Creating Social Value Blog / Corporate Social Relevance

Following the Letter versus the Spirit of the Law

By Bradley Googins & Philip Mirvis

A monthly installment from two of The Lewis Institute’s Social Innovation Fellows: Bradley Googins and Philip Mirvis.

While progressive companies like Unilever, Nestlé, Danone, and others have been “leading the pack” with innovative and profitable CSR strategies, the news of late has also highlighted less salutary backward business behavior.   Consider several cases where companies have hewed to the “letter” of the law, but seemingly ignored its spirit.

“Fashion Victims” in Bangladesh 

Some 1,127 textile workers died in the collapse of a shoddy garment factory outside Dhaka, Bangladesh in April, 2013–and this roughly four months after a fire claimed 111 in another of the country’s 4,500 such facilities.  The latest:  in mid-June hundreds more workers in two other plants were sickened from drinking contaminated water.

For over a decade, leading apparel makers like Levi Strauss, the GAP, Nike and others have been monitoring and improving health, safety, and working conditions in their overseas supply chains in Southeast Asia and the Indian subcontinent.  Continuing this tradition in the aftermath of the building collapse, more than 30 international brands (including H&M, Abercrombie & Fitch, and PVH, the parent company of Tommy Hilfiger and Calvin Klein) signed on to a global pact to improve fire and building safety conditions in Bangladesh.

How about the retailers?  Well, Wal-Mart, Target, Macy’s, Sears, and J.C. Penney have balked at signing on.  It seems that their lawyers advised that the pact might make them “legally liable” for hazardous workplace conditions in the places that make the clothes they sell.

Meanwhile, a picture of dazed workers walking through the rubble of their collapsed factory goes viral with this tagline:  “Enough Fashion Victims?”

Tax Dodging in the USA

In the U.S., Apple’s new CEO Tim Cook faced a Senate sub-committee in Washington to answer to recent revelations that his company created subsidiaries in Ireland to shelter over $74 billion from U.S. tax payments.  Months ago, we blogged about Steve Job’s lack of interest in CSR and human rights issues in Apple’s Chinese supply chain.  Cook has been tackling those problems aggressively but in front of the Senators defended his company’s tax evasion maneuvers as perfectly legal and asserted that “Apple has paid every single dollar of taxes owed.”

Then, he added that unlike other U.S. firms, “Apple does not hold money on a Caribbean Island, does not have a bank account in the Cayman Islands, and does not move any taxable revenue from sales to U.S. customers to other jurisdictions in order to avoid U.S. taxation.”

Ok, we grant that Apple may be “no worse than anyone else” when it comes to tax dodging.  But that’s not exactly an uplifting brand message from America’s most iconic brand.

“Less Bad” from Sugared Soft Drink Makers

Coca-Cola has announced that it wants to be part of the solution to the world’s obesity pandemic. Its bold plan:  to make calorie counts more visible on products, to stop advertising to children younger than 12, and to promote exercise and active lifestyles.  In the past we have taken both Coke and Pepsi to task for applying their advertising acumen to philanthropic campaigns but not to ones concerned with healthy eating (or drinking).   So here’s a “shout out” to both these soft drink makers for joining First Lady Michelle Obama’s Let’s Move! Campaign and a “hats off” to Coke for at least acknowledging that it is part of the obesity problem.

But how about Coke’s funding of “New Yorkers for Beverage Choices” in response to Mayor Bloomberg’s ban on super-sized soft drinks?  Is that being “part of the solution?” Or, as some critics contend, do Coke’s latest moves merely put “lipstick on a pig?”

Should there be stronger laws?

Ask the public what should be done about unsafe working conditions or crafty corporate tax evasion, and the great majority reply, “there ought to be a law.”  Note, too, it has been legislation or the threat of legislation that has led to the removal of sugared soft drinks from many schools, to the elimination of kid-targeted soft drink ads, and to reductions in soft drink serving sizes.

There are opinion leaders that would put government at the lead in the U.S. CSR/sustainability equation.  Former U.S. Secretary of Labor Robert Reich, as an example, insists that it is government’s job, and not companies’, to take responsibility for the commonweal. He regards CSR as a potentially “dangerous diversion” that lets regulators “off the hook” when it comes to protecting the public’s interest.  From a far different tack, business professor Aneel Karnani resurrects Milton Friedman’s argument that business has no social role to play because it is the government’s job to attend to society’s needs.  So, if you want business to do more, pass a law!

While several European countries have used legislation to steer socially responsible corporate conduct, the tradition in U.S. has been more laissez-faire.  The dominant logic has been that U.S. firms voluntarily adopt CSR/sustainability policies and practices based on market drivers, set their own agenda and pace, exercise self-regulation, and operate their own unique portfolio of activities as a means to gain competitive advantage in the marketplace.

Or More Attention Early Signals and the Spirit of the Law?

Ok, suppose business lets the market rule in this arena.  Historically, a set of leading U.S. companies have been “ahead of the curve” in adopting progressive policies in areas of civil rights, labor standards, work-life balance, environmental protection, community preservation, and good governance.  Why so?  Our colleague Sandra Waddock contends that these leading businesses are attentive to “early signals” of emerging trends and take forward-looking action long before a public consensus emerges on what should be done and legislation is introduced.

So what’s a company to do?  McKinsey and Company has issued a new report entitled Beyond corporate social responsibility: Integrated external engagement (March 2013) that America’s retailers, soft-drink makers, and Apple would be wise to contemplate.  It recommends that companies “engage radically” with the social-environmental issues of our times.  That means talking-and-listening to stakeholders that range from investors, employees, and customers to NGOs, relevant issues experts, and government at every level.

There are today a whole host of emerging issues on the corporate radar screen in areas of climate change, obesity, food safety and security, internet privacy, transparency, and the like.  Companies like Unilever, Unilever, Nestlé, and Danone are leading the pack precisely because they have engaged these issues radically and are helping to create a better future through innovative action.

Stated another way, they have listened to the future and chosen to “exceed the law” by following its spirit rather than its letter.