The following thoughts were inspired by a discussion at a KPMG event ‘A New Vision of Value‘ in October 2014 (and an earlier KPMG / Tomorrow’s Company event on ‘Relational Capitalism‘ a year earlier). It seemed to me that too much emphasis was being put on morality as a driver for good corporate behaviour when compared to the business case.
There appears to be a (wholly unnecessary) split in the corporate responsibility community as to whether business engagement in the community should be driven by morality or a business case. Whilst the ‘business case’ may be deemed cold and calculating, even portrayed as self-serving, I believe that morality alone is an inadequate guide to action.
Let me explain why.
If ‘business case’ means ‘driven by what works’ and ‘morality’ is ‘driven by what’s right’ then of course morality should underpin any corporate community engagement, as indeed it should guide all business decisions (payday lenders and massive tax avoiders please note). But if morality alone was sufficient to be the engine for a greater positive engagement of corporates with communities, charities and causes, then surely it would have generated a greater impact by now? Morality doesn’t change that much over a lifetime, after all.
But morality is a state of mind, not a programme – nor necessarily an incentive – for action. It answers the question ‘why’ social action is right but not that of ‘what’ or ‘how’. By basing such decisions on morality alone we are in danger of saying ‘Everything our business does is guided by a business case – except social action’. Which is odd.
Perhaps the problem is our definition of ‘business case’. To me the phrase does not mean ‘the best way to maximise profit’ or any Friedmanite assumption that the business of business is isolated from the world or the community around it. Social action backed by a business case would:
- deploy company resources in a manner which discharges the duties of a corporate citizen
- engage, inform and motivate employees
- deliver a positive, desirable and observable social outcome over a period of time
- contribute to the sustainability of the business as a whole.
Social action may generate a programme which enhances employees’ skills, stimulates innovation and boosts corporate reputation; business outcomes well worth having.
None of these are in conflict with a morally-framed approach but nor are they necessarily included in it – and to exclude any of these three reasons is to miss potentially significant opportunities. A creed which says that morality alone should guide corporate social action reminds me of the old Puritan idea that profiting from doing good is inevitably wrong.
Let us consider a real case. For the past three years Boots has enjoyed a partnership with Macmillan, the cancer charity, aiming to improve cancer patients’ access to support and services in the community at no charge. This was undoubtedly a morally sound case, for which there is a great need. A second three year phase has recently been agreed.
Over that first period Macmillan trained Boots’ staff to identify and refer cancer patients and their families while Boots supported the charity in a number of ways, not least through fundraising, advertising and co-branding. The chemist became the first choice ‘go to’ pharmacy for cancer patients whilst the profile of the charity was significantly raised. Together the moral case and the business case both work.
In three years’ time the moral case for continuing this relationship will be just as strong as it was three years ago – but the business case will be less persuasive. The ‘go to’ reputation for both chemist and charity will have been embedded, deservedly, but the beneficiary flow will be subject to the law of diminishing returns. The social impact of continuing to invest time, money and resources into exactly the same ongoing project will be diminished. Morally, the relationship should continue from then on – but, from a business case perspective, if it does so then it must change.
In short, every input should lead to one or more outcomes. The moral case says that inputs and outcomes must be morally sound (and preferably untainted by any business benefit?) but the business case says that the inputs should be calculated to produce the maximum, sustainable, beneficial outcomes without compromising the business itself in an unacceptable manner.
In 2007 all four giant American motor manufacturers had well established CSR programmes – as is the norm in the US. In the absence of evidence to the contrary, let us assume that all delivered a cost effective set of outcomes which were morally sound and, at least in part, helped the company discharge its duties as a corporate citizen.
But the moral justification was not strong enough to prevent three of those companies abandoning their CSR programmes in a cost-cutting measure in the face of the global recession. There is no reason to believe that Ford is any more of a moral company than the others but Ford retained its CSR programme and, despite a reduced budget overall, its employee volunteering rose by half in just three years. This, they argued, was supported by the business case. In the light of thousands of job losses something had to be done to improve the morale of remaining staff and this was to add ‘social purpose’ to their reasons for coming to work. Much of the CSR output was focused in countries with developing markets, enhancing Ford’s reputation in advance of the expected upturn in world markets, and the company makes no apology for deliberately focusing a proportion of its social spending on branded activity. Today, Ford is widely held to be benefiting from one of the most highly engaged workforces in the corporate world. An engaged workforce is more loyal, productive and healthy (with fewer days lost due to sickness) than one that is not.
Of course there is a moral justification for much of Ford’s community-based activity but the motivator is a complex and multifaceted business case: doing good and doing good business are combined.
A particular area of interest is the role of the SME as a corporate citizen. Research shows that SMEs generally do not recognise CSR as relevant to them although they do believe it is right to expect business to engage with the local community. Perhaps this is a moral position although few SMEs (outside the relatively recent growth area of social enterprise) would claim to have a mission, let alone a statement of values, which guides their path or informs their business decisions. Where they do engage with community organisations that relationship is informal, reactive rather than proactive, often short-term and usually superficial.
But in rare cases where strategic engagement with a civil society partner has been embarked upon the mutual benefits to business and community can be profound. For example, a steel stockholder described to me the after-effects of a serendipitous giving of goods and volunteer time to a local nursery as ‘changing my company, giving employees a greater purpose in coming to work’. A storage company owner, who engaged a serving prisoner on work experience through a local charity, told me that the process ‘opened my eyes’ and that ‘I will definitely invite former prisoners via the charity for future recruitment purposes’.
Most small businesses engage with charities, voluntary organisations and schools on a one-off basis, perhaps when a request for a gift of cash or kind triggers a spike of moral conscience. For them to engage with communities strategically, sustainably, requires business planning – and a business case. Small businesses often claim they do not have the time or money to think about the morality of their business or engage strategically with the community; but those who have passed through this barrier are generally convinced by the arguments for doing just that. Old-fashioned proprietorial views – ‘the purpose of my business is the survival of me and my family, now and in retirement’ – still pervade even though self-interest is not generally regarded as the peak of moral purpose.
In conclusion, I share the wishes of those who want to see morality play a greater role in the business world and I praise to the rafters those believers who practice what they preach. But the tools they use are business tools whose deployment requires a business justification – which means a business case.
Admittedly, too much CSR today is supported by self-centred business arguments which focus on, for example, employee engagement with the company rather than with the community. But this need not be the case.
The fact that morally sound behaviour by companies can be supported by a business case is something we should be celebrating, not segregating. Business has a huge amount to offer to society globally and the fact that morality alone has so far failed to release significant resources for this purpose is a matter of regret.
In the best of all possible worlds corporate behaviour, both the essence of corporate citizenship and the ethos of good business, would be backed by both moral/ethical and business arguments. Ultimately both are both necessary and justifiable.
Roll on the day!
In reply, Vincent Neate – Head of Sustainability at KPMG – wrote:
I enjoyed the paper and basically think I agree with you. I think I might go further though in two directions – one by asserting that there is no possibility of an amoral human act and second that the existence of morality is not the same as the existence of moral obligation.
In this context the choice Boots made in respect of Macmillan was both morally good and one where the only obligation driving it was the obligation to make commercial sense. If it had not made commercial sense there would have been no moral obligation – such that if in three years it no longer makes commercial sense there will not be a moral obligation then.
The key question I think this is raising is whether or not any obligations ever exist other than contractually – whether the contract is explicit (e.g. with the shareholder to “make commercial sense”) or implicit (e.g. with the cancer patient to give them best possible advice). I would argue not – Boots creates the latter contract by claiming to be a health focused pharmacy rather than a money focused pharmacy and the partnership with Macmillan is just the mechanism for executing in a way that makes commercial sense on a contract they have already implicitly created.