Let’s start with ABC

DISCUSSING the advantages and dangers of Corporate Responsibility (CR) run so wide that I’m afraid I will end up with another PhD thesis. To condense this, I will focus on the ABCs of CR. I hope you don’t get drowned in an alphabet soup.

ASIA

On the morning of a hot April day in 2013, over 1,000 people were crushed to death as the building they worked in collapsed into a rubble. The building, Rana Plaza, was located in a suburb in Dhaka and the dead were mostly garment factory workers who toiled for measly sums for brands that some of you may be familiar with – Benetton, Monsoon Accessorize, Mango, Matalan, Primark and Walmart. Ever so often, a Rana Plaza disaster happens to remind us how much more needs to be done in the area of CR. Following the disaster will be a series of arrests, some improved legislation and some hefty fines until a new disaster strikes.

My former boss used to tell me about the problems that we have with regard to the labour and supply chain in Asia. While pressured MNCs will come in to impose ILO-compliant working hours and various labour standards, leading to a multilayered checklists and compliance requirements – workers simply just move across the road and proceed to another factory that will allow them to work longer. Like a lot of things in Asia, the answer is not in more legislation and regulations, but really, the biggest stumbling block is the mindset shift.

Some lessons can be learnt from Marks & Spencer’s (M&S) Sustainability Management Framework, as set in its global sustainability plan, simply called Plan A. The internationally operating retail company requires economic activity to achieve environmental and social sustainability for present and future generations. This is part of its highly acclaimed “Plan A” sustainability plan. One of its most significant sustainability challenges relates to its management of the supply chain: how to ensure that their suppliers are delivering products that are aligned with the M&S sustainability commitments. It took three years to move away from a compliance-based supply chain system to an integrated, ownership-based system. M&S didn’t have all the answers but was equipped with do-or-die attitude, eventually leading to the graduation of a pilot group of large suppliers in India.

At the end of the day, if there is a shift in thinking that the supply chain is flat and all players are co-owners, there will be opportunities to pioneer new solutions.

BUSINESS

“The business of business is business” is a quote famously coined by economist Milton Friedman in 1970. Friedman’s neo-liberal arguments against CR is built on economics and morality. They are well thought but ultimately, misconceived ideas. The corporation, according to him, is the private property of shareholders and the sole purpose of its existence is to maximise profits. Any notion of CR will undermine the free market – how can private individuals decide what social interest or social good is?

At one level, this claim holds true. A company that makes no profit is no good to anyone and fails the purpose of its inception. The win-win proposition is evocative. The corporation is said to be able to produce social and environmental dividends through its long-term pursuit of profit. Yet, the neo-liberals continue to ignore how corporations can cause social or environmental harm with little accountability and continue to operate in communities that are deeply divided by inequalities in wealth, health, knowledge and life-chances. The shareholder primacy has not produced a situation where everyone is better off. This is particularly stark in places like the UK and US, where the Anglo-American model of corporate governance has been so enthusiastically embraced. What the Friedman school of thought does not make clear is how the “trickle-down” to society is achieved.

CONTEXT

Companies in Asia have long realised that the basic ecosystem, that is cheap today, will be expensive tomorrow. CR is not the burden on bottom lines that most business tend to believe. In fact, it is becoming a touchstone for innovation. It can provide a competitive advantage in terms of products, technologies and processes. There is a linkage between geopolitical globalisation, connectivity, inclusive growth and profitability that Asian companies are coming to realise.

Indeed, the quest for CR has already transformed the competitive landscape in Asia. Industries at the start of the supply chain are paying more to harvest, extract and get access to primary products. All sectors will have to pay more to dispose of waste. In many parts of Asia, water is already scarce and expensive. The natural buffers which reduce risks of flooding and other disasters will need to be replaced. These costs will be passed downstream and transform the operating context of business.

The rules of the game are changing. As ecosystem services decline, the framework conditions within which businesses operate, customer preferences, stockholder expectations, regulatory regimes, governmental policies, employee well-being and the availability of finance and insurance will change. New business opportunities emerge as demand grows for more efficient use of ecosystem services for meeting needs or mitigating impacts, especially in new and emerging markets of the developing world where large populations are becoming consumers.

If you add seven billion people in the process of globalisation, it adds to the urgency of the argument. An illustration of the relevance and challenges of material issues, such as nutritional needs of low-income consumers, the global water crisis, reduction in packaging material, and sourcing of sustainable palm oil adds to the urgency of the situation.

CR in Asia also assumes greater relevance in the context of innovation. While it is valid to discuss CR as an important driver in value creation, differentiation of products and services will ultimately play a greater role in shaping a company’s prospects in the competitive consumer market. Increasingly, that differentiation is the product of CR-driven innovation. In many cases, CR is then seen as a game changer in Asia.

COLLABORATE

CR on a broad scale isn’t about scoring points or about star players. It’s a rewrite of the rules and essentially the end of any semblance of “coca-colonisation” which refers to mono-cultural dominance. While there are strategically rewarding moves that individual companies can and often should make with regard to CR, sustainable production and consumption will not be achieved by the work of a single company. Rather, it will require many companies innovating and collaborating across value chains and engaging consumers in a redefinition of value.

This geography of collaboration will be right up the alley of Asian companies. Progressive governments are increasingly recognising the role of sustainability in their national economies. In some countries this is principally a matter of securing future competitive advantage – in Singapore’s vision of a bioeconomy for example, or South Korea’s drive to develop its international position in clean tech, or in Malaysia’s decision to attempt to become a clean energy hub. In some cases, it is a matter of survival, such as a means to overcoming extreme water shortages and associated food security challenges.