Archive for the ‘definitions’ Category

Global 100: Sustainably Misleading

Corporate Knights continues to mislead. Once again they’ve issued a list of the world’s “most sustainable” corporations — the Global 100 — and once again the metrics they’ve used have surprisingly little to do with what most of us mean by the word “sustainability.”

First, let’s get one thing out of the way. The organization is right to defend the fact that there are oil companies (including Enbridge, for example) and other producers of “sin” products on their list. There’s nothing in principle that says an oil company can’t, in some useful sense, be sustainable. And even if you think the fact that a company like Enbridge should be docked points because oil is a non-renewable resource, it still is a useful and interesting exercise to look at which oil companies (for example) are leading the field in terms of sustainability. So, CK is right to defend itself in this regard.

No, the problem with the Global 100 is not that they give kudos to a few unpopular companies. The real problem lies in the criteria used to measure what they refer to as “sustainability.”

Here are the 12 “key performance indicators” that get a company onto the Global 100:

  • Energy productivity;
  • Carbon productivity;
  • Water productivity
  • Waste productivity
  • Innovation Capacity
  • Percentage Tax Paid
  • CEO to average employee pay
  • Pension fund status
  • Safety performance
  • Employee turnover
  • Leadership diversity
  • Clean capitalism pay link.

These are essentially the same criteria they used (and which I critiqued) last year. The only difference is that they’ve added the bit about “Pension Fund Status,” the relevance of which may already have you wondering.

Hopefully the problem with those criteria is clear to most of you: only the first four — the first third of the criteria — actually have something to do with what most of us mean by “sustainability.” The rest are important issues, to be sure, but not relevant to the question of sustainable use of resources, or to the notion of sustainable economic growth that is compatible with environmental conservation.

Many will surely defend these criteria, and will tell me that I’m working with too narrow a conception of sustainability. Sustainability, they may say, isn’t just a narrow environmental concept. It’s about the whole People-Planet-Profits nexus. Well, certainly you can draw a diagram with boxes and arrows that shows connections of various kinds between those three. But to say that the three are one is to make so many undefended ethical, conceptual, and factual assumptions that the only result must be unnecessary confusion.

No, the Global 100 really isn’t a sustainability index, at least in the way that word is used by normal folks. It’s a complex index of sustainability, fairness, and a bunch of other positive stuff. And if you’re interested in all that stuff, why not just say so? Why bury it in a word that most people take to mean something else entirely?

The kicker, in terms of misleading language, here, is the tag-line that completes the title of the Corporate Knights list: “The Global 100: World Leaders in Clean Capitalism.” The problem here is that “Clean Capitalism” is a term Corporate Knights uses to describe what others might refer to as “conscious” capitalism, or perhaps “corporate social responsiblity.” But when most of us hear “clean,” we think “not dirty,” or “not polluting.” The implication, here, whether intended or not, is that the firms on this list are clean ones, firms unlike the dirty, polluting, earth-pillaging firms of the past.

Now, it would be one thing if Corporate Knights wanted to turn the word “sustainability” (or “clean”) into a technical term, a term of art with a special meaning for experts in the field. But that’s not what’s going on. Instead, they’re turning the word into a brand, a buzzword, and it’s a buzzword with which 100 companies are today adorning press releases. A hundred firms are today bragging about being sustainable, and are doing so with Corporate Knights’ endorsement. But “sustainable,” here, simply does not mean what you think it means.

Sustainability Isn’t Everything

The word “sustainability” doesn’t just refer to everything good. If it did, we wouldn’t need the word “sustainability” at all; we would just use the word “good.”

I’m just a small-town philosopher who likes words to mean what they mean. That’s why I got cranky when I saw the new Global 100 Ranking, which is ostensibly a sustainability ranking. (See my blog posting here.) Why cranky? Because over half of the criteria used to arrive at that ranking have nothing to do with what I — and, I suspect, most people — think of when they hear the word “sustainability.”

But let’s set aside the fact that this usage is potentially misleading; words evolve, and maybe the public will catch up with the Global 100 in its broad understanding of the term “sustainability.” Does this new, revised meaning of “sustainability” make sense?

Let’s start with the word “sustainable.” Well, standard dictionary definitions suggest that it means something like, “Able to be maintained at a certain rate or level.” OK, good. That’s a positive thing, right? But wait. No one cares about corporate sustainability in that sense, with the possible exception of certain narrow-minded shareholders. We want businesses that are more than merely capable of being maintained. We want businesses that are worthy of being maintained.

So sustainability needs some normative content. It needs some goodness baked in.

In this regard, the touchstone is the U.N.’s Brundtland Commission. In 1987, the Brundtland Commission asserted that “sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” And ever since then, at very least, the words “sustainable” and “sustainability” have had very significant environmental overtones. OK, good. Here, “sustainability” is being used to indicate some plainly good things: environmental sustainability isn’t the only good thing in the world, but it’s definitely a good thing from a social point of view, embodying not just the value of the natural environment but also a sense of intergenerational justice.

But some people (including the people behind the Global 100) want to expand the term “sustainability” to include other, non-environmental dimensions. From a certain point of view, this makes sense: other things required to allow a company to “sustain” operations. But then further problems arise.

Note that when we expand “sustainability” this way, a subtle bit of sleight-of-hand takes place. Previously, we were talking about business operations that were environmentally sustainable. Now, we’ve switched to sustainable organizations. What does it take to sustain an organization? Lots of things, and not all of them are good. And being sustainable isn’t, in itself, a good thing. The tobacco industry has lasted for centuries, leaving millions of dead bodies in its wake. Very, very sustainable. But bad.

As noted above, we don’t generally care whether companies can stay in business. We want them to merit staying in business. And if the companies on the Global 100 merit staying in business, why not just say so?

In the end, I guess my point really is that environmental sustainability is important all on its own, and doesn’t need to be fluffed up with issues like workplace safety or leadership diversity or CEO pay; and issues like workplace safety and leadership diversity and CEO pay are too important to stuff into the simple concept of sustainability.

2012 Global 100 Greenwash

Corporate Knights has announced its 2012 list of the “Global 100,” its annual ranking of what are ostensibly the world’s most sustainable companies. And once again the list is deeply misleading.

The list is topped by pharmaco Novo Nordisk, Brazil’s Natura Cosmeticos, Norwegian energy company Statoil, the Danish biotech company Novozymes, and a Dutch company called ASML Holding, a manufacturer of photolithography machines used in the semiconductor industry. Some will surely express surprise at the list — after all, none of these companies is in an industry known for being squeaky-clean. But that’s not the real problem.

The real problem lies in Corporate Knights’ methodology. Like all similar rankings, this one has to choose some criteria. And the devil is in the details.

Here are their criteria used to determine the Global 100 — a sustainability ranking — for 2012:

#1. Energy productivity
#2. Greenhouse gas (GHG) productivity
#3. Water productivity
#4. Waste productivity
#5. Innovation Capacity
#6. % Taxes Paid
#7. CEO to Average Employee Pay
#8. Safety Productivity
#9. Employee Turnover
#10. Leadership Diversity
#11. Clean Capitalism Paylink

The problem is that more than half of these criteria — #5 through #10 — have nothing to do with sustainability. I do realize that the exact definition of “sustainability” is up for grabs at this point, and many people interpret it quite broadly. And yes, if you use your imagination and squint your eyes a bit, I guess you can conjure up a connection between “Leadership Diversity” and sustainability. But it’s a stretch. I mean, sustainability has something — something — to do with environmental issues, right?

One sustainability consultant who shall go unnamed recently told me that “sustainability doesn’t mean ‘sustainability’ any more — it just means all the good stuff that business does.” The problem is, that’s not what the term conjures in the mind of the public, the consumers of the headlines a list like this provokes. When they hear “sustainable” they think “green.” So a sustainability ranking that is only partly based on environmental performance fails in its basic functions, namely to reward companies for their green behaviour, and to educate consumers about which companies are performing well on issues that are important to them.

What is ‘Business’ and Why Does That Matter?

There’s been discussion lately (constantly, in fact) about whether President Obama is “pro-business” or “anti-business.” What commentators generally mean by that is whether Obama is sufficiently sympathetic to the needs of the business “community,” or rather excessively sympathetic to the wants of Big Business. A lot turns here on what we mean by business. Confusion about that muddles discussion of business ethics, too.

Confusions about business ethics abound. Some people, for instance, think business ethics is about the pursuit of sainthood in commercial domains, a definition which makes the field an eminently unpromising endeavour. Others mistakenly associate the term “ethics” with a narrow range of limits on personal behaviour, things like accepting bribes. Still others seem to think that the word only applies to big corporations. All of that is wrong, and starts discussions of business ethics off on the wrong foot.

If you want to understand the scope of business ethics, it helps, as a starting point, to begin by looking at what business itself is. Here’s my informal, non-textbooky definition of “business”:

Business is the activity of making stuff or doing stuff for other people, in return for money (or in exchange for other stuff).

That’s it. That’s all business is, fundamentally. What motivates those involved is another question. So is how they behave. Which brings us to ethics.

Business ethics is about what you can and cannot do in the process of doing business. What kinds of behaviours are good or bad, right or wrong, virtuous or vicious, in a context in which we are all trying to make a living?

I think this way of explaining business ethics is useful for a many reasons, but mostly because it’s non-confrontational. It ought to reassure — and hence draw into the discussion — the business community. As a business ethicist, I’m not poking my nose into the world of commerce to tell people there that they have to stop pursuing profits. Far from it. Profits are great — go for it! I’m just here to talk about what reasonable limits there might be on profit-seeking activity.

It also reminds those who are critical of “business” that what they are actually critical of is certain business practices, certain ways of doing business. “Business” isn’t synonymous with “Wall Street.” The idea of being “anti business” verges on incoherence, given this understanding of what business is.

Of course, the right understanding of business is only a start. But it’s an awfully good start.

——————
(You can check out my more formal definition of business ethics here.)

Greed, Capitalism, and the Occupy Movement

What’s wrong with greed, anyway? No, don’t worry, this isn’t going to be one of those ill-conceived “greed is what makes capitalism work” diatribes. After all — with apologies to Gordon Gekko — that’s nonsense. Greed isn’t what makes capitalism work. Self-interest and ambition, maybe. But not greed.

Greed, after all, is the unseemly and excessive love of money, a desire for more than your share. And that is neither necessary nor sufficient for the operation of our economic system. None the less, there are many who believe that greed is not just an enemy, but the enemy.

Canadian pundit Rex Murphy recently argued that if greed is the enemy, then the Occupy movement should forget Wall Street, and instead Occupy Hollywood. After all, he argued, if you’re looking for greed, the best examples aren’t bankers, but rather the actors and producers and miscellaneous talentless celebrities who gleefully rake in millions in La La Land for doing next to nothing.

It’s hard to know what to make of Murphy’s argument. The simplest interpretation is that it’s a grenade lobbed over the wall of the culture war. Stop bothering the hard-working bankers, you Occupiers! Go pester the makers of low-brow entertainment.

More likely is that Murphy is doing something one step cleverer than that. By taking aim at celebrities, he’s telling “the 99%” to rue the wealth of the monsters they themselves have created. Kim Kardashian, after all, is astonishingly wealthy only because an astonishing number of people have paid to see her hijinks. But — and this, I think, must be Murphy’s unstated punchline — the same generally goes for the wealthy on Wall Street. They got wealthy because a whole lot of people each found a little bit of use for their services. And a whole lot, multiplied by a little bit, can be billions of dollars. True, some on Wall Street have multiplied their earnings through corrupt means. But the basic mechanism of wealth aggregation is the same, whether on Wall Street or in the Hollywood Hills.

OK, back to greed. Where Murphy goes astray is in his focus on that particular vice. Vast wealth is a feature of the stories of both Hollywood and Wall Street, but the role of greed in generating such wealth is very much in question. After all, being handed a million dollars doesn’t make you greedy. Even asking for a million dollars doesn’t make you greedy, when the pile on the table is much larger than that and when everyone in a similar situation is asking for a similar amount.

No, greed isn’t the problem. Greed isn’t what makes capitalism work, but nor is it typically the culprit when capitalism goes astray. The real problem isn’t greed, but rather institutional structures that reward antisocial behaviour. Which structures? Well, that depends on which particular antisocial behaviour you’re talking about. And that’s precisely where the Occupy movement faces its greatest challenge. You can’t plausibly take aim at a hundred different social ills and presume to find the cause of them all in the single word “greed.”

Corporations as “People” vs Corporations as “Persons”

There are two ways to think about corporations. One is as a mechanism for letting a bunch of individual people interact. Seen this way, General Motors is just a mechanism for letting employees, customers, shareholders, suppliers, and managers interact in mutually-beneficial ways. The other way is to think of the corporation as an entity in its own right. Seen this way, GM is an entity that owns property, hires employees, is a party to contracts, and has obligations (e.g., via warrantees) to millions of customers. The people involved come and go, but the 103-year-old institution remains. These two views aren’t incompatible. Each illuminates one important characteristic while obscuring another. We need to be able to see corporations both ways, depending on the circumstance.

But it is important not to confuse the two. One is about people. The other is about legal personhood.

Here’s an important case of that confusion. As was widely reported at the time, US presidential hopeful Mitt Romney said, in a speaking engagement, that “corporations are people.” (You can see it for yourself on YouTube: Mitt Romney- Corporations Are People!) This happened over six weeks ago, but it is still causing confusion, and muddying the waters of the debate over the role of corporations in modern society.

What did Romney mean by what he said? I think the point Romney was clearly making is very different from the one he is often thought to have been making. In fact, he was making the exact opposite point. In clarifying what he meant, Romney said, in reference to corporate profits:

“Everything corporations earn ultimately goes to people. Where do you think it goes?”

In other words, he’s pointing to the first of the two viewpoints mentioned above, the one according to which what really matters is the people, the individual stakeholders, behind the corporation. And yet I keep seeing Romney’s “Corporations are people” claim bandied about sarcastically as if it’s yet another example of the much-hated (and much-understood) notion that corporations are legal persons.

(Greg Sargent at the Washington Post did try to explain this, but the point has generally been missed.)

If you don’t like Romney, fine. And if you don’t agree with the point he was making — that corporate profits end up in the pockets of human beings — that’s fine too. But please don’t confuse his point with the exact opposite point, namely the fact that corporations are (and need to be) legally regarded as persons.

The Corporation is Not a Psychopath

Readers may already be familiar with documentary that came out a few years ago, called The Corporation. The film has many flaws; I can’t show it to my students without pausing frequently to correct misleading assertions and half-truths. But the key problem with the film lies in its attempt to arrive at a single, simple diagnosis for the many problems we see in the corporate world. The central conceit of the film is that the corporation fits the diagnostic criteria for psychopathy — that corporations, quite generally, act in destructive ways that demonstrate an utter lack of empathy or remorse. The problem is, the claim is utter bunk, and is utterly unsupported by what the film shows to viewers. But it’s also an idea that has struck a chord with a lot of people, seemingly summing up their darkest fears about corporations.

Part of the problem is that the film is sloppy with language. The film is called The Corporation, and the makers of the film clearly intend to refer to ‘the corporation’ in the abstract, corporations as a group, the very idea of them. It’s not referring to any particular corporation — like, that one over there. But in building its case, it cites diverse behaviours by various particular companies, and uses those to check off, one by one, the diagnostic criteria that psychologists associate with psychopathy in humans.

Here’s the list of diagnostic criteria that the film uses:

1) callous unconcern for the feelings of others;
2) incapacity to maintain enduring relationships;
3) recklessness with others’ health & safety;
4) deceitfulness;
5) inability to feel guilt;
6) failure to follow social norms.

The problem is that in order to use this list as a diagnostic tool, you need to apply it to a single ‘patient.’ But the film doesn’t do that, not ever; instead, it cherry-picks examples of heinous behaviour from across dozens of corporations over dozens of decades. It finds an example of Callous Unconcern on the part of one company, Recklessness on the part of another, and Deceitfulness on the part of others still. And so on.

The result is a kind of sleight of hand, and not very subtle sleight of hand at that. You can do the same trick with any ‘patient,’ of course, when your ‘patient’ is an entire category. If you cherry-pick examples from across many many particular cases, you can easily arrive at a diagnosis of psychopathy not just for The Corporation, but also fo The Government, The University, The Church, The Union, The Charity, The Newspaper, or even — *shudder!* — The Highschool Volleyball Team.

Now it is crucial to note that by pointing out this flaw in the argument put forward by the film, I’m not defending any of the companies that it mentions. Many of those companies have done terrible things, including things that are outright criminal. The point is that the film fails utterly in its attempt to prove that the corporation as a whole is a “psychopath,” or anything like it. And the result is much more than a documentary that fails to make its point. The result is a distraction, as viewers duped by the film are told to write off the very notion of profit-seeking corporations, a prescription that ignores the enormous amount of human wellbeing that has resulted directly from the activities of corporations, and also diverts attention from a more focused critique of the very real flaws that exist in the way particular corporations are governed and regulated.

Charity: Does Apple Do its Share?

Forget what your accountant tells you is tax-deductible. What counts as a charitable donation, ethically?

There have been a few rumbles around the internet recently about the lack of corporate philanthropy at Apple Computers, and about now-retired CEO Steve Jobs’ own lack of philanthropic donations. See for instance by John Cary and Courtney E. Martin, on CNN: Apple’s philanthropy needs a reboot

Apple’s…charitable identity — or egregious lack thereof — disappoints us. It’s time for Apple to start innovating in philanthropy with the same ingenuity, rigor and public bravado that it has brought to its every other venture….

Cary and Martin acknowledge Apple’s participation in the Product Red program (which has raised tens of millions for relief of AIDS in Africa, and for which Bono recently praised Jobs). But Apple made $14 billion in profits last year, and Cary and Martin think it’s pretty clear that Apple is obligated to give some of that away. They’re not so clear on where that obligation comes from, except to point to precedent within the computer industry. Both Google and Microsoft have well-established philanthropy programs — both of which, as Cary and Martin note, have drawn fire. Hmmm.

The interesting thing here is that Cary and Martin’s criticism implicitly raises interesting questions about what counts as philanthropy.

Take, for example, Apple’s sizeable donation to the fight against Proposition 8, California’s anti-marriage-equality effort. Was that a charitable donation, or a piece of political activism? Is there a difference?

Apple has also been known to donate computers to schools, and regularly gives students (and, ahem, professors like me) a discount on computer purchases. Of course, critics will propose that those are really marketing gimmicks. But then, no sane person thinks that corporate philanthropy stops being ethical when it’s a win-win proposition.

But then, back to the issue of why. Why are corporations obligated to give to charity? One group of critics is fond of pointing out that profits belong to shareholders, and so when corporate execs donate corporate funds to charity, they’re giving away other people’s money. And even within the modern Corporate Social Responsibility movement, the saner folks are at pains to emphasize that CSR isn’t about charity. It’s about making some sort of social contribution, preferably one that makes use of a company’s special capacities and core competencies.

And as a recent piece in The Economist pointed out that, if you’re talking about doing good in the world, you really must look at what Apple has done to put beautiful, highly-functional, productivity-enhancing devices in the hands of millions of consumers. That’s not exactly the same as feeding the world’s starving masses, but then neither is a corporate donation to build an opera house, or to get your company’s name on a plaque in the lobby of the local business school. The questions we ought to be concerned with are questions about a corporation’s net impact on the world, and the methods it uses along the way. A focus on corporate philanthropy risks obscuring both of those questions.

The CSR Litmus Test

I wrote a short article for a forthcoming issue of Canadian Business, riffing on a recent Globe and Mail story about a South African winery that is working hard to face up to its slave-holding past. The Solms-Delta winery’s owners have done things like set up a museum in its wine cellar, and establish a trust for the benefit of workers. This is clearly admirable; other South African wineries generally prefer to sweep the past under a rug. But is highlighting the past this way an obligation owed to the winery’s current employees? If so, then Solms-Delta is simply meeting its ethical obligations. But if this is not something owed to current employees, it is better cast as a matter of social responsibility.

I’ve complained ad nauseum about the fact that there’s no clear, agreed-upon definition of CSR (Corporate Social Responsibility). Many definitions say something about “social contribution” or “giving back to the community.” But just what that amounts to is up for grabs. It might mean something trivial, or it might mean something unfairly burdensome.

Here’s a litmus test to help you figure out your own views in this regard, and what those views imply. Imagine a company that does all of the following, with reasonable consistency:

  • Makes a decent product that people feel improves their lives in some small but meaningful way;
  • Treats employees fairly;
  • Deals honestly with suppliers;
  • Tries to do a decent job of building long-term shareholder value;
  • Cleans up their messes, environmental or otherwise;
  • Does its best to follow all applicable laws, and trains and rewards employees suitably;
  • Pay its taxes, making use of all relevant exemptions but not cynically seeking loopholes.

Next, if you consider yourself a fan of CSR, ask yourself this question: Would such a company count as a socially responsible company, in your books? Or is there something more they need to do in order to garner that designation? Are they ethically obligated to do something further?

If your answer is “Yes, that’s a socially responsible company!” then good for you. That’s a very reasonable answer. But then you should ask yourself two questions. One, why are you attached to the label “CSR”? Why not just call them a company that does right, or that acts ethically? Why try to shoehorn all the good stuff listed above into the little box of specifically social responsibility?

If your answer is “No, they’re still not giving back to the community!” then next you need to ask yourself what more and why. The company described above is engaging in voluntary, mutually-advantageous transactions with customers, making those customers better off (by their own lights). It is doing something good in the world, and being conscientious about how it does it. That seems pretty decent.

And whatever your answer is, taking this test should clarify both what your own views are, and perhaps why the term “CSR” is far less useful than it is popular. And whenever two people think they agree on the importance of CSR, each of them ought to doubt — or ask — whether they’re really agreeing on the same understanding of what social responsibility really means.

Two Problems With CSR

There’s plenty of confusion about what CSR is. Indeed most of the definitions you’ll find online don’t even read like definitions. They’ll tell you what CSR (Corporate Social Responsibility) is “about,” or what it “relates to,” but they won’t tell you what it is. Any definition worth its salt ought to take the words in the term seriously, and note that the term “CSR” refers to some kind of responsibility, and then explain just what kind of responsibility it is. But good luck finding such a definition. And this failure of definition isn’t just a matter of semantics. It’s critically important, because a sloppy understanding of the term gives the appearance of unifying under a single banner people who actually hold vastly different views of what a corporation’s responsibilities are.

Various definitions out there seem to coalesce around the idea that business should be “giving back” to the community — and typically not via antiquated methods like corporate philanthropy. The goal, generally, is to make sure that a company’s net impact on society is positive. Let’s take that as our point of departure.

The following two problems form the Scylla and Charybdis of CSR. If you avoid one, you run right into the other. Both spell doom.

Problem #1: CSR is too easy, if taken literally. If all that’s at stake is making sure your net impact is positive, wow, that’s pretty easy: just sell a decent product that people want, and don’t hurt any bystanders. It’s a fundamental principle of commerce. Start with individual transactions. Those, if voluntary and well-informed, always have a positive impact. A customer gives you $1.00, and you give them a pound of bananas. They’re happy, and you’re happy. Don’t step on any bystanders’ toes, and there you go: positive net impact. In fact, as long as your customers are happy enough, you can afford to hurt people along the way (e.g., by mistreating employee) and your net impact will still be positive. (And of course, claiming to adhere to CSR is even easier if you use a mushier definition, one that only asks that you “manage” your social impact, rather than aiming at any particular objective.)

Problem #2: On the other hand, CSR is unfairly burdensome, if really taken to heart — that is, if you really think that the pursuit of social contribution ought to take over a manager’s entire way of thinking. It means that a company that makes a good product, treats employees well, deals fairly with suppliers, etc., still has to ask itself, “yes, but how are we giving back to the community?” Look in the mirror. What’s your net impact on society? What good are you — other than the fact that you put in an honest day’s work, take care of your kids, and given a few bucks to charity now and then? (Hint: that’s a rhetorical question.) The joint-stock corporation, on the other hand, is arguably one of the most welfare-enhancing inventions of all time. For such organizations, failure to have a positive impact is the exception, rather than the rule. Asking one to risk its productivity by obsessing over something it’s already doing is silly.

Now, there’s absolutely nothing wrong with the idea that companies are responsible for their behaviour (and that the individuals who work for companies are responsible for their behaviour, too). And for some people, that’s all that CSR means. That’s just fine. In fact, such responsibility is absolutely morally fundamental. Companies should try to make an honest living, just like individuals like you do. They should avoid hurting people, just like you do. They should clean up their messes, just like you do. That’s basic ethics. And if they’re doing those things, calling it something as mushy as “CSR” adds absolutely nothing to the equation.

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