Tuesday, December 25, 2007

Why Corporate Social Responsibility is Important

Dear Colleagues

Corporate Social Responsibility (CSR) is important because, in the long run, profits derive from the value adding of the organization ... much of which might be associated with the company's products and services ... but some is associated with the impact of the company on the society as a whole.

While the market economy, and particularly the capital markets have the appearance of being driven by profit, and expectation of profit ... there is an underlying assumption that the society as a whole has the strength and integrity to serve as a foundation for corporate economic activities. When society is dysfunctional ... profits are no longer assured.

At its core, a corporation succeeds because it has the capability of carrying out its business processes ... design, manufacturing, distribution, marketing, logistics, etc ... cost effectively. Good companies are efficient and use their resources well. But if, in the process of doing things efficiently, there is damage to society as a whole ... should this be ignored, or should it be taken into account.

While the "law" does not require the accounting to take into consideration issues like the impact on the "commons", there is more law now than in decades past about things like safety in the workplace, impact on the environment, and so on, but no movement yet for this to be driven by corporate leadership and by the leadership of the financial system.

This leadership is needed. The corporate organization has been a big part of the success of the industrial revolution ... and the industrial revolution has been a big part of the wealth creation of the last two centuries. But the corporate organization did not do it on its own ... it was made possible by wave after wave of discovery in science and wave after wave of technological application. Almost all the great leaps in global wealth were achieved because a need in society could be met more cost effectively by some new invention ... and these new inventions were deployed using the corporate form of organization.

Was this perfect? No ... and in fact there were many flaws in the system ... but, on balance, progress was made. And, over the years many of the flaws have been addressed ... but some have not. As old flaws were corrected ... some new flaws have appeared.

CSR is needed to help get the corporate flaws fixed, and especially those flaws that result in a damaging impact on society as a whole.

The corporate organization made trade possible with great trading and shipping companies. Transport of people and goods on land was facilitated by the great investments in railroads. More efficiency in transport was achieved with corporations that mass produced automobiles. Convenient energy came from corporations that produced electricity. Construction companies built houses, factories, roads and bridges. Companies profited and society benefitted. The balance between corporate profit and societal benefit has always been contentious ... but for most of two hundred years both were positive.

Some would argue that in recent years corporate profit has been masive at the same time that societal benefit has been negative ... this is the financial sector corporate business model, that is rather different from the industrial sector business model that gave two centuries of progress. With the 21st century version of globalization it seems that one society loses at the expense of another ... a formula for future conflict that would be damaging to all.

CSR is needed to put these things into perspective. CSR is VERY important.


Peter Burgess
The Tr-Ac-Net Organization

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