Good citizens – strong communities are still good for business Corporate citizenship means understanding and managing a company’s influence on society and all its stakeholders and has been receiving widespread support from business, government, community groups and the popular press over the last few years. Most recently, Dr John Hewson, former Liberal Party leader and now Dean of the Macquarie Graduate School of Management, has been championing the cause. In a recent column for the Australian Financial Review (‘Keeping honest company’, 21/3/03, p.70) he wrote: ‘The community has become tired of irresponsible behaviour in areas like corporate governance, including payments to executives; of companies that exploit our environment to their own particular benefit; of companies that are reckless as to the social impact of their activities; and of companies that exploit workers.’ The media has been replete with similar articles and interviews extolling the benefits to companies and the broader community of practices such as corporate community involvement, corporate philanthropy and corporate sustainability. To those of us active in what can be loosely called the ‘corporate citizenship movement’, which includes many companies, NGOs, community sector organizations, churches and researchers, the positive coverage has been welcome. But are we beginning to see a change in popular opinion on this matter? Are we witnessing the start of a backlash against notions of corporate social responsibility or merely the grumblings of a discontented few? I would like to think it is the latter, but unfortunately, the views of opinion makers can at times be influential if old misconceptions are not rectified. Critics of corporate citizenship, like P.P.McGuinness, ‘No cause for businesses to give away shareholders’ money’ (Sydney Morning Herald, 29/4/03, p.13); and Janet Albrechtsen, ‘Corporate credibility takes a dive in ratings’ (The Australian, 16/4/03, p.13), have seized on situations like the collapse of HIH Insurance to discredit the notion that companies have stakeholders other than shareholders. They point to HIH’s donations to charities, to their community sponsorships, and suggest that their social responsibility did not save them or as Albrechtsen concluded’ ‘Directors are paid to save the company, not the world’. Sentiments against corporate philanthropy are growing. The former High Court judge, Gerard Brennan, recently said, ‘Virtue consists in the giving of what is one’s own, not in the giving of assets that belong to another’ (i.e. shareholders). But these views should not be used as evidence in the case against corporate citizenship. It is true that companies like HIH gave significant sums of money to charitable causes. It is also true that such companies were mismanaged and standards of corporate governance were not adhered to in practice. It is true that ethical judgments or reasoning was lax if not absent. Justice Owen’s royal commission into the HIH collapse correctly highlighted flaws in the accountability and transparency of that company’s philanthropic activities. However, damning corporate citizenship because failed companies like HIH made charitable donations, and may have had codes of conduct and corporate governance on paper but not in practice, is not only simplistic and naïve but incorrect. A key problem in the arguments of the commentators critical of corporate citizenship is that they are taking their cues from outdated management theories on the role of the firm in society. The ‘Friedmanesque’ mantra that the ‘business of business is business’ has come a long way since the 1970s. It may still rule at business schools like Chicago, but not at Harvard, Stanford, Boston, Warwick, and Sydney. Directors may not be paid to save the world, but they will only save the company if they ensure it is economically, socially and environmentally sustainable. What then are some of the main errors being made by these corporate citizenship critics? First, they incorrectly equate corporate philanthropy with corporate citizenship. The former is only a small tip of the corporate citizenship pyramid. Firms’ social responsibilities are at least four-fold and include their economic, legal, ethical and philanthropic activities and behaviour. Second, the notion of corporate philanthropy has changed significantly in the last decade, and as M.E. Porter and M. Kramer recently pointed out (Harvard Business Review, December 2002), strategic corporate philanthropy can improve a firm’s competitive advantage as well as benefiting the recipient community. Strategic philanthropy is about companies giving not only money, but their time and expertise to community organizations through long-term partnerships. The philanthropic activity also has a logical fit with the firm’s mission and focus. It is only the ad hoc and short-term philanthropy (such as that practiced by HIH) that is often ineffective and unsustainable. Third, the critics mistakenly argue that improving corporate governance is unrelated to good corporate citizenship. In fact, good corporate governance is the foundation of good citizenship. Imagine if we argued at an individual level that civic behaviour has nothing to do with being a good citizen! In brief, good corporate citizenship is about integrating social, ethical, environmental, economic and philanthropic values in the core decision making processes of a business. It is only by doing this that businesses can become truly sustainable. This may still not prevent corporate collapses, but it will make businesses more aware of how intricately they are embedded with their stakeholders. Genuinely engaging stakeholders, as many leading firms have found, can lead to improvements in financial and societal goals. ‘Stakeholder engagement’ is not just a trendy term – It is about companies factoring in the pensioners who lost their superannuation, the workers who lost their jobs, the community organizations that received donations, in their corporate planning from the beginning. Only in this way will they not be seen as the unfortunate losers of corporate mismanagement. Up until recently, corporate citizenship has been getting a good press for good reasons. It is not a fad, despite attempts of critics to portray it as such. Many firms have recognized that the environment in which they do business has irrevocably changed. Their economic, social and environmental impacts on society have grown significantly and as a consequence so have their responsibilities. Practices like corporate philanthropy are only a small but significant part of good corporate citizenship. Dr Gianni Zappalà is the Director and principal researcher of Orfeus Research, an independent consultancy that specializes in providing research, evaluation and training services to socially responsible organizations in the nonprofit, corporate and government sectors. www.orfeusresearch.com.au. This article was first published in Eureka Street, June 2003 worksite home Work and Citizenship home