What Will the Financial Crisis Mean For 'Corporate Responsibility?'

During this historic economic downturn, society's perceptions of financial companies may be undergoing a change, according to UB assistant professor of geography Trina Hamilton, Ph.D., who studies corporate, environmental and social responsibility, global governance and international trade. "The Wall Street crisis could ultimately change the way society views corporate responsibility," says Hamilton. In the following interview, she discusses the concept of corporate responsibility, how it will be affected by the current crisis and how the concept is interpreted internationally.

Q. How has corporate social responsibility traditionally been defined in the U.S.?

Hamilton: There have certainly been multiple models of American corporate social responsibility (CSR) over time, including the corporate paternalism of the early industrial age, whereby corporations provided worker housing and supported whole company towns in some instances, and the grand philanthropy of the Rockefellers and other industrialists. More recently, however, there's been an ideological battle between those who adhere to the economist Milton Friedman's assertion that the social responsibility of business is to increase profits and provide returns to its shareholders and those who believe that, for a variety of reasons, corporations must accept a wider range of responsibilities toward multiple stakeholders.

Q. How have financial companies, in particular, been viewed as corporate citizens?

Hamilton: The most high-profile corporate responsibility initiatives in the finance industry have had to do with the adoption of social and environmental standards for the financing of large-scale development projects, particularly in developing countries. While there have been concerns about predatory lending, and activist shareholders, such as the members of the Interfaith Center on Corporate Responsibility, have been submitting shareholder proposals on the issue for years now, it had not become part of the broader public debate until this crisis got out of hand.

Q. Which companies have traditionally been seen as good corporate citizens? What does it mean when some of these companies end up in the middle of a crisis like this?

Hamilton: In terms of the finance industry, Fannie Mae has topped some of the more influential corporate citizenship rankings in the past based on its philanthropic activities, and other companies such as Citigroup have seen their reputations attacked and then bolstered with the adoption of the social and environmental standards I mentioned before. One of the big problems in evaluating corporate responsibility or citizenship is that most of the ranking systems tend to obscure specific issues and problems by averaging a corporation's performance on a wide range of measures. So, I don't think it's actually so surprising that a company that rates well on some measures, such as philanthropy, would find itself in the middle of the current crisis, but it does highlight the complexity of evaluating a company's overall citizenship record.

Q. How do you think the Wall St. crisis has impacted public perceptions about the finance industry?

Hamilton: Wall Street has certainly been painted as the bastion of excessive greed, previously. Think about the excesses of the 1980s as portrayed in the film "Wall Street." But I think the current crisis has the potential to shift the debate from one about a few bad apples in an otherwise legitimate system -- which was how the Enron scandal was characterized -- to a questioning of the incentives and rules of the system itself. "Regulation" is no longer being portrayed as a four-letter word, and I think it has as much to do with other recent scandals and crises (including concerns over lead-tainted toys and other product safety issues) as it does with the current crisis. We may be witnessing a final tipping point.

Q. Do society's views of who is and who is not a good corporate citizen affect the business operations of a company?

Hamilton: The evidence seems to be mixed on this one. My own research has shown that, in general, consumer brands -- those companies with direct ties to consumers -- are more responsive to social and environmental concerns. Consumer brands have much more reputational capital at stake; therefore they're particularly vulnerable to public pressure and I found that a majority of those companies targeted by social and environmental campaigns did make changes that went beyond so-called greenwashing or public relations defenses. I would have to agree with David Vogel, a professor at the University of California, Berkeley's Haas School of Business, and author of "The Market for Virtue," who argued in a recent book that while there's plenty of room for virtuous companies in the current marketplace, there's also plenty of room to profit from less virtuous and even unethical behavior.

Q. You study global trade issues as well as corporate responsibility. How do other countries view corporate responsibility: more broadly or more narrowly than in the U.S.?

Hamilton: The majority of the research to date has contrasted corporate responsibility in the United States and Europe and it has shown significant differences in terms of the specific issues that the public is concerned about, such as the more widespread European concern about genetically modified organisms. In some ways, American companies are much more explicit about promoting their CSR activities because they are generally developed as a means to develop a competitive advantage whereas similar issues in parts of Europe might be taken up more as part of an implicit social contract between corporations and their stakeholders. In other words, corporate responsibility in the United States has evolved in accordance with our shareholder model of capitalism and tends to focus on reducing reputational risk and developing financial metrics for measuring the value of corporate responsibility initiatives, while the debate in Europe tends to be framed in terms of stakeholder engagement and stakeholder capitalism. Of course this is an over-simplified comparison, but I do think the differences are significant. Outside of the United States and Europe there are plenty of other interesting trends, such as the focus on a new model of "karma capitalism" in India and elsewhere that takes a more holistic view of personal and business success.

Q. Are issues of corporate responsibility, business ethics, etc., becoming more or less critical for companies?

Hamilton: I think that some companies are more vulnerable to public pressure and criticism than others, but if the public debate shifts toward a greater willingness to re-regulate, then companies are going to have to plan to compete in a new, more leveled regulatory environment, rather than using voluntary corporate responsibility initiatives as a means to stand out from the competition. Of course we'll have to wait and see if we've really reached a tipping point or if we'll be talking about something else in a month or a year's time.

Q. At what point does corporate accountability become a factor in "corporate responsibility"? And why hasn't it been part of it traditionally?

Hamilton: One of the biggest challenges that the corporate responsibility movement has had so far is in generating new accountability mechanisms. I found companies much more resistant to agreeing to report on their social and environmental performance than to actually make operational changes, for instance. But the pressure to expand reporting on social and environmental issues, to increase transparency about political contributions and involvement and to generally move from a corporate responsibility to a corporate accountability model has been there within the corporate and social responsibility movement for some time. We might see it take center stage in the current public debate.

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