26th April 2007
Institute of Certified Public Accountants Annual Business Lecture 2007
THE ROLE OF SOCIAL AND CORPORATE RESPONSIBILITY IN BUSINESS
Speaking Notes of
Most Rev. Diarmuid Martin
Archbishop of Dublin, Primate of Ireland
College of Physicians, Dublin 26 April 2007
Some would say – and rightly – that running a good business means ensuring gain for the shareholders, making a profit through providing a quality product or service and of course that this also involves giving employment. That has traditionally been the way in which the businessperson looked at good business. And anyone who challenged that viewpoint would be reminded – also rightly – that putting yourself out of business through increasing your costs helps no one.
On the other hand, there are some whose conscience would be stimulated – and also rightly – by an uneasiness about large profit and would stress that business is embedded in the reality of society and shares some responsibility for society. They would feel that in some way part of that profit should be directed not just to the shareholders but also to wider concerns of the society in which the business is embedded, and this not just through the personal philanthropy of those who pocket the gains.
Most of us would probably fit in somewhere between these caricatures, recognising the fact that a business belongs within a society, but also that running a business has its own requirements and that there are limits to what it should be expected to do within society.
Corporate social responsibility is a buzz term today, but it is not a recent invention. Here in Dublin, if I am not mistaken, the first public swimming pool and the first crèche were founded by the Iveagh Trust with money from Guinness. Guinness also built houses for their employees and paid attention to bright workers who entered at a young age and were encouraged to continue their education and make progress within the enterprise, some rising to senior positions. Guinness in popular folklore was a good employer.
In the United States a broad pattern of corporate philanthropy developed at the time of the industrial revolution, which resulted in the establishment of huge Foundations and Endowments, fruits of the profits of wealthy business magnates and facilitated by tax policies which encouraged donations to universities, hospitals and cultural institutions.
Have things changed today? Philanthropy is booming and perhaps more than in the past many public services would be in serious difficulty without it. In Crumlin Children’s Hospital over the years, corporate philanthropy not just allowed the hospital to pioneer breakthroughs in new directions in medicine, but actually became the leverage in convincing government then to finance the mainstreaming of such investment.
I want however to look at two trends which I think are significant if we are to develop a modern concept of corporate social responsibility and, as my particular contribution to such a debate, to see how Catholic Social thought has addressed them.
The first is about the very nature of a modern economy. The nature of a modern economy has helped to bring – or rather bring back – current economic thought towards a clearer recognition of the centrality to the process of economic growth of the human person and of the communities in which people live. In a knowledge-based economy, it becomes much clearer that it is people and their creativity and capacity for innovation that are the driving force of such an economy.
Pope John Paul II noted this in his 1991 Encyclical Centesimus Annus, where he writes: “Whereas at one time the decisive factor of production was the land, and later capital – understood as the total complex of the instruments of production – today the decisive factor is increasingly man himself, that is his knowledge, especially his scientific knowledge, as well as his ability to perceive the needs of others and satisfy them” (n. 32).
It is very clear, for example, that the economies which have done well in the knowledge era are those which have invested in their people and have generated a well-educated work force, capable of rapid and creative adaptation to technological development. This is all the more so when such investment has been broad in its approach: when it is equitably spread across society and throughout the various parts of a nation, rural as well as urban, women and men, thus reaching the highest number of persons.
It is clear also that the unskilled will be the single group who will be most marginalised in our societies. They will have the greatest difficulty in becoming part of a knowledge-based economy. The uneducated will have little chance in an evolving labour market that so often requires people to adapt and to change jobs several times during a single lifetime.
Even here we have to be careful. I believe that one of the social groups around the world who show extraordinary creativity and innovative capacity are the poor. They do so through merely surviving. Being uneducated does not means that you are not talented. I am struck by the fact that of my contemporaries many who did not flourish in an educational system marked by conformity were the ones who did well in an open business environment. It is a question of enhancing talent wherever it emerges.
The concept of market economy is linked also with the concept of the human person as being by his or her nature fundamentally and “acting person”, a protagonist. Economic initiative is a natural capacity and a natural right to be fostered. Business, the market, private property and the resulting responsibility for the use of property, as well as free human creativity in the economic sector can all be manifestations of the dignity and creativity of human persons.
One of the effects of the communist centralised economies was to weaken that element of creativity and to create a passivity in the workforce, the effects of which are still verifiable today, both on a personal and on a social level in many of the countries of Central and Eastern Europe, especially in those countries where the repression of individual initiative was harshest.
Economists today speak of “human capital”. It is a term about which I have some reservations in that it might be interpreted as looking on people as objects that can be utilised in an economic project, rather than as active subjects, which is precisely what human persons are. But, apart from this clarification, it is evident that human capacities are the active elements with which a modern economy can flourish.
This means that today there is an incentive for a business to establish itself where quality human capital is readily available, especially where this is characterised by a capability for innovation and creativity. This is in part what made and still makes Ireland attractive for investment. Surely a business – both from the point of view of self interest and as a primary focus of social responsibility – must have an interest in enhancing the capacity of its workers and in the creation of an environment favourable to good business practice, through fostering social capital. This is one area where enlightened self-interest and social responsibility knit well together. In a modern economy, investment in people and in those social infrastructures which value human capacity can no longer belong only to the realm of philanthropy, but constitutes an essential element in any healthy programme of economic investment.
The Compendium of the Social Doctrine notes that: “allowing workers to develop themselves fosters increased productivity and efficiency in the very work undertaken. A business enterprise must be a community of solidarity that is not closed within its own company interests”.
Yet there is also today a parallel tendency at work which looks on labour not so much as a dynamic stakeholder in an enterprise but primarily as an element in the cost of production, almost as a commodity among other commodities. In many ways rather than looking on employees at the primary resource of an enterprise, there is an emerging tendency to prefer not to have employees, but to simply use services in a manner which reduces to a minimum the risks linked with any long term direct involvement with employees.
This may also be encouraged by labour laws which have the opposite result to what was intended, through making people fearful of having direct employment relations which could become permanent in a world where permanency may not be of the essence of the type of product or service involved.
In many cases today, through outsourcing, a large concern may have no relationship with most of the people who construct the elements which combine to make up the product it sells or the service it provides. I believe that this distance does not exempt business from social responsibility, at the very least through being certain that those distant employers respect the minimum labour standards which the ILO in particular has established. The existence of such standards means that no one can plead they did not know how to act.
The second trend in today’s world which affects the idea of corporate social responsibility and on which I would like to reflect is what one might call the new dominance of the economy in modern society.
It is business, of course, – and not government – which creates jobs, provides employment and generates economic growth. An economy dominated by the public sector is an anomaly. One of the weaknesses for example of the Millennium Development Goals which are the mainstream principles for fighting poverty in the world today, is that there is no goal directed at creating employment.
There has never been social progress without sustained economic growth, but social progress will never be achieved by economic growth on its own. The economy belongs within society. It serves society and could not survive in a vacuum from the society in which it is embedded.
Pope John Paul emphasises that: “Economic freedom is only one element of human freedom. When it becomes autonomous, when man is seen more as a producer or consumer of goods than as a subject, who produces and consumes in order to live, then economic freedom loses its necessary relationship to the human person and ends up by alienating and oppressing him” (CA, n.39).
The Pope tries to balance the roles of the market, of the State and of a broader participatory society. He notes that: “the free market is the most efficient instrument for utilizing resources and effectively responding to needs”. Interestingly, the Compendium would seem to go even farther noting that “the free market is an effective instrument for attaining important objectives of justice”. But the Pope also stresses that “there are collective and qualitative needs which cannot be satisfied by market mechanisms. There are important needs which escape its logic. There are goods which by their very nature cannot and must not be bought and sold”.
Today, in the face of an over confidence in the market, it must be repeated that we need government. Smaller government may be more desirable than some of the past experiences of massive and unproductive government interference in society and the market. But no government would be equally disastrous, just as inefficient government would be. Government is essential to guarantee the ethical and juridical framework within which the market can flourish and within which ethical market behaviour will be fostered.
One particular task that belongs to the State (and in Europe also to the competent EU office) is to ensure that the market is truly free. The State has the task of determining an appropriate juridical framework to safeguard the prerequisites of the free market and to ensure competition which presumes a certain equality between the parties. The State should guarantee that free competition curbs the excessive profits of individual business and responds to consumers’ demands through bringing about a more efficient use and conservation of resources.
A primary principle of corporate social behaviour is respecting its own ethical, institutional, juridical and political framework and those principles of trust and honesty, which are essential to the market.
Corporate social responsibility is carried out in the first place by acting responsibly, as the corporate world should act. Good governance applies to the business sector. The business sector must observe its own rules of honesty, fairness and transparency and competition. The market needs the dynamism and creativity of enterprise and competition, but it also needs a strong ethical and juridical framework, and the means to enforce the law.
Government and business have the same interest in many ways when one is talking about economic growth. Government and business should work together. This means that there can be a legitimate corporate interest in shaping aspects of the politico-economic environment.
In the interaction between the business and the political world there can be legitimate and illegitimate relations, healthy ones and unhealthy ones. Large business has a legitimate interest in the shaping of sound economic policy but it can also overplay its card if the card played is one of sheer self-interest.
Corporate social responsibility means respecting the rule of law in all its dimensions, fiscal, in the area of environmental protection, public health issues, work-safety. Wherever the rule of law is not respected, by any partner in society, it is almost always the poor who pay the highest price. The poor pay the price of corruption. The poor are the primary victims of violence. The poor pay the price of inefficiency in services, public or private.
In this area of interaction between the business and political world, there is one area which needs to be addressed, worldwide, and that is what I call “the cost of politics”. I am talking about the frightening situation of how much it costs to become the President of the United States and the manner in which much of this money has to be drawn from the business sector. I am talking about how electioneering has become expensive worldwide. This is where the clear lines between politics and business can get blurred. I am talking about how business can bend the ears of politicians and bend the norms that affect planning and public interest. It is in the interests of both politics and of business that this problem should be addressed and that norms, where they exist, be adequate and be respected.
The aim of social policy is to establish sustainable human communities that can flourish and integrate themselves into the wider society. The market on its own will not achieve equitable access to all the fundamental needs. But good business practice can help. Right across Europe today the questions of the relationship between government and market and between market growth and equity are difficult political questions. The ability of the State to cover the costs of pensions, health care and social services is reduced just at the moment in which there is also a certain feeling of precariousness about employment security.
Politicians can reply in a populist way and perhaps damage precisely that agility of the market to foster growth. We need a politics of idealism and vision, rather than a politics governed by too many short-termisms.
Good business sense also requires its own idealism, that typical idealism which may seem unrealistic to many, but which shows up the empty pragmatism of most of us. Many young people do not have idealism because we have not brought idealism out in them. Corporate social responsibility is a way in which business surpasses its own pragmatism and directs its aims not just at generating wealth, possession and celebrity but at bring dynamism to its work and to society, a dynamism which moves beyond fostering mere consumerism, but looks at that phrase that was dear to the nineteenth century philanthropist, the betterment of humanity.