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September 26, 2005

Importance of CSR for Corporations to Play a "Public" Role

Yotaro KOBAYASHI (Chairman of the Board, Fuji Xerox, Co., Ltd.)

Corporations, being social organs, bring forth various forms of value, including economic, social, and humane. The important thing is to balance the values produced, which is the core of CSR (corporate social responsibility). Japan will be required in due course to reassess the meaning of public/society, and companies will be required to perform new functions.

Profit-making, the same as maintaining personal health

CSR is becoming a boom. And like many other things in a boom there seem to be numerous misunderstandings in CSR discussions. Clarifying such misunderstandings will help not only in revisiting the real meaning of CSR, but also in re-visiting the issue of what and how a company should be in the coming society.

Typical misconceptions of CSR seem to fall into four categories. The first myth is that CSR is a new corporate management movement born in Europe. Second, that CSR places more significance on such aspects as social contribution, environmental awareness, and legal compliance than on profit-making. The third misconception is that CSR is a strict obligation forced upon companies by society. The fourth and final myth is that all of the elements upheld by CSR must be fulfilled simultaneously.

Companies, as members of society, serve society by utilizing resources such as money, people, and land entrusted by society to create various new values. The central idea of CSR is to place and view corporate management in and from the broad framework of the relationship between companies and society. The starting point of considering CSR is thus to ask what a company is and what its relation with society is.

The nature of companies

There is a notion that the objective of a company is to simply to seek profits. It is indeed necessary and mandatory for companies to make profits, but that is not the sole and final purpose of a company. For example, health is a fundamental factor in a person's life, but good health itself cannot be the ultimate objective of one’s life. The profit of a company is similar to the health of a person: it is vital but is in itself not the ultimate objective for being.

In accordance with this idea of CSR, a company's objective, generally stated, is to be of benefit to society. But just as the purposes of life differ among people, the ways to serve society differ among companies. Many companies define and pass down their objectives in such forms as corporate principles, philosophies, and spirits of their foundation. Also, there are companies stipulating the methods to realize such principles in their codes of conduct, effectively characterizing the companies' activities. Specifying objectives and codes to be observed and following them up diligently over generations, is a cardinal pillar in fulfilling CSR.

Social and personal values also key to CSR

Companies, while endeavoring to realize the objectives held up in their principles, utilize organizing powers to efficiently and effectively create various values such as economic, social, and humane through their specific activities.

For company employees, such elements as personal growth, self-actualization, sense of accomplishment and personal recognition are important bases of value. Care-nurses working for low wages despite the hard labor are good examples of the importance these elements play in making them feel proud of their jobs.

For local communities, companies provide jobs and vitalization to the area. Active and lively streets enhance public security in a region, and towns that local companies have deserted demonstrate the important role companies play in maintaining healthy localities.

These values are supposed to be recognized and treated independently from economic values companies in most cases are associated with. Taking good care of employees does stimulate their productivity and contribute to profits, but the human qualities of the employees are naturally valuable with or without regard to corporate profits.

CSR should direct companies' eyes to these non-economic values. But ironically, such encouragement has brought the second misconception explained above, which places importance on social aspects over economics. The heart of CSR is to produce a balance among various values and the needs of stakeholders, while noting that economic value is indeed vital as health is to human beings.

Objectives and criteria stipulated in corporate philosophies and principles are materialized through business plans and strategies, and then further detailed into annual budgets, divisions' goals, and personal actions, with the goal of spreading them throughout the organization. The activities thus formulated are then constantly improved through the cycle of Plan-Do-Check-Action. Establishment of a sound management system is essential in supporting CSR. And these activities are performed not because they are forced upon by society but are executed voluntarily by companies to ensure sustainable growth that is meaningful to society. This should clear up the third misconception mentioned above: that CSR is an obligation imposed by society.

The task of managers is to supervise this framework so that it functions properly, and to prioritize the vast and various issues facing the company at different times. It is the managers' responsibility to make difficult decisions, such as to ask shareholders to bear fewer dividends for two years in order to set aside necessary funds to enhance environmental measures, or to ask employees to accept pay cuts in order to sustain the number of jobs when profits are on the decline.

This is how the fourth misconception is explained. There is no need to satisfy all CSR requests at one single time. CSR does not negate managers prioritizing stakeholder needs in consideration of the state of the company and the prevailing social environment. Although it is necessary even for companies with accumulated losses and at the fringe of survival to observe CSR, it is only natural for those companies' to place utmost priorities on economic values, and CSR does not deny that.

The term "corporate governance" is sometimes interpreted as just inviting outside directors so as to make it possible to fire managers performing poorly. But this explanation is too one-sided. Governance should support proper functioning of an organization where corporate policies and principles have thoroughly penetrated, and should assist managers to exercise effective leadership in pursuit of CSR. Outside directors are there to bring sound and legitimate views of the outside world into the corporate policy-making process to decrease the risk of making wrong decisions. Corporate governance, therefore, can be considered a philosophy and mechanism to secure sustainable maintenance of CSR within companies.

CSR counters youth unemployment and falling birthrate

CSR, as it incorporates the words "social" and "responsibility," is often taken as a passive obligation that gets in the way of profit-making and restricts corporate freedom. On the contrary, CSR should be considered as a methodology for recognizing companies as public/social beings in society and assessing how companies should fit the with ever-changing public/social needs.

By viewing CSR in this manner, it can be readily recognized that the notion is not new. The traditional Japanese business ethics of "shobaido" (long-standing philosophy in doing business right) is the same as CSR. Even in the U.S., where market principles are often considered top, companies honored with long-term respect are those adhering to the principles of CSR over generations. The first misconception that CSR was born in Europe is thus cleared up.

While the fundamentals of CSR remain the same regardless of the era, the specific expectations placed on companies and the degree of balance to be found differ depending upon the period and the social environment. CSR provides various approaches.

Japan's companies after WWII bore a significant portion of social welfare that would normally have been provided by public sectors, country or local governments. But now, stuck between the administration opting for "smaller government" and companies seeking "selection and focus," many public services are on the verge of hollowing out. What is required of "public" services and who is going to provide them are becoming serious issues. Establishment of a new and effective norm is imminent. Assessment of what companies can do for society in the now globally developing "Civil Society" should be an important step in reviewing the raison d'etre of corporations.

For example, the falling birth rate and youth unemployment are becoming serious problems into the future. There is a lot that companies can do to tackle such issues, and efforts have already begun in various regions.

Improving and maintaining childcare facilities in workplaces, and adopting new personnel systems to promote the return to work after having children should help to increase the birth rate. The educational effects of facilitating work experience for those young students unable to recognize the significance of working should be invaluable. And there are cases where companies offer these services without suffering fatally in economic value-making.

By companies cooperating with societies in providing skills, personnel, and experience, in new ways Japan's society could change significantly. Pursuit of the new "public sector" and what companies should and can be in the new era has already begun.

(The original Japanese article appeared in the August 30, 2005 issue of the Nihon Keizai Shimbun.)

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