Expectations of the company are changing

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Washingtonpost.com
Monday, June 26, 2006; A20

THE DEBATE over the role of business dates back at least a century, to the
time when President Theodore Roosevelt broke the power of those "malefactors
of great wealth." But today's debate is more heated than usual. Even though
there is always a good argument for the notion that the business of business
is business, corporations are under mounting pressure to define their goals
more broadly.

"Corporate social responsibility" has become a buzz phrase, complete with a
thriving industry of image gurus and responsibility consultants. Business
schools feel obliged to teach tomorrow's corporate leaders about
environmental sustainability and corporate ethics. As The Post reported this
month, the new mood has spread even to Wal-Mart, long a champion of the
profit-focused business style. Having spent years squeezing costs at the
chain's suppliers, Wal-Mart's bosses are experimenting with "fair-traded"
coffee, paying farmers a premium in exchange for virtuous labor and
environmental practices.

Pressure on business to act "responsibly" seems to come in cycles. In the
1980s the financier Ivan Boesky told a business school audience, "You can be
greedy and still feel good about yourself." Then he was jailed for insider
trading, and red-meat profit-seeking fell from fashion. In the late 1990s
the dot-com boom unlocked animal spirits; then Enron and its successor
scandals forced a retreat to the cages. But the current interest in
corporate social responsibility is more than just the latest turn in this
cycle. It reflects the continuing rise of two forces: environmental and
globalization concerns.

The modern environmental movement is often traced to the publication in 1962
of "Silent Spring," Rachel Carson's attack on the effects of pesticides. At
first only manufacturers with obvious environmental footprints were in the
firing line. But as the environmental movement has grown, almost every firm
has had to think about its ecological profile: Recently banks such as
Goldman Sachs have taken steps to become "carbon-neutral," while Wal-Mart
has promised to double the fuel efficiency of its vehicle fleet. This spread
of green virtue has acquired a sort of self-fulfilling momentum. Companies
such as General Electric expect that regulatory standards on greenhouse
gases will tighten, so they steal a march on their rivals by behaving as
though the standards were already in place. This in turn makes the
tightening more likely, since a potential member of the anti-regulatory
lobby no longer has anything to lose from curbs on carbon.

The same dynamic applies to globalization. "Transnationals" came under
attack during the 1970s, but the integration of the world economy has caused
more firms to go global -- and to face potential criticism for it. Clothing
and shoe companies have been attacked for using sweatshops; Yahoo Inc. has
been attacked for complicity with China's Internet police; pharmaceutical
companies have been attacked for pricing their medicines too high in poor
countries. As with the environment, some businesses respond by getting out
ahead. Writing in the current issue of Foreign Affairs, Samuel J. Palmisano
of IBM calls on business leaders to help manage the pressures of
globalization, from inadequate education to inflexible health systems.

This evolution is broadly welcome. Tightening environmental standards is
part of society's progress. Business can also help manage globalization's
downsides. Yet the emphasis on companies' social responsibility must be
realistic. Corporate efforts to control carbon emissions or discount AIDS
medicines will never be a substitute for sensible public policies on climate
change or drug pricing. And even though the world has changed, earning a
profit by getting excellent goods to customers at the lowest possible cost
remains the central purpose of business.