EUROMED MarseilleSchool of Management, where she teaches Corporate So-cial Responsibility, Sustainable Development, and Organi-zational Behavior. Part of her current research focuses oncorruption issues and the effect on companies’ productivitylevel and failure probabilities. Before joining EUROMED,Dr. Vial taught Economic History at the London School ofEconomics, where she researched the impact of managementquality on corporate success in the UK food retailing business.The author wishes to thank Imogen Crowle for her valuableresearch assistance, Dr. Yahia Zoubir for his insightful com-ments, and all the students of EUROMED Marseille Schoolof Management who participated in the course “CorporateSocial Responsibility” in autumn 2006, and generated fruitfuldebate on these issues.


Documents

Corporate social responsibility: A third way? An interview with Sir Geoffrey Owen