The CSR Industry's Lost Cause

Merck. Monsanto. ExxonMobil. Chevron. Citigroup. Goldman Sachs. Smithfield Foods.

What do these companies have in common? According to CRO magazine (formerly Business Ethics), they are among the world’s Best Corporate Citizens, setting the gold standard in governance, ethics and corporate social responsibility (CSR).

“When someone next asks you to define corporate transparency, show them this list,” touts the magazine. “[Our] 2009 CRO 100 Best Corporate Citizens List is the world’s best-known apples-to-apples comparison of Russell 1000 companies’ performance in environment, climate change, human rights, employee relations, philanthropy, financial and governance.”

While the CRO’s leading “apples” might have done laudable things, several are also involved in ongoing legal and public relations scuffles stemming from alleged ethical breaches and poor business judgement. For these “top 100” firms, that’s nothing new: 

•   Merck, whose Vioxx product gave rise to class action lawsuits over allegedly deceptive marketing practices in 2006, is once again accused of engaging in similar deceptive practices

•   Monsanto, which Amnesty International calls a “global corporate terrorist,” is using litigation as a tool to protect its market share and has filed dozens of lawsuits against family farmers across North America, alleging they “stole” airborne seeds

•   ExxonMobil, which has a history of environmental and human rights lawsuits, has yet to pay $92 million worth of Valdez spill-related damages to plaintiffs in Alaska

•   Chevron, which also has a history of environmental and human rights lawsuits, now argues that renewables “are not a mainstream business”

•   Citigroup, which in 2002 faced FTC charges for abusive lending practices,  was recently accused of lying to investors and its own employees about the risks inherent in several speculative, mortgage-backed securities funds. It also froze customer lines of credit after receiving $20 billion in government bailout money

•   Goldman Sachs, which in 2002 faced SEC lawsuits for securities fraud and conflicts of interest, recently changed accounting rules in order to hide December losses. It is also accused of being a serial violator of SEC regulations prohibiting long-outlawed “naked” short sales of stock

•   Smithfield Foods, which recently faced multiple environmental lawsuits, runs slaughterhouses in Mexico that some experts have linked to diseases like swine flu

CRO’s Best Citizens list sheds light on a critical problem that keeps CSR on the sidelines of many corporate agendas: the industry is too ambiguous for its own good. As Paul Hawken argued several years ago in hiscritique of the $2.7 trillion socially responsible investment (SRI) industry: “The term ‘socially responsible’ is so broad it is meaningless...There are no standards, no definitions, and no regulations. Anyone can join; anyone can call his or her fund an SRI fund.” 

To be sure, the CSR industry’s lack of universal standards and criteria leave many questions unanswered. But research indicates that it doesn't need to be this way.

Companies that dabble in every conceivable CSR facet (community, diversity, environment, human rights, etc.) tend to be less effective than companies that pursue deliberate strategies in a focused area – both in terms of making a substantive social and environmental impact, and in terms of generating a financial return on their corporate responsibility investment. That was a key finding of my 2007 CSR effectiveness study, and it runs contrary to the way that companies are rated on “Best Citizens” lists.

According to the CRO’s methodology, Best Citizens lists are compiled by quantitatively rating companies across a breadth of performance dimensions:  environment, climate change, human rights, employee relations, philanthropy, financial performance, governance and lobbying activities. Scores are assigned to each category (some categories count more than others) and those companies with the highest cumulative scores win. Though the CRO suggests that this breadth approach to CSR performance evaluation yields a more holistic view, the result is that any company, regardless of history or industry, can be included for consideration. Halliburton and Blackwater (Xe) have yet to make the cut, but that may only be a matter of time.

On the other hand, as mentioned above, my research clearly demonstrates that depth works better than breadth. Rather than taking on every CSR issue at once, the companies producing the best triple bottom-line results (High-Purpose Companies) go deep in one or two particular areas where they know they can make the biggest difference. They find common ground between their core strengths and a critical problem that needs solving – and thus develop profitable solutions to that end. High-Purpose Companies have the financial incentive to create social and environmental value. That’s not always the case at the firms making CRO’s cut, which is why the magazine risks missing the point.

If the CSR industry is to be taken seriously in the future, then it needs to reward companies for producing value, not just preaching values.  Now is the time for an industry makeover. Let’s start with objective standards, critical thinking and a much stronger voice. 

Christine Arena is the author of The High-Purpose Company - The Truly Responsible (and Highly Profitable) Firms that are Changing Business Now