Corporate Social Responsibility: What Would Reagan Do?

Posted: Sep 08, 2007 12:01 AM

“A Time for Choosing”, the celebrated nomination address by Ronald Reagan supporting Barry Goldwater for president in 1964, included a strong message about the dangers of appeasing the Soviet Union:

Admittedly there is a risk in any course we follow … but every lesson in history tells us that the greater risk lies in appeasement, and this is the specter our well-meaning liberal friends refuse to face--that their policy of accommodation is appeasement, and it gives no choice between peace and war, only between fight and surrender. If we continue to accommodate, continue to back and retreat, eventually we have to face the final demand--the ultimatum.

Thankfully, President Reagan understood the dangers of appeasement and executed an aggressive strategy to confront the Soviet Union.

In contrast, today’s CEOs follow the opposite strategy – the path of appeasement by embracing corporate social responsibility (CSR). After years of badgering by special interest groups, CSR offers a progressive solution for companies to escape confrontation.

Over time, CSR has fundamentally changed business culture to a point where CEOs are delighted to play an active role in solving social and environmental issues. In this worldview, obeying the law and making a profit for investors is no longer a company’s sole mission – corporations must fill the gaps where government efforts have failed.

Because of CSR values, companies are being transformed into pacifists – rarely defending their businesses from regulatory action that threatens profitability. In fact, just the opposite is occurring; some companies are actually contributing to efforts that will actually harm its business.

Today, the environmental movement is effectively using global warming fears as a way to regulate SUV sales out of existence. The problem for automakers is that American consumers prefer SUVs, large cars, and light trucks. Furthermore, these sales provide the best profit margins for automakers.

The regulatory challenges facing the automobile industry, such as corporate average fuel economy standards (CAFÉ) and greenhouse gas emission limits, were set in motion by appeasement policies established years ago.

At the turn of the century, instead of confronting the business threat posed by global warming, William Clay Ford Jr., then chief executive of Ford Motor Company, had a better idea: embrace CSR.

The company declared war on its most profitable vehicles in its first corporate citizenship report in 2000 when it said SUVs contribute more to global warming than cars. Mr. Ford expressed concern that SUVs would harm the company’s reputation and he feared public opinion would turn against the company. According to news reports, the company wanted to be considered the “most environmentally responsible automaker.”

CSR proponents hailed the company’s retreat. The Sierra Club said, “…we applaud Ford's recognition of the environmental and safety problems posed by S.U.V.'s,'' and Business for Social Responsibility – a CSR advocacy group – noted that the company found itself in an “awkward situation because its most profitable products do not meet its goals for social responsibility.”

Also in 2000, Ford put dollars behind its CSR effort. In announcing the company’s $5 million sponsorship of the Carbon Mitigation Initiative (CMI) project at Princeton University, Mr. Ford said, “Corporations should be and could be a major force for resolving environmental and social concerns in the 21st century.”

CMI’s research agenda is “to develop and evaluate methods for keeping carbon emissions, the main contributor to greenhouse warming, out of the atmosphere….” By supporting CMI, Ford fueled the notion that carbon dioxide from its vehicles is a major cause of global warming.

With corporate dollars, CMI effectively whipped up global warming fears. The following is a list of news headlines that CMI touts on its website: “Alarm Sounded on Global Warming, Researchers Say Dangers Must Be Addressed Immediately”, "Study says U.S. Shouldn't Wait to Curb Carbon Emissions", “Gas Guzzlers” and “Declare War on Global Warming.”

The political response to fossil fuel fears that Ford helped generate is evident in California. In 2002, the state passed a law limiting greenhouse gas emissions from new vehicles sold in California in 2009. In 2006, California sued automakers over global warming because greenhouse gases caused billions of dollars in damages.

Global warming regulation is now on the national political stage. Recently, presidential candidate John Edwards called on Americans to give up their SUVs and said, "We are the worst polluter on the planet."

By 2003, Ford’s allies in the environmental movement turned on the company because business needs prevented the company from meeting its aggressive goals of reducing greenhouse gas emissions and improving gas mileage.

Despite the failure of its CSR strategy Ford and the other major carmakers recently joined the United States Climate Action Partnership (USCAP) – a coalition of corporations and environmental special interest groups that are calling “on the federal government to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions.”

Perhaps the automakers believe the carbon dioxide war is lost and regulations are inevitable so they should help author the terms of surrender.

Conceivably, if they were not driving under the influence of CSR, the industry would form their own organization to fight regulations advocated by USCAP. This group, with a meaningful advertising budget, could educate the public on the numerous scientific holes in the man-made global warming theory and the huge economic cost that the consumer will bear.

To paraphrase Reagan, there is a risk in fighting. In retrospect, however, how could the consequences have been any worse for the auto industry? In this case, “retreat leads to the final ultimatum” meaning fewer sales, lower profitability and lower employment.