By Chad Tragakis
Senior Vice President, Corporate Practice
Hill & Knowlton Washington, DC

In his pioneering work on corporate social responsibility published four decades ago, Clarence Walton noted that “a corporation is really as much a social and political entity as an economic unit.” How prescient he was, and how fitting his concept of the modern company is in an age when more than half of the one hundred largest economies in the world are corporations, not countries. No surprise then that as the 21st century corporation emerges as arguably the most powerful and innovative social institution the world has ever known—at precisely the same point in time when humanity is facing its most daunting social and environmental problems—the rights, roles, responsibilities and expectations of business continue to be the subject of intense debate.

The notion of corporate responsibility has certainly evolved and expanded since Walton’s day, but at the heart of corporate responsibility as a construct, as a theoretical idea, there remains an underlying tension between two schools of thought—that corporate responsibility stems from either a business imperative or an ethical imperative. Some argue that corporate responsibility must be rooted in an ethical imperative to be effective, and that a business-case only approach leaves a company vulnerable to quarterly earnings pressures, market shifts, and other short-term external influences that can undercut a company’s— and society’s—long-term interests. Others argue that without the business case, corporate responsibility efforts are secondary, ancillary or marginalized at best, and mere marketing gimmicks, “greenwashing,” or “window dressing” at worst.

Over the past few years, we’ve seen more and more business leaders buy-in to the notion that doing good can be good for business too. Numerous surveys of U.S. and global CEOs indicate that C-Suite executives realize that, today, corporate citizenship is a fundamental part of business practice. Indeed, the business case for corporate responsibility is now well-established. It’s clear that a genuine commitment to corporate responsibility can translate into stronger financial performance and profitability in at least a dozen distinct ways. Among them: operational efficiency gains and reduced operating costs through better resource management, risk mitigation, improved reputation and brand image, enhanced employee relations and productivity, improved relations with the investment community and better access to capital, increased sales, stronger relationships with communities and an enhanced license to operate, access to new consumers and new revenue streams in emerging markets, qualification for billions of dollars in socially or environmentally screened bids, and product innovation.

All of this has helped silence the critics of CSR – those who, as Walton once noted, believe that going beyond basic obligations and legal compliance is folly. These tangible benefits also provide a response to those who continue to echo Milton Friedman’s sentiment that business’ lone obligations to society are to make a profit and pay taxes.

But, in pushing so hard to frame and defend CSR purely in terms of the benefits it can bring to business, are we neglecting the moral or ethical case for business responsibility? And is there, in fact, an ethical imperative for doing more, for going beyond what’s expected, for getting involved, for giving back? Some argue that corporations today are operating in an age of increased accountability, where business is expected to provide benefits and solutions to society that were once the domain of government and, to a lesser extent, not-for-profit, faith-based and educational institutions.

Consider the analogy of a business as a car driving down the road. That business, that car, must obey the posted speed limit. The driver must use only unleaded gas, must wear a seatbelt and ensure that babies and young children use approved car safety-seats, they must use turn signals and obey all traffic laws. But when that driver sees another car broken down by the side of the road, he or she isn’t legally obligated to stop and help.

Now, whether that broken down car represents global climate change, species extinction, bird flu pandemic, poverty, human rights abuses, illiteracy or a lack of diversity, some would argue that, as corporate citizens—or, in Walton’s view, as unique social and political entities—companies have a special responsibility, a duty to move beyond mere compliance, beyond the basics of operating legally and responsibly to a higher level of engagement, performance and contribution. That they are ethically obligated to give back to the local and global community and do what is within their power to affect positive change.

This notion isn’t new. Years before Walton and others began writing about CSR in earnest, some innovative companies were taking enlightened self-interest to heart, and taking corporate responsibility to new heights.

In 1943, Robert Johnson developed the credo that would come to define the culture of Johnson & Johnson. The credo outlined the company’s four areas of social responsibility: first to its customers; second to its employees; third to the community and environment; and fourth to stockholders. In the 1950s, Bill Hewlett and Dave Packard set out the corporate objectives that would come to be known as “the HP Way.” In Hewlett’s words, the HP Way is “a core ideology . . . [that] includes a deep respect for the individual, a dedication to affordable quality and reliability, a commitment to community responsibility, and a view that the company exists to make technical contributions for the advancement and welfare of humanity.” In the 1970s and 80s, companies such as Ben & Jerry’s, The Body Shop and others came to embody an even more pronounced connection between making a profit and making a positive impact on society and the environment.

Clearly, a company cannot solve all of the world’s problems – just as we, as citizens, cannot stop to help every stranded driver or fix every broken car. But every company has something they do or make better than anyone else—a unique capability, a core competency, a special product offering—and many firms now feel compelled to put that product or expertise to use to help society or the planet. Today, many companies have even built doing good into their business model and into the fabric of their corporate cultures. Think of Google’s corporate philosophy that “You can make money without doing evil,” its stated belief that the company “has a responsibility to the world,” and its commitment to contribute 1% of its equity and profits to address social and environmental issues—or Whole Foods’ “Declaration of Interdependence” and motto of “Whole Foods, Whole People, Whole Planet,” for example.

So where do the business and ethical rationales for corporate responsibility converge and where do they diverge? Can they co-exist? These are perhaps questions that companies must ask of and answer for themselves. Through the process a company can learn a lot about its corporate soul, its energy and spirit, its true vision and how its culture and people are connected to the world around them. In doing this, a company can harness tremendous power for good and for good business. To address the tension that exists—the dichotomy between financial and social, between earnings and environment, between people and profits—perhaps we need new and more holistic definitions of the concepts of profitability, business value and business success.

For better or for worse, the fact is that the business case is still the only incentive that resonates with many business decision-makers. Over time, this may change and by some indicators, it already has. A recent survey of senior business executives found that 89.2% believe that if a company has the ability to make a positive impact on society, then it is that company’s duty to strive for it. And a growing number of companies are acknowledging their larger, ethical responsibilities and self-imposing a sense of duty to society and the environment. Not surprisingly, most of these firms are the same ones demonstrating that you can grow your business while also offering something back to society.

Revenue from GE’s “ecomagination” suite of energy efficient and environmentally conscious products and services, for example, reached $12 billion in 2006, and has helped reduce hundreds of millions of tons of greenhouse gas emissions. Automakers are poised for tremendous success with—and are generating lengthy customer waiting lists for—hybrid vehicles. The Red Campaign to combat HIV/AIDS in Africa has become indelibly linked to consumer products such as Gap t-shirts, Motorola mobile phones and American Express cards. And, Patrick Cescau, chief executive of Unilever, has gone so far as to say that “there is no dichotomy between business doing good and doing well. In fact the two go hand in hand.” This is a healthy attitude and it acknowledges that for any social or environmental effort that a business advances to be truly sustainable, the company must also be profitable.

Whether or not companies are or should be thought of as moral agents, we must acknowledge what Clarence Walton noted all those years ago: that they are unique social and political entities as well as economic units, and that they intersect and interact with society differently from other organizations and institutions. Perhaps it’s best and most effective to think of the business imperative and the ethical imperative for committing to corporate responsibility as two parallel tracks—distinct from one another but inextricably linked. Should it matter why Fidelity chose to divest from companies doing business in Sudan, or why Wal-Mart is supporting sustainable fisheries? Maybe, maybe not. But in the face of seemingly insurmountable challenges facing planet Earth and her six and a half billion inhabitants, one thing that no one can question is that positive business decisions like these do matter. And regardless of what approach or definition of corporate responsibility a company adopts, what is clear in this era is that every business decision has the opportunity for societal impact. Companies that do not recognize this—that do not map out the impact of their business decisions—are a crisis waiting to happen. Conversely, those companies which have a genuine understanding of their footprint on society and where they can make a unique, positive impact, have every opportunity to thrive and to flourish.

Chad Tragakis, a senior vice president at Hill & Knowlton, leads the firm’s North America Corporate Responsibility Team. He is also a member of the advisory board of the Association of Americans for Civic Responsibility.

This article also appeared in the March 2008 issue of The Voice of Corporate Citizenship, the official publication of Boston College's Center for Corporate Citizenship.