November was a big month for corporate social responsibility (CSR). Business for Social Responsibility (BSR) – an organization that promotes CSR – held its annual conference titled “BSR Innovative Strategies -- Measurable Impacts” in New York City. A New York Times columnist noted the turnout: “it only seemed as though half of corporate America ground to a halt to attend. Starbucks was there, of course, in force, but companies like Chevron, J. C. Penney, Pfizer, McDonald's, Ford Motor and Exxon Mobil all had representatives...”
During the same week, BP – the oil company – announced a settlement of a lawsuit stemming from a tragic explosion in its Texas City, TX refinery that killed 15 workers and hurt 170 others in 2005.
What’s the relationship? While BSR extolled CSR’s virtues in Manhattan, BP – a leading disciple of CSR – was reeling from implementing its false promises.
CSR is the latest trend in corporate America. According to CSR theory, governments alone are not capable of tackling the world’s most pressing problems so businesses, with their enormous financial resources, must play a role in alleviating poverty, improving global health and protecting the environment.
At its core, CSR expands the responsibility of business beyond its traditional definition of obeying the law and making a profit for its shareholders – easily measured criterion – to subjective goals like social benefits and environmental sustainability.
Social advocates frequently seduce companies into the CSR web by claiming there is a financial benefit. A recent advertisement promoting the BSR conference stated “When done well, CSR builds business value in diverse ways: by enhancing brand image, establishing a more cooperative relationship with government regulatory agencies and garnering the interest of investors who are interested in issues related to sustainability.”
Taking this at face value, what’s not to like: CSR builds brands, builds relationships with regulators and attracts shareholders.
The adage “if it sounds too good to be true it probably is” certainly applies to BP’s CSR experience.
Lord Browne, BP’s chief executive, decided to define its social responsibility by responding to society’s negative perception of oil companies. BP hired Ogilvy – a public relations company – to “help BP transcend the oil sector, deliver top-line growth, and define the company as innovative, progressive, environmentally responsible…” To achieve that goal BP needed to be a company “that confronts such difficult issues as the conflict between energy and environmental needs and takes actions beyond what is expected of an oil company”.
To demonstrate “responsibility”, BP spent huge sums of money on an advertising campaign promoting the notion that fossil fuel emissions of carbon dioxide is to blame for global warming and its investment in renewable energy was proof the company was seeking a future that was “beyond petroleum”.
The message was clear: oil is bad for society and BP is leading the way in alternative energy.
The BP experience shows there are serious consequences when companies demagogue against its core business. Not only was BP’s negligence to blame for the refinery tragedy, the company was also responsible for the largest oil pipeline leak of 200,000 barrels on Alaska’s North Slope. The oil leak forced BP to shutdown most of the pipeline this summer causing price disruptions in the gasoline market.
Not surprisingly, these disasters resulted in a significant amount of criticism. “If you drew up a list of companies that Americans are most disappointed in, BP would definitely feature,” said James Hoopes, professor of business ethics at Babson College, Massachusetts.
Ironically, BP’s experience delivered the exact opposite of CSR’s promise: the company’s reputation was ruined, the company is the target of government agency investigations and Congressional hearings and its stock price lags far behind its competitors and the S&P 500.
Unfortunately, in the aftermath of BP’s failures, many critics blamed corporate greed – not CSR – as the cause. They believed the profit motive forced the company to skimp on basic pipeline maintenance and worker safety.
This conclusion is far from the truth. If profit were its only goal, BP would define its role in society as a company that safely producing oil while providing jobs and energy for the economy.
The real culprit is Lord Browne who diverted management attention and money away from its core business. Regrettably, Lord Browne has yet to learn his lesson. Shortly after settling the last lawsuit from the refinery explosion BP is once again running its full-page ads touting its investment in solar energy.
If the organizers of the BSR conference were honest, they would include BP as a case study on the real “measurable impacts” of CSR and warn businesses of the risks for companies that adopt the politically correct definition of a socially responsible company.