Guest Editor Nazareth Seferian charts how the concept of CSR emerged in global business and how the process has occurred in Armenia so far.
The rise of responsibility
People have been trading items for a long time, probably starting from prehistoric times. But the concept of business, i.e., selling something for a profit, is considered to go back to the times when urban civilization was established, perhaps in Mesopotamia for the first time. So, business has been around for something like five thousand years. Why then, has the concept of corporate responsibility come around so much later? It was only in 1899, when the Scottish-American industrialist Andrew Carnegie published The Gospel of Wealth, that someone publicly expressed the idea to a large audience that businesses were “caretakers” or “stewards” of their property, their employees, and the community in which they operated. And this was considered a revolutionary idea at the time – too revolutionary, in fact, to become mainstream. Discussions about corporate responsibility remained confined to academic circles for several decades. The issue was simply not considered urgent or important enough to merit any real engagement by the business community.
Andrew Carnegie, Scottish-American industrialist and philanthropist
In the 1950s and 60s, these discussions grew a bit more visible, with some prominent universities, scholars, and even a few business leaders talking about this concept of responsibility from time to time. The environmental movement was gathering pace, and it was slowly becoming clear that human beings were harming the planet, and that large businesses were taking center stage in this activity. But, in 1970, Milton Friedman published an article that would dominate the mindset of business leaders for the next two decades. In the New York Times, he wrote that “The social responsibility of business is to increase its profits,” arguing that shareholders had trusted businesses with capital to run its operations, and investing in anything except profit-maximization would mean “spending someone else’s money for a general social interest”. Investors and business executives were free to spend their own money for such causes, if they wished, Friedman said, but a corporation is created with the purpose of profit, and it should not deviate from this mission. Additionally, a business does not even know much about society, the environment, and all its problems – these are areas that lie within the area of expertise of the government, non-profit organizations, and so on. Therefore, business should not deal with any of this. Friedman’s argument has often been eloquently summed up into a single sentence – “the business of business is business.”
The 1980s and 1990s saw a boom in globalization and, almost suddenly, there were companies founded in the United States that ran operations in East Asia and sold their products in North America, or European corporations that worked in the Middle East but had customers in the United Kingdom, and so on. The environmental movement and human rights activism had also started to go global – people in the western world were growing increasingly concerned with incidents that were happening many, many miles away. And new technologies in communication – satellite television and then the internet – were allowing people to transmit information almost instantaneously.
SO, BUSINESS HAS BEEN AROUND FOR SOMETHING LIKE FIVE THOUSAND YEARS. WHY THEN, HAS THE CONCEPT OF CORPORATIVE RESPONSIBILITY COME AROUND SO MUCH LATER?
Together with corporate greed, these factors combined to form a “perfect storm” that would expose irresponsible business, and pave the way for a new era in corporate leadership. The corporate scandals that rocked Nike (sweatshops in East Asia), Shell (the Brent Spar controversy and human rights in Nigeria), McDonald’s (increasing obesity in the US), damaged one of the most valuable things to any business, something that takes years to develop – its brand and reputation.
And so, the concept of corporate social responsibility developed initially from this very concept of “responsibility” in the purest sense. Corporations in the western world were considered directly responsible for the working conditions of their suppliers in East Asia. Corporations were being held directly responsible for human rights abuses committed by the dictators they were bribing. Corporations were even being held responsible for the consumption habits of their customers.
The transition to impact
When the Global Compact was founded by the United Nations in 2000 as a voluntary initiative for businesses to improve their social practices, it was still largely focused on this sense of direct responsibility. And when the United Nations adopted the Millennium Development Goals as its guideposts for development until 2015, the private sector was not engaged as an active partner, because many of these problems did not have a direct causal connection to business activities.
But the corporate sector itself began to understand that this basic level of corporate responsibility was too limited a framework, and that the potential for business to positively impact society is much bigger. Importantly, this was not about altruism but a recognition of the real opportunities that exist for mutual benefit when businesses work with various stakeholders to contribute to the solutions of existing social and environmental problems. For example, the Indian subsidiary of Unilever PLC created a new operational model that allowed it to sell detergents to poor consumers – a demographic that had earlier been neglected. This allowed the company to grow by 40 percent over five years and Unilever then used the same approach in other large but poor markets, like Brazil.
In 2007, Vodafone’s subsidiary in Kenya launched a service called M-Pesa, allowing customers to exchange airtime for goods and services, and then even for money. Once again, this was an example of a business offering targeting poor consumers that then exploded into a moneymaker for the company – M-Pesa is offered across ten countries today, with almost 20 billion transactions (or more than 600 transactions per second) in one financial year. For society, M-Pesa has meant the financial empowerment of more than 50 million people, many of whom had been left out of the banking system because of poverty. It has also served as an engine for the growth of small and medium enterprises across Africa.
These examples go beyond the concepts of “corporate philanthropy” and “responsive social responsibility,” and are success stories demonstrating how businesses can see social issues that align with their own strategies and to extract actions from there that benefit everyone. This mutual benefit includes a tangible boost to the financial bottom line or net profit but, naturally, also has a net positive effect on the people and the planet.
Today, on the global stage, businesses are seen as a key stakeholder when it comes to social and environmental development. This is also reflected in the terminology, with many companies now talking about “sustainability” rather than “corporate social responsibility.” Learning from its errors, the United Nations emphasized the importance of the private sector when it launched the Sustainable Development Goals in 2015. Many large businesses now have teams that work across departments to ensure sustainable practices and social impact.
THIS MUTUAL BENEFIT INCLUDES A TANGIBLE BOOST TO THE FINANCIAL. BOTTOM LINE OR NET PROFIT BUT, NATURALLY, ALSO HAVE A NET POSITIVE EFFECT ON THE PEOPLE AND THE PLANET.
The context in Armenia
The business community in Armenia cannot, unfortunately, claim to be at that level yet. While the topic of “corporate social responsibility” remains on people’s minds and is often used as a catchphrase where appropriate, it is not a clear priority for most of the country’s businesses. In the late 2000s, several non-profit structures like the British Council, American Chamber of Commerce, UN Global Compact local team, and Eurasia Partnership Foundation tried to promote this idea through conferences and other activities. The entrance of VivaCell into the Armenian market brought this phrase to people’s television screens, with almost-daily news reports of a range of corporate actions from philanthropy to strategic responsibility conducted by the company under this umbrella of CSR. VivaCell, which later morphed into VivaCell-MTS, was also among the first companies to publicly issue CSR reports, with the only other notable examples of such reporting coming from the Communication on Progress publications that UN Global Compact members were expected to produce.
But, in Armenia, CSR has not yet developed to the level of conscious efforts toward sustainability that we have seen in the West. To be fair, this is true also for many other countries in the world, where the business sector still seems “stuck” to a limited view of corporate responsibility, or even to a continued confusion of the term with philanthropy. Indeed, many of the companies in Armenia still entrust the CSR role to the public relations manager, whose role here is limited to maintaining and enhancing the company’s reputation. Meanwhile, CSR has the potential to outline and develop a whole new business vision for any company, and many PR professionals in Armenia might also argue that their role within their companies should also be broader than its current narrow focus. Perhaps the article titled CSR: Just a PR Tool or More? in this issue will contribute to this debate.
Indeed, customers in Armenia are beginning to learn about responsible consumerism. In 2010, for the first time ever in the country, environmental protesters picketed a bank when it announced the decision to finance a mining project in the country. This was a new phenomenon in our part of the world – protesters were angry at a bank for a business decision it had made, one that would arguably help fulfill its business mission of profit maximization. Would the bank be directly damaging the environment? No, the mining operation that was being financed would be directly guilty of any damage. But Armenian environmentalists were seeing this the same way as western consumers had in the 1990s – Nike was responsible for the sweatshops being run by their suppliers, Shell was responsible for the human rights abuses of the government officials whose palms they were greasing, and so on.
Perhaps, in Armenia, we are now at the brink of the awareness that came to the global business community in the early 2000s. There is hope that the private sector will soon come to the realization that sustainability is in the best interests of everyone – the company, society, the state – and can even translate to greater profits, while also helping the people and the planet achieve a new level of prosperity.
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