'Even in bad times, firms should be committed to CSR'

By Kim Da-ye

Colin Mayer, professor at Oxford University Said Business School, talks about why corporate social responsibility (CSR) programs fail, why regulations have a limited impact and how business schools should change.

The answers have been compiled from interviews and a lecture he delivered at Seoul National University last Thursday.

Q:

Korean businesses now have a huge focus on corporate social responsibility (CSR), which is often used as a marketing tool. What is your view on CSR programs?

A:

Corporate social responsibility contributes little unless it is made really credible. During the last recession in the West many companies jettisoned what were previously very forthright CSR programs. They did so because they could no longer afford the luxury of promoting CSR.

But the purposes and values of the corporation should not be luxuries that can be jettisoned when commercial conditions become more difficult. There needs to be a direct cost to the firm and its board of directors in terms of their liabilities from a failure to abide by its stated purposes and values.

What are the areas the regulators should leave in corporations’ hands?

The regulators should be responsible for imposing and enforcing public laws in relation to bribery, corruption, market abuse, market manipulation and breaches of environmental regulations. Regulators should play a stronger role in protecting our financial system and ecosystems, which corporations acting individually on their own cannot be expected to protect.

But beyond that regulation should be less intrusive and meddlesome. It should allow corporations to determine for themselves what their purposes and principles are and to demonstrate how they will uphold and implement them themselves.

Regulation in these areas only encourages companies to avoid them and to seek ways of reducing the impact of regulations. It therefore encourages instrumental avoidance rather than ethical compliance. As a consequence over time as the immediate reasons for regulation are forgotten then regulation becomes weaker until the next crisis emerges and governments seek to strengthen them once again.

Do you think the phenomenon of questioning and scrutinizing corporations’ roles and responsibility is a temporary reaction against the global financial crisis or the beginning of a long-term shift from the capitalism we have known in the past decades?

There is real concern about the conduct of banks not just during the financial crisis but subsequently in rewarding themselves with excessive salaries.

The problems of the corporations are likely to get worse. So there is a strong body of opinion which is emerging that something needs to be done, and the debates that are currently in progress in Korea are indicative of that. Until now there has not been a clear direction in which reform could take place.

You were the dean of Said Business School between 2006 and 2011. You criticized that business schools have wrongly taught students that executives’ priority is maximizing shareholders’ benefits. How should business schools change?

They should set out what the purpose of a corporation should be, not the maximizing of shareholders’ profits. The second lesson will be about what is required to be able to deliver those purposes.

A corporation as a moral entity might sound like an oxymoron. A commercially oriented organization should have a moral purpose, too. It sounds like a contradiction, but it’s not.

How has Said Business School changed?

At Oxford, there is a very strong emphasis on social aspects of business. In particular, we have developed activities in the field of social entrepreneurship — how students can create a company that performs social functions — and a lot of our students went to that direction. At the same time, many students want to work for financial institutions and consultancies, so we are equally prepared for those activities.

In my view, the attitudes of students are changing — there are increasing interests about what the value of doing different types of activities is and attempts to identify things not just financially rewarding but that they would feel proud of doing.

Q Many media outlets focused on breaking business and finance news exist to serve investors’ short-term interests. Shouldn’t the media change as well?

Absolutely true. A vast amount of financial news is about very immediate market interests, and it is quite difficult to get some financial journalists interested in discussing broader, longer-term issues. But that’s really a reflection of the way in which the market is currently organized. As the nature of the corporation change, the nature of journalism will change.

How has your book “Firm Commitment” been received?

I have presented it to a lot of people including businesses and financial institutions. Some said that this is what they were always looking for and that they wanted to pursue other objectives than shareholders’ profits but they found it incredibly difficult to do so. Another group said that it won’t work. That’s exactly what I expected. If I don’t upset people, I am not being effective. It has to generate a major debate.

Colin Mayer’s lecture on “Firm Commitment” can be found at the website of Voices From Oxford (www.voicesfromoxford.org). He is an economics and business editor at Voices From Oxford.