Customer care -Last on the list?

by Lionel WIJESIRI

If you want to picket against the unscrupulous business magnates of Sri Lanka, the caption would serve as a good slogan. Remember, I mentioned the word ‘unscrupulous.’ It makes a big difference because there are also genuine and honest businessmen who really care about the community and make their regular contributions accordingly.

The slogan is meant for the other segment of the business community. Although, globally today the entrepreneurs take their corporate responsibility to community involvement very seriously, this lot does not seem to agree with the idea. It’s sad but it’s the reality.

Corporate social responsibility or (CSR as its known) has now become the ‘new new thing.’ The old argument that the business of business is business and that companies have no obligation or even the right to become involved in the community is no more valid. An integral part of their corporate culture is the concept that together they can work towards satisfied and stronger communities.

Talking on this topic, I remember what a marketing guru has told me some years ago. He said in Sri Lanka the CSR and New Year’s resolutions go hand in hand. ‘Did you know that the most common New Year’s resolution is to “Lose weight and get into better shape’ he asked me, and added,” An exemplary goal, indeed, but did you also know that of all the people who started daily exercises in January only 25% of them were continuing on a regular basis by March’.

Can you now deduce the connection to CSR? Each year countless companies hold their annual management meetings where the subject of improving their community responsibility always comes up.

Their Mission Statements do have catchy phrases like: “We aim to build stronger and healthier communities through strategic social investments.” “We believe we should go beyond the basics of ethical business practices and embrace our responsibility to the community.” These little gems crop up and finally become a resolution to improve the deteriorating levels of their responsibility towards the community. But just like the New Year’s exercise resolution, its implementation and follow-up loses momentum and dies an agonizing death by March until it comes back to life at next year’s meeting.

Profit

This story also reminds me of Milton Friedman who in 1970 wrote that “there is one and only social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.” Most of our entrepreneurs seem to be firm believers of this theory.

Social scientists and marketers strongly disagree with this argument. They believe that all businesses should try to create value for all of its constituencies including the community. Perhaps from an investor’s angle, he may see the purpose of the business is to maximize profits. But that’s not the purpose for other stakeholders—for customers, employees, suppliers, and the community. Each of those groups will define the purpose of the business in terms of its own needs and desires, and each point-of-view is valid and legitimate.

Being a company Director myself, I am not hostile to profit. Definitely no! I believe I know something about creating shareholder value. My experience is that by making shareholder value the primary purpose of our business, in long term we will never achieve an increase in shareholder value. The most successful businesses throughout the world put the community ahead of the investors. In the customer-oriented business, community satisfaction has become an end in itself, and is pursued with greater interest, passion, and empathy than the profit-centered business is capable of.

Any right-thinking person will readily accept the argument that caring about customers, employees and the community is good business. But when it comes to serving the community, some might draw the line at believing a company has any responsibility to its community and environment. To donate time and capital to philanthropy, they will argue, is to steal from the investors. After all, the company’s assets legally belong to the investors and the Management has a fiduciary responsibility to maximize shareholder value.

Personally, I agree this position sounds reasonable.

A company’s assets do belong to the investors, and its management does have a duty to manage those assets responsibly. In my view, the argument is not wrong so much as it is too narrow.

Objections

First, there can be little doubt that a certain amount of corporate philanthropy is simply good business and works for the long-term benefit of the investors. It is also is an excellent marketing strategy that has benefited the investors of many companies worldwide.

That much said, I believe such programs would be completely justifiable even if they produced no profits and no P.R. This is because the entrepreneurs, not the current investors in a company’s stock, have the right and responsibility to define the purpose of the company. It is the entrepreneurs who create a company, who bring all the resources together and coordinate it into viable business. It is the entrepreneurs who set the company strategy and who negotiate the terms of trade with all of the voluntarily cooperating stakeholders—including the investors.

The shareholders of a public company own their stock voluntarily. If they don’t agree with the philosophy of the business, they can always sell their investment, just as the customers and employees can exist their relationships with the company if they don’t like the terms of trade. If that is unacceptable to them, they always have the legal right to submit a resolution at the annual shareholders meeting to change the company’s philanthropic philosophy.

Another objection to this philosophy is where to draw the line. If donating 5 percent of profits is good, wouldn’t 10 percent be even better? Why not donate 100 percent of our profits to the betterment of society? But the fact that each company has responsibilities to the community doesn’t mean that they don’t have any responsibilities to their investors. It’s a question of finding the appropriate balance and trying to create value for all of our stakeholders. Is 5 percent the “right amount” to donate to the community? I don’t think there is a right answer to this question, except that I believe 0 percent is too little. It is up to the directors and shareholders to decide what a ‘reasonable’ amount is. Corporate philanthropy is a good thing, but it requires the legitimacy of investor approval. In my experience, most investors understand that it can be beneficial to both the company and to the larger society.

Capitalism

That doesn’t answer the question of why a company should give time and resources to the community stakeholder. For that, you should turn to one of the fathers of free-market economics, Adam Smith. The Wealth of Nations was a tremendous achievement, but businessmen would be well served to read Smith’s other great book, The Theory of Moral Sentiments. There he explains that human nature isn’t just about self-interest. It also includes sympathy, empathy, friendship, love, and the desire for social approval. As motives for human behaviour, these are at least as important as self-interest. For many people, they are more important.

When we were small children we were concerned only about our own needs and desires. As we matured, most of us grew beyond this egocentrism and began to care about others—their families, friends and communities. Our capacity to love can expand even further: to loving people from different races, religions, and countries—potentially to unlimited love for all people and even for other sentient creatures. This is our potential as human beings, to take joy in the flourishing of people everywhere.

Today what we need is a new form of capitalism. What I mean by that is one that more consciously works for the common good instead of depending solely on the “invisible hands of the Government” to generate positive results for society. The current “brand” of capitalism is in terrible shape among our common people, and companies and businessmen are widely seen as selfish, greedy, and uncaring. This is both unfortunate and unnecessary, and could be changed if businesses and entrepreneurs widely adopt the corporate social responsibility as a main theme in their business models.