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Rethinking Corporate Citizenship

Posted on the 09 May 2012 by Center For International Private Enterprise @CIPEglobal

Rethinking Corporate Citizenship

Corporate citizenship, or corporate social responsibility (CSR), is a frequently contested issue. For one, no universally agreed upon definition of it exists, so many debates focus on what the term actually means. But more fundamentally, differences in what corporate citizenship should entail stem from divergent perceptions of the very nature of business. All too often the debate is framed with an underlying – and unfair – assumption that businesses are intrinsically bad and need CSR to “atone” for their misconduct.

The Case for Business in Developing Economies by Ann Bernstein, executive director of the Centre for Development and Enterprise in South Africa, challenges such views and calls for a more balanced conversation about the meaning of corporate citizenship and the role of business in society more broadly. She notes that the hugely positive role that businesses play in development simply by doing what they do every day is overlooked. Instead, the focus is overwhelmingly on what businesses should do above and beyond their core operations. In other words, the direct and indirect benefits of business are discounted or simply ignored in many debates about good corporate citizenship.

Those benefits are numerous, and crucially important to the prosperity of nations. At the most basic level, private enterprise is the best tool we know of to make human efforts productive through efficient resource allocation and innovation. By promoting economic growth, businesses help to reduce poverty. They create jobs, pay taxes, and provide products and services that consumers want. Beyond these tangibles, there are also positive unintended consequences of doing business that have far greater impact than most CSR programs. Successful businesses can transform the economic prospects of millions of poor people not just by creating jobs but also by expanding the consumer base and inspiring new entrepreneurs.

Foreign investment in particular, if handled well by host governments, can help spur the development of the local private sector by sharing technology and business practices within the supply chains. Those companies also bring modern corporate cultures and HR practices that encapsulate the notions of individual rights and responsibilities, which can be quite novel especially in closed societies. In countries with weak legal and institutional systems, foreign companies are often at the forefront of reforms given the higher business conduct standards they are bound by.

That is not to say that all businesses are exemplary in their conduct. Companies that violate the law or behave unethically exist and should be punished accordingly. But such transgressions in no way negate the overwhelmingly positive impact that the private sector as a whole has on global development.

Ann Bernstein lays out this argument in a passionate way, basing it on extensive research and specific country examples. She is not an advocate of Milton Friedman-esque “the business of business is business approach,” noting that companies do need a social license to operate and it is in their profound long-term interest to care about the social and environmental conditions of communities where they work.

She also highlights the importance of democracy to effective corporate citizenship. Where the interests of various stakeholders clash and conflicts over different priorities involving business arise, democratic mechanisms are needed for a transparent debate and joint solutions. And only democratic governance can guarantee what the broad-based business community needs to thrive: transparent decision-making process and equal protection under the law. Business leaders and their organizations around the world can therefore play a vital role in strengthening the demand for those democratic institutions.

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