Tuesday, May 4, 2010

Anti CSR: Oh Goldman; Sweet, Goldman

How can we escape discussing Goldman Sachs’ swift share price collapse this week in the context of CSR? The federal civil claim plus a potential criminal claim indicate the beginning of the pain for Goldman; European governments are reportedly considering similar legal action, China has taken a stance against them, and they will face private actions. GoldmanSachs joins Toyota, Enron, WR Grace, 2005 GlaxoSmithKline, Merrill Lynch to some extent, Worldcom, Pfizer, Monsanto and other companies whose reprehensible actions landed them in the corporate social responsibility hall of infamy. We have something to learn from these firms.

Americans, even in the lat twenty five years, have seen these patterns play out enough times to be familiar with them. Fraud and cover-ups come in recognizable cycles:

  • Big growth of a promising, innovative company. Ivy league management, lots of press.
  • Steady business for a period of time.
  • Bigger growth! Records break, more press, more money.
  • Grumblings from consumer protection groups.
  • An initial scandal, well managed, diffused, tucked away.
  • Followed by a disastarous scandal that affects and harms many.
  • Government rebuke, congressional hearings, apologies, tears, etc.
  • Regulation.
  • Business adapts and evolves; new company, big growth…

The companies that end up involved in national and international fraud scandals typically share similar traits: unchecked focus on short-term gain, a complete disregard for whom they may harm, and leadership that nurtures both qualities. Most importantly, all companies involved in major fraud in the last 100 years failed their customers. In a chicken-egg problem, do fraudulent companies stop serving customers because they are fraudulent, or is it this failure of core business that leads to the fraud? Had any of these companies continued to delivering on their mission statements and provide valuable products that benefited their customers lives, they would never have gotten into the positions they are in.

Consumer harm is always paired with companies that disregarded their own customers. Sometimes, this disregard is precipitated by great success; when companies have vast cash reserves, there is less hunger to please the customer, the entrepreneurial spirit dies. Successful businesses come to see their customers as inputs, receivables, tools. The dehumanizing effect growth has on customers when companies grow rapidly is well understood; this is why people typically expect a drop in quality once a firm goes national, when bands sign with a major label, etc. However, if firms could just focus on the customer, be obsessed with the customer’s happiness despite their size, they would already be well on their way to social responsibility.

Profit is alluring; however, business does not exist for profit. Business, as a societal function, exists for people, to benefit people, to meet needs. As soon as a business starts meeting its own needs ahead of its customers’, the fraud, in a small way, begins.

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