Tuesday, July 27, 2010

Dealing with corporate responsibility skeptics

Trying to convince corporate responsibility skeptics is not my favorite pass time. Over the years, I have learnt that arguing with skeptics is a waste of time. But I decided to respond to a friend who wrote to me about his experience with skeptics.

He has recently started teaching ethics in a few business schools in India.

This is the e-mail that I received from him :

"Last week I was taking a workshop on Ethics at A reputed B School in Mumbai and came across many students who held the view that the only responsibility of business is to maximise shareholder value and nothing else. And there I remembered your comment on MBA education in India and how it is biased towards shareholder value and not stakeholder value.
I tried to convince them with the discussion on Necessary condition and sufficient condition based on the HBR article What’s a Business For.

I just thought to check with you if there is a better or alternate way to explain this which you may be aware of."

And this is what I wrote to him:

Thanks for the mail. I am used to coming across skeptics. So your experience with the students does not surprise me. Though the situation is changing. Recently, I made a presentation to executive MBA students at INSEAD Singapore. None of them thought corporate responsibility was not important. Many in the class actually said that corporate responsibility was strategically important for companies which want to grow in a globalised economy.

The general misconception is that responsible business works against shareholder interests. In fact, the opposite is true. Running business responsibly actually protects, and increases shareholder value in the medium to long term. Irresponsible business practices on the other hand can diminish, and sometimes dramatically destroy, shareholder value. That is why more and more investors are making corporate responsibility a key criteria in their investment decisions.

The key challenge for companies is to find the right business case most suitable for their kind of operations. Most companies fail on this count. You can blame it on the lack of seasoned CR professionals. Indeed, there are more incompetent corporate responsibility consultants than the good ones.

When companies are not able to identify or articulate the business case for CR, they obviously fail to see how CR can create value for their shareholders.

Short-termism and short-sightedness are also to be blamed. Most managers have a 2-3 years time horizon in a company. But shareholder value is built over a longer term and needs to be sustained over a long term.

Another major problem is that a very large number of companies, and executives, do not understand what business responsibility actually means. I routinely run into managers, many of them in senior roles, who still believe corporate responsibility means philanthropy or charity.

MBA students who think corporate responsibility conflicts with shareholder value will not make it to the top in their career in any respectable company if they continue to hold the same view. Harsh this may sound. But the price of ignoring business responsibility is going to be severe. For companies as well as for managers.

In India, business schools need to reboot the curriculum and align with the current global thinking and realities. Otherwise, they will be producing MBAs who will not be equipped with the right knowledge to effectively serve their shareholders.

I can understand your frustration. I no more argue with the skeptics. Let them learn at their own cost. Not sure if this helps:)

best regards,

If working on skeptics is something you do, your comments and tips are welcome.

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