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.

BP to fisherman: clean up our mess

Part of the problem with ecosystem collapse is that the markets related to different components of the ecosystem collapse as well. The Gulf Mexico has experienced diminishing fish stocks for decades, and a similarly depressed economy. The economy was further harmed by Katrina, and now will be retarded even further by the decimating effect BP’s oil spill will have on the region’s remaining fish stocks. Fishermen in the region have been rapidly trying to retrain as crisis management workers to assist BP in cleaning up the very spill that will likely put the fisherman out of business in the area for decades. What’sBP’s responsibility when their negligence eliminates the only regional economic activity there is?

According to the Exxon Valdez precedent, the region will take decades to even partially recover. The Prince Edward Sound has never been the same since the Exxon Valdez ran aground. The salmon stocks have never rebounded and fishermen went bankrupt. The tourism industry, which relied greatly on the pristine environment, was dashed. One report put preliminary damage at $580 million dollars in 1992 dollars; Exxon ultimately paid out only $570 million in punitive damages.

When a company takes on high risk activity such as producing and transporting oil, social responsibility has not, thus far, not been be much of a consideration. As far as corporate social responsibility has come, tree planting and donations to charity don’t mitigate the big disasters. Few businesses in high risk businesses have successfully implemented CSR initiatives either. BP is a great example; they offer vast greenwashing, but little has positively changed about their oil production business.

In cases where CSR fails to alter firm behavior, laws must step in. Currently, the U.S. does not have laws strong enough to send the financial signal that would motivate fundamental change in firm business practices. This was made especially true when the Supreme Court reduced the punitive damages in Exxon Valdez from $4.5 billion, which would have sent that message, to a paltry $570 million, which did not. BP is surely relying on this precedent to protect them from the legal fall out of the current spill.

Where firms cannot find a way to motivate themselves to be preemptively socially responsible, they must be forced to take full responsibility for the entire scope of economic disruption their business operation incurs. Firms whose business practices manage to destroy an entire economy should be obligated to make those economies whole to the best of their ability, even if it compromises the financial integrity of the firm. Each of the gulf fisherman affected by this disaster should be able to relatively easily claim lost wages for at least five years from BP, not be forced to beg for a job from them now that BP has destroyed the economy.

Don’t get me wrong; I love CSR. But like other things I love, I also see its limitations. CSR isn’t enough for the big problems; for the GoldmanSachs; for BPs; for the Toyotas. For that, you need laws that unflinchingly harsh consumer protection consequences that force companies to fully cover the harm they cause, and to actually discourage this behavior in the future.

Is WalMart green if its supply chain is?

WalMart recently revealed a campaign – on Treehugger.com no less – to cut 20 million tons of GHGs from its supply chain. In fact, WalMart has been a sustainability leader for about five years; it one of the largest sellers of organic produce in the U.S. and has made both its fleet and stores more energy efficient. Now Walmart is leaning on its supply chain to get green by focusing on sourcing sustainable products. Can WalMart count the sustainability of its supply chain towards its own accomplishments? Sure. WalMart keeps some suppliers alive- it supports an entire network of commerce (too big too fail?). WalMart is a fantastic example of how critical marketpower can be in affecting rapid change, and of how creative a company can be in implementing CSR measures.

WalMart has an impressive sustainability record. One day in 2005, WalMart just decided to get environmental. Maybe it was the constant barrage of negative press about its tendency to kill local competition, or bad press around its labor practices. While those stories haven’t really waned, WalMart has exploded with environmental activity, which partly because of its size and marketpower, is ultra effective.

Now WalMart is applying its business model -buy so much of something that suppliers will agree to an ultralow price- to its sustainability practices. Few WalMart suppliers can afford to give up the volume of business WalMart offers, no matter what WalMart demands of them. Many suppliers wouldn’t even exist, let alone have a motive to buy green, except for WalMart’s commercial pressure. This is how WalMart gets the prices it does, and this is how they will accomplish the GHG goal they announced last week.

WalMart’s CSR is delightful not because it is a perfect company; there are plenty of WalMart critics. It’s because WalMart has thought its CSR, and particularly its sustainability initiatives, through in minute detail. It takes gains where it can, and thinks creatively; for example, it redesigned packaging so that more skus can be efficiently packed into trucks, saving trips. It has discovered how to use its core competency as a business to address social problems where it makes the most sense. The extension of business efficiency applied to social problems is the most productive form CSR can take. This may be why Walmart still gets criticized for labor minimalism; raising pay would hurt its business model. Where WalMart’s green initiatives are have a distinctly WalMart flavor- high volume, supply chain emphasis.

In the same way it makes sense for AT&T to have donated cell phones in Haiti, or for Johnson and Johnson to do so much work around sanitation, a natural first step in CSR is for companies to capitalize on preexisting strengths for the public good. Companies can often be extremely effective, like Walmart, by applying the strength of its core competencies toward a new purpose: doing good.

Miller Coors’ Water Stewardship Activity

There is no doubt that transparency by means of sustainability can lead to better CSR performance. It seems Miller Coors; one of the largest brewing companies in the United States has taken this aspect into serious consideration. The company for the month of September will be drawing the nation’s attention towards better water supply and usage. This will be the company’s first annual Water Stewardship Month. Miller Coors plans to bring together all 10 brewery locations and corporate facilities into a partnership with local non-profit organizations and hold volunteer events for better water quality.

The management stated that water is essential for their business and the community where they operate. Since the company has been following its goal to produce and pack more beer using less water, this corporate social responsibility initiative can be considered a responsible move. Their roots are on the shore of Lake Michigan and the Rocky Mountains and if the company doesn’t focus on environmental concerns, it will result in more carbon footprint.

Water Stewardship Month will be dealing with several water issues and Miller Coors volunteers will take the initiative to clean beaches and rivers in their local communities, plant trees and bushes in preservation areas and even test water quality. The company is focusing on community investment along with environmental sustainability but let’s see how far it manages to take its belief in ‘Great Beer comes Great Responsibility!