Impact beyond profits

I AM in the basement of the Institute of Advance Legal Studies. The librarian looks at me in exasperation. "That book is out of circulation," he says. Undaunted, I ask again.

"What about this one?" and point him to another book from the 1800s.

"There is a newer edition upstairs," he says, peering behind his tortoiseshell glasses.

I have spent a lot of my time in the past year studying and understanding the company and its many aspects. Burrowed in the basement of the Advanced Legal Studies library, I reviewed out of circulation and out of date books to understand better the legal form of the company and its origins. I had many questions but little answers.

My learning started some years ago.

On the first day of my first real job one warm July day, the then Kuala Lumpur Stock Exchange reverberated with spiralling losses as economies around Asia collapsed.

At the back of the biggest Asian financial crisis, I was shoved several files, and told to be ready for prosecution. I scrambled to learn that the SIA was not Singapore Airlines but the Malaysian Securities Industries Act 1983 and the difference between call and put options and warrants and sweeteners. And about regulatory powers, ouster clauses and constitutional reviews.

Those early days led me to think a lot about the nature of compliance and how "smart regulation" should play a role in shaping good companies. Was it more disclosure? More carrots? More sticks?

A few years, many months in library basements and a PhD later, I still don't have answers. Regulation is a first start but surely, companies need to add value to the communities where they operate? But what about the holy precept of shareholder value?

Why have we clothed the company in such differing robes?

Companies have become vast influential institutions that straddle the public and private divide.

I am reminded of Hobbes' 17th century magnum opus Leviathan, which talks about how nation states have become gigantic monsters with powers that must be controlled. The power accumulated in the corporation can today rival nation states and regional entities.

This has caused them to be seen as the new "Leviathan". As a result, the economic, environmental and social footprint of the corporation can only be truly reconciled by understanding the magnitude of corporate power.

Corporate power comes to acute focus when discussing corporate responsibilities.

This is simply because of their huge social and economic power as well as their capacity for global mobility, corporations are widely perceived as capable of evading public control and getting away with behaviour that is harmful to society.

Corporate power is magnified by the dynamics of the various economic and social relationships that clash with it. The deep sense of dissonance that has emerged from corporate activity has generated various initiatives to align the corporation with its social responsibilities.

These initiatives have become known broadly as corporate responsibility or CR.

While CR is often used interchangeably with various other terms, including corporate social responsibility, corporate citizenship, sustainability, sustainable development, triple-bottom line, corporate ethics, corporate accountability, human rights and so on, at the end of the day, all these terminologies are a sharp escalation of the search for the social role that corporations are expected to play.

There is an agreement generally to seek a broader commitment from the corporation by demanding responsibility to the society within which it operates. It is now expected that a company must have a positive impact on society and the environment and must not measure its success solely on financial terms. In other words, it must be profitable but also show impact beyond profits.

The World Business Council for Sustainable Development definition goes as far as saying that business's commitment to contribute to sustainable economic development includes working with various stakeholders like employees, their families, the local community, and society at large in order "to improve their quality of life".

CR envisages wider constituency or stakeholder claims on the corporation.

The suggestion is that provision should be made for various affected constituents to be considered in corporate decision making, either directly or indirectly.
Recognising multiple stakeholders gives rise to multiple rights claims against the corporation. Corporate decision-making must mediate among the multiple rights claims.

Many companies in Malaysia have responded favourably and made earnest attempts to adapt good practices in this direction. It is a positive reflection of both the need to survive in competitive markets and an enhanced perspective on the very definition of "business".

Companies are expected to donate to victims of floods, provide support for unemployed graduates, ensure fair labour practices and integrate the bottom of the pyramid in their supply chain.

The question is, just how do you do all this, while going on with the business of being profitable?

Further, very few companies are actually moving in the direction of strategic CR and using CR as a tool for competitive advantage. As the world becomes flat, companies are constantly facing resource constraints and challenges around supply chain and stakeholders. The opportunities are there, especially for first movers.

Some examples include M&S's Plan A, GE's well-planned Ecomagination and Ikea's People and Planet positive strategy.

If you have stories about CR initiatives in your organisation, do write to me at: letters@thesundaily.com