Investors and Public Want Corporate Accountability More than Ever.
So Why is It Under Attack?

The list of CEOs under scrutiny, either for wrongdoing or poor job performance, continues to grow. From former WorldCom CEO Bernie Ebbers to L. Dennis Kozlowski, former CEO of Tyco International Ltd., to HealthSouth Corp.’s founder and former CEO Richard M. Scrushy, the list of convicted or alleged “wrong-doers” is ever expanding.

On the "failure to perform" side of the list are CEOs – Michael Eisner, CEO of The Walt Disney Company, who steps down in September 2005; Carly Fiorina, former CEO of HP who recently resigned under board pressure; and Harry Stonecipher, former Boeing CEO whose extramarital affair with a female employee violated company ethics policies – whose boards of directors recently have exercised their fiduciary responsibility to hold top executives accountable.

Given the increased scrutiny of public companies by law enforcement agencies and shareholders, one would expect business leaders to embrace the concept of corporate social responsibility (CSR) - "the recognition by corporations that their actions must take into account the needs and ethical standards of society"(McGraw Hill) – as central to good corporate governance. Yet, the first quarter of 2005 witnessed a barrage of attacks on corporate social responsibility by business leaders and organizations.

In January, Steve Forbes wrote an editorial critical of CSR in the Financial Post. Then, The Economist produced a negative cover story and 10,000-word 'survey.' In addition, Arthur Laffer and the Competitive Enterprise Institute attacked CSR’s effects on corporate profits.

At a March 2005 gathering of corporate executives in Boston, Nestle CEO and Chairman-elect Peter Brabeck-Letmathe argued, "What the hell have we taken away from society by being a successful company that employs people? Companies should only pursue charitable endeavors with an underlying intention of making money for investors."

Weyerhaeuser’s management eliminated shareholder questions at their AGM and physically removed owners who objected. In April, a lead Sunday business section story in The New York Times was headlined, "Managers to Owners: Shut Up".

The Case for CSR
What to make of this? Many corporate executives fundamentally misunderstand the concept of corporate social responsibility.

KPMG's International Chairman Michael Rake told the World Economic Forum, "The first thing people need to understand around corporate social responsibility is that the business case is very strong. If you look at any survey, all other things being equal (such as price and quality), the consumer will buy from the company that has a responsible attitude towards its community. In recruitment, people want to work for a company with a responsible social attitude."

CSR is fundamentally about businesses holding themselves accountable for their impact on people and the planet. It is a comprehensive approach that a corporation takes to meet or exceed stakeholder expectations beyond measures of revenue, profit, and legal obligations. It is not about philanthropy. It is not about anyone's - shareholder, stakeholder, or manager - disdain for profit.

Many companies, too, take CSR seriously and are putting resources behind it. Chiquita Brands International, Inc. announced earlier this year the appointment of a corporate responsibility officer who will "oversee Chiquita's adherence to leading environmental, social and ethical standards and the measurement, verification and reporting of the company's performance in those areas." According to Chiquita’s CEO Fernando Aguirre, the company wants to “ensure that corporate responsibility continues to be woven into every major decision we make as a company."

Response to Critics
What critics fear about CSR is increased scrutiny and accountability. Thus, CSR exposes them to reputational, financial, and legal risks. The response to critics of CSR lies in a simple fact: the demand from shareholders and the public is growing (the Social Investment Forum says over $2 trillion is invested under social mandates).

More and more people - from institutional investors and fiduciaries to individual investors to stakeholders - are demanding specific, in-depth information about the performance of public companies on social and environmental issues.

Some investors simply want to invest based on their values, whether those lean for or against specific social or environmental issues. They don't want gun manufacturers in their portfolios. Faith-based institutions often want to ensure that their investment portfolios do not include so-called "vice" stocks - companies with operations, holdings, or investments in alcohol, tobacco, gambling, or adult entertainment. Other investors believe that companies with good CSR track records make better long-term investments.

Regardless of their motivations, investors want information they can trust about public companies. The recent wave of bad behavior by corporate CEOs has eroded their trust. As investors increase their expectations for greater corporate social responsibility and demand greater access to information about the institutions they own, managers must learn to adapt to new market conditions. Isn't that a key measure of success with which everyone can agree?

Cheers,

Peter Kinder
President