Insights at UBC Sauder

Sustainability and ‘values-driven’ business will lead CSR 2.0

Posted 2018-04-04

Corporate Social Responsibility, or CSR as it is widely known, has long been welcomed as a necessary element in an organization’s portfolio of business activities. In theory, CSR facilitates voluntary actions from businesses that positively contribute to the environment and communities they engage with.

But in practice, this phenomenon has been rife with criticisms.

“Empirical studies are consistently proving theories of strategic CSR and profit-seeking management decision-making,” explains Dr. Carol Liao, an assistant professor at the Peter A. Allard School of Law and UBC Sauder Distinguished Scholar at the Peter P. Dhillon Centre for Business Ethics. “The pure economic incentives driving CSR and its commodification are negative aspects of the movement. And considering the number of years CSR has been pursued by large organizations, some suggest that the practical outcomes have been quite disappointing.”

According to Liao, although CSR is a positive development, unsustainable corporate practices as well as the prevalence of ‘short-termism’ and profit-maximizing behaviour continue to off-set any tangible gains, putting CSR at risk of being treated only as a branding exercise.

Liao has a wealth of expertise in corporate governance and social enterprise philosophy, and has charted CSR’s evolution from simple corporate philanthropy to its contemporary sophisticated form as it merges with notions of social innovation, and broader notions of economic, environmental, and social sustainability. She is part of a global consortium of scholars expanding the growth of research in corporate law and sustainability, and recently returned from the University of Oslo in Norway where she attended a symposium for the contributing authors of The Cambridge Handbook of Corporate Law, Corporate Governance, and Sustainability, an international state-of-the-art collection due out in 2019.

“Leaders at the forefront of CSR are transforming the concept into one of ‘social innovation’ and integrating business concepts with social activism. It’s not, ‘how do we increase our profits this quarter?’ but rather, ‘how can our business positively impact the world?’ These values-driven businesses are turning traditional thinking around business objectives on its head.”

In need of a reboot

Liao is currently tracking the global development of laws supporting social entrepreneurs pursuing dual economic and social mandates for businesses. As for whether these new legal eco-systems supporting social enterprise will drive ‘CSR 2.0’ nationally and abroad, she is hopeful, but also cautious.

“Many jurisdictions around the world are implementing social enterprise laws that are creative at targeting specific social issues – such as addressing the employment of people with disabilities, the needs of marginalized groups, etc. Other new legal forms such as the American benefit corporation, which is getting a lot of air time, unfortunately only offer benign legal solutions while further entrenching false public beliefs that mainstream corporations are obligated to pursue profits above all else, which is simply not reflective of Canadian corporate law, or corporate laws around the world.”

Society is already witnessing real-world initiatives taking shape from this philosophy. ‘Green bonds’ that finance environmentally-sustainable projects and research in renewable energy, and corporate sponsorship of social start-ups all fall under the ‘values-driven’ ethos. These initiatives attempt to recalibrate markets to account for hidden costs associated with the shareholder primacy model.

“CSR is in need of a reboot… the next significant stage of the CSR movement will be in the reformation and creation of laws and corporate legal models that not only enable but require sustainable values to be embodied within corporate governance practices,” says Liao.

CSR in the long-run

While wealth maximization and social responsibility are not mutually exclusive, Liao notes that the two originate from motivations that may not be in sync at all times. For publicly listed companies, for instance, the pressure to achieve quarterly earnings may push social initiatives to the back of the agenda.

But for Liao, this recurring possibility of short-term outlook outweighing long-term vision for sustainability makes a stronger case for values-driven thinking: “Embedding values within your governing infrastructure is critical because companies are susceptible to foregoing values and decisions that may, in the short-term, seem to diminish profits. It’s important we build mechanisms to counteract corporate temptations to deviate from values when they are considered ‘inconvenient’ or impediments to commercial gains.”

The message emanating from the Peter P. Dhillon Centre for Business Ethics is clear: at this juncture of CSR’s new awakening, Canadian businesses will have to brace for the inevitable rise of legal infrastructure, embrace strong values that resonate with its environment, and act as responsible corporate citizens.