Good thinking, bad practice

Simon Caulkin, Observer News Service, London

Management's equivalent of the second law of thermodynamics says all bright ideas decay into acronyms: TQM, HRM, KM, MIS, BPR, SCM... And once they've reached that stage, you know they're dead. Or worse, undead: Vampirised like the Black Riders in Lord of the Rings, they live out a travesty of existence embalmed in software, in which guise they numb managers' brains and hypnotize them into transferring large amounts of money to the pockets of consultants and IT companies.

The latest idea to pass over into acronym twilight is customer relationship management. CRM, as it has ineluctably become known, is shorthand for a strategy to understand customers better so that companies can identify and concentrate on profitable ones to the exclusion of the unprofitable, thus improving loyalty and profits.

In theory. In practice, as a recent article in Harvard Business Review lamented, most managers buy CRM in the shape of computer technology, which they hope will do the job for them. As always, when software is substituted for thought, the result is disaster: 55 percent of CRM programs -- costing up to US$130 million a go and taking two years to implement -- fail. In one survey, one out of every five CRM users admitted their initiative had made customer relations worse.

This is depressing, if par for the course. Much more worrying is the prospect that a similar hollowing-out process is at work on an idea of far greater societal import: Corporate social responsibility. As far as I know there's no software package for corporate citizenship available yet, but other warning signs suggest that entropy is already beginning to set in.

There's the dreaded acronym, as in "a CSR (corporate social responsibility) program", with its tacit suggestion that responsibility is an independent management module that can be plugged in or out at will. And, along with the eminently worthy, there is the usual slew of opportunistic publications, conferences and puffery designed to position the concept as a product, to take its place with the other alphabet boxes on the shelves of the consultancy supermarket.

What's the problem here? Surely any addition to good corporate behavior, even if it's only a charitable donation, is a plus? In a literal sense, that's true. But that gain pales into triviality compared with its cost. For commercialized CSR not only divests the idea of its real meaning, it recuperates and turns it into antimatter: a figleaf that legitimates flagrant irresponsibility.

For a textbook illustration, look no further than Enron. At first sight it seems odd that the energy trader should have been so generous in its giving to Houston good causes. Yet a moment's reflection shows that its liberal support for the arts, sport and medicine was not social responsibility but the reverse -- using good causes to buy "reputation", in the way it used politicians to buy power and auditors to buy shareholder value.

The difference is crucial. Such companies as Enron appropriate "CSR" and other worthy causes to avoid being forced to make more fundamental reforms. In this perspective, a "CSR program" is a cheap insurance policy.

But corporate social responsibility isn't about how a company spends its money; it's about how it earns it in the first place. It's not about Microsoft or Bill Gates setting up billion-dollar foundations to support medical charities, but about using its market position to promote competition and innovation; about supermarkets fostering local produce and diversity; about energy firms investing in renewables and conservation.

Those aren't easy options. But then, the notion that the company has binding obligations beyond those to its shareholders -- the heart of corporate citizenship -- is, or should be, a genuinely subversive doctrine, going to the heart of what a company is and does.

To that extent, the free-market Neanderthals are dead right: social responsibility is indeed a constraint on the managers' sacred duty to pursue shareholder value by any means possible.

Ironically, they're dead wrong in their dumb-headed belief that shareholder value is a better guide for management action. After Enron, Marconi or even AOL-Time Warner, which has just made a world-shattering $54 billion write-off, we should know the reverse is true: The pursuit of shareholder value unfettered by other considerations is a massive value destroyer.

Or take Enron's near-homophone, Exxon, which is facing a motion from investors accusing the board of failing to protect them from=the fallout from chairman and chief executive Lee Raymond's extreme environmental and social positions.

"Bad publicity destroys shareholder value, and Exxon is undervalued compared to its peer group, when it should be at a premium," says veteran corporate governance advocate Robert Monks.

It may well be that corporate social responsibility is a better long-term underpinning for shareholder value than shareholder value itself.

After all, as even alert businessmen have noted, the end of the world is likely to have an adverse effect on shareholder returns, whether its cause is human conflict or environmental catastrophe.

It follows that the responsibility of companies, satisfying the interests of share owners as well as broader stakeholders, is to work to defuse that eventuality by, as management guru CK Prahalad has demanded, bringing the two-thirds of the world's population that lives in poverty into the world economy; or by using their ingenuity to turn social problems into job-and wealth-producing opportunities, as Peter Drucker has urged.

But the case for corporate citizenship doesn't stand or fall by its effect on shareholder value. As the philosopher John Rawls puts it: "Each generation must not only preserve the gains of civilization and culture, and maintain those just institutions that may have been established, but it must also put in place a suitable sum of real capital appreciation." What goes for individuals goes for businesses, too. And you can't acronymise that.