The social obligations of business

Any topic concerned with the social responsibilities of business seems to draw a lot of heat, particularly from people in the community sector. While lack of trust and suspicion of business has been common for 15-20 years – and of course there are many instances where it has been well founded – it is relatively new that the language of social responsibility or social obligations have been so widely applied in discussions about business. These terms have been present for some time in certain circles but the profile of these concepts is now much more public.

When the McClure report first came out I heard an ABC interview with an extremely annoyed academic talking about the anomaly of including the role of business as part of an approach to solutions. There is the notion that structural changes in companies and the drive for shareholder value are part of the problem so why ask business to be part of the solution without first addressing the causes? I prefer to think the inclusion of business as a separate and active part of social as well as economic life is an important shift in thinking about relations in the Australian community.

The topic is also a hard one for the Australian business community and there is by no means consensus on these issues. There have been many, sometimes heated, discussions behind closed doors trying to tease out the parameters of responsibility and obligations that should or could apply to business. This includes where these obligations sit in relation to the core purpose of business, which is to create wealth, and what social outcomes would be of most value for business and the community.

Our study: corporate community involvement

The centrepiece of this article is a study conducted with the Business Council of Australia of the views and community involvement programs of 115 companies. The objective was to establish the ‘business case’ for these activities. We sought to explore one aspect of the social role of business: non market interactions with the community.

Essentially, the study found that many companies – more than we anticipated – believe they should go beyond their traditional functions and be more involved with the community as part of an expanding social role that is connected with the health and growth of their businesses. About three quarters of the companies in the study had this view (although it is possible that this is an overestimate and the proportion is closer to 6o per cent).

At the other end of the spectrum, about 10-20 per cent of companies had the more traditional view that return to shareholders is the only way a social role could or should be fulfilled. This was a lower proportion than was expected. These companies may well conduct a philanthropic or sponsorship program but these are essentially seen as discretionary and a cost to business.

Interestingly, about 10-20 per cent of companies believe they do have a significant obligation to ‘put back in to the community’ through additional activities but do not expect a business benefit or commercial return. The return they gain from their contribution is more like that of a philanthropist whose ‘personal dividend’ or reward is knowing that community needs are being met through their efforts.

What is business doing?

'Sustainability' is the main business benefit

On the whole, companies who value corporate community involvement for the business benefits see it more in the light of aiding longer-term business sustainability than as a factor in boosting short-term competitiveness. The benefits are therefore more indirect and intangible than immediate and financial. The business case for valuing community interaction therefore seems to depend on companies having a grasp on the value of intangible assets and a vision of their longer-term goals. The corollary of this is that companies operating only with a short term business horizon will not see the returns that this area can bring.

Sectors’ motives vary

Resource companies emphasise securing from community and government the ‘licence to operate’. The retail and the service sectors, on the other hand, see ‘customer good will’ and ‘market access’ as more compelling benefits. The service sector saw ‘employee benefits’ as important A medium-size manufacturing company though, located in an industrial zone, may not perceive any of these benefits nor feel any additional pressure to engage with the community.

Poor data on the level of contribution

There is always a lot of interest in quantifying this area of business activity but our study was not able to shed a great deal of light on the dollars allocated. Interestingly, a critic from a company that does allocate a substantial proportion of earning to the community believes that business keeps this data to itself precisely because the amount is so low! We estimated about one third of corporate community funds goes to sporting and cultural sponsorships that cultivate community involvement and also serve marketing purposes. Community participation activities, philanthropic donations and community business partnerships each attract about 16 per cent of funds.

Support for education and partnerships are common themes

Again, industry sectors differ in their selection of activities. There are locally directed programs such education and training (the most popular theme, particularly with the service sector), social welfare programs such as assistance with the homeless and the young unemployed. Support is also provided to culture and the arts, often with a regional emphasis. Others assist in more integrated regional initiatives where communities evaluate their needs and are supported in economic and social development – an approach favoured by resource and energy sectors. Some have an arms-length approach while others consider partnerships with community bodies are more productive.

Converting a cost into an investment

Perhaps the most telling finding of this study was that companies are reflecting more deeply on how to maximise the business benefits that flow from community involvement. They clearly see the potential to convert these activities from a cost to an investment. For most, this has been a development of the past 3-5 years. The bad news is that many companies do not have the depth of management to achieve this. A small proportion — about 15-20 per cent — would nominate their programs as exemplary in that they gain substantial business benefits from their community involvement.

Future emphasis: smarter not necessarily more resources.

We asked companies for their views of the ‘ideal’ community involvement program and the anticipated direction of developments over the next five years. Essentially, it is early days for most companies. They do expect to see a greater emphasis in this area and seem clear about where improvements need to be made. The qualification is that there will not necessarily be more money allocated to the community; rather, a smarter effort and better use of resources.

Being Strategic

Many are considering greater specialisation with a tighter thematic focus that fits with business priorities. IBM internationally stands out in this respect in that it has narrowed its community focus to education – an area that is strategically linked to the future of their business and where they believe they have the capability to make a substantive contribution. One immediate consequence of adopting more concentrated business planning in community involvement, whether a tightly focussed or more diverse program, is that companies need to have the right level of expertise to make these choices.

Emphasis on employees

One of the surprising findings was that in the future most companies expect to see greater emphasis on the role of employees in corporate community involvement. Many CEOs anticipate employee activities will almost double. Indeed, securing employees’ support or involving them directly appears central to some companies’ motivation for community involvement. They see that employee involvement contributes to employee morale, broadens management perspective and contributes to a reputation as the ‘employer of choice’.

Growth in partnership: more effort not necessarily more dollars

The future activity profile for Australian business will also include more partnerships with community groups and more opportunities for dialogue with the community. In order to gain greater benefits and impact this will mean a narrower spread of activities with fewer partners, and projects that are conducted over a longer period of time. There may not be a greater allocation of financial resources, but smarter use of resources, perhaps through intermediaries, and leveraging of existing infrastructure.

What is business not going to do

Business activity in the community will never be a substitute for a government role – firstly, the dollars aren’t there. Business is not the same as wealthy individuals and indeed there may be more dollars forthcoming from this segment of our community in the future.

Secondly, business would seem to be resistant to buying into the ‘mutual obligations’ paradigm. It is the wrong slant. They don’t mind the ‘mutual’ part and would be more comfortable with something like ‘mutual advantage’ where they are able to exercise business objectives and look for business outcomes – do what they do best.

Moreover, there isn’t the expertise in business to adopt a fully worked out new set of social obligations. Business can act in partnership with community organisations, make decisions about what suits their business logic but their activity has to stop short of taking charge of delivering activities – at least in the Australian context where we expect leadership from government.

What is possible, though, is to act on the current opportunity that exists for arriving at a new consensus on the values that we wish to nurture. Business believes it has an important role in working with other parts of the community to establish the values that we agree on for our community – social cohesion, fairness, creation of opportunities, respect for Indigenous communities. That is the basis from which we should be able to decide how responsibilities should be distributed.

Conclusion

Solutions are far from simple, especially in Australia. With high rates of personal taxation and the history of large government, a community consensus on where the boundaries of the responsibilities of the respective institutions should lie is by no means settled.

Business does recognise that there is an increasing call on its social as well as economic role and that it has to find new ways to bridge the widening gap of expectations. It does have an obligation to understand all the elements of social dislocation but it is only one player in identifying solutions.

Our work shows us that business is transforming in its recognition of the social dimensions of its role and that a more caring and responsive business sector may be emerging. It is however the business imperative, however broadened, that will ultimately drive us towards workable solutions.