Ladies and Gentlemen:
I am very pleased to be here with you today to talk about a subject that is close to my heart: Altruism and its relation to business and the relationship of businesses with government and society.
I think it will help to begin with a couple of definitions. Altruism can basically be defined as an unselfish concern with the welfare of others. Philanthropy is a related concept which can be understood as Altruism put into practice by individuals or organizations with significant resources to provide money, capital, education, or other benefits to their fellow humans. Many wealthy individuals leave their fortunes or portions of them to worthwhile social causes on their death, or prior to it, creating hospitals, symphonies, libraries, schools, foundations and other beneficial works which are referred to in general as legacies. Since the era of the 19th and early 20th century Robber-Barons in North America, we have seen vast wealth and concurrently vast philanthropy from the likes of Cornelius Vanderbilt, Andrew Carnegie, J.P. Morgan and other industrial titans. A modern example is Bill Gates (of Microsoft fame) and the Gates Foundation.
Altruism relates to unselfish concern for others; giving in order to gain benefits is not altruistic. Altruism is also characterized by the free nature of the act involved. We can therefore note that actions dictated by duties, obligations and laws are not generally or necessarily altruistic. Therefore, Islamic Zakat, government stipulated benefits provided by employers, or other required entitlements, do not constitute altruism in and of themselves. That is not to say that someone giving Zakat, or a business owner providing employees with government-required benefits may not have true altruistic feelings in their heart; it is indeed possible that by chance an altruistic spirit may coincide with duties or requirements, but true altruism is essentially voluntary in nature.
Now with those introductory definitions out of the way, let us look at the question of altruism in business. The closest thing we are going to find to business altruism, at least in any general or commonly observed sense of the concept, is something referred to as corporate social responsibility, which now days is often abbreviated as CSR. Corporate social responsibility, as I have already noted, is the evolving concept that businesses have a role in society beyond merely making money for their owners, and that they should infuse their routine activities with moral purpose. By this view, corporations play such significant roles in society that attempting to limit their objectives simply to making maximum amounts of money would be like suggesting that the only purpose of human beings is to make money, a morally objectionable concept. Furthermore, unlike individual human beings, corporations are large, often massive in scope impacting numerous societies and nations. In their hiring, contracting, career advancement programs, building, expansion, manufacturing and many other activities they have the capacity to have far-reaching impacts on their employees, communities, customers, partners, suppliers, and the interconnected communities to which all these, and other groups, are apart.
The term for this broader assortment of groups and individuals who are impacted by a corporation’s activities is STAKEholder, as opposed to the term SHAREholder, which refers only to the owners of the firm. The term ‘stakeholder’ was first popularized in the 1980’s and a concern for stakeholder as opposed to merely shareholder values has been gradually evolving in Western corporations and society. It recognizes that employees who work for a company have a stake in its activities, policies and outcomes; similarly communities that host a corporate office, factory or retail establishment also have a stake in the company and its activities. In fact, what the concept of the stakeholder, as opposed to merely shareholders or owners does is explicitly place the corporation in a proper social context and not accept the idea that corporations somehow exist in a separate, amoral context; the traditional western economic view of corporations is in fact that they are amoral creatures; in other words they cannot behave morally or immorally because they are not natural persons, and are rather outside the realm of morality, to wit, amoral. The difference between ‘immoral’ and ‘amoral’ is that immorality is being evil, but amorality is something outside of the moral universe. Amorality is more likely to be ascribed to objects; a knife is amoral. It can be used morally to prepare food, or immorally to injure someone. But the knife itself is neither moral nor immoral. Such is the traditional view of the corporation. It only needs to follow the prevailing laws. We all know that much immoral behavior is perfectly legal, and much that is morally decent or required is not legally required.
The largest corporate social responsibility initiative in the world today is the United Nations’ Global Compact, which requires its voluntary corporate participants to make commitments in their activities that have beneficial societal impacts in the areas of labor, human rights, the environment and so forth. I take pride in being at its foundation and in steering as Vice-chair with S.G Kofi Anan and S.G. Ban Ki-Moon as its Chair.
Traditionally corporations (or businesses) have only two basic obligations: to follow the law in the jurisdiction or jurisdictions in which they operate; and to be true to their fiduciary responsibility to maximize SHAREholder or owner profit. So you may well ask the question, ‘what does altruism have to do with business?
It is a complicated question. And before we can really deal with such a question we have to look at quite a number of diverse but related concepts involving history, culture and corporate governance among others.
Historically, modern economic and industrial development arose in the West. Along with Western scientific, technological and industrial development the rest of the world has also had to absorb to a lesser or greater extent, the underlying philosophies and assumptions implicit in those systems. One of the most famous and foundational of these ideas is that of the Adam Smith, the 18th century Scottish writer and thinker who is considered the founder of modern economics. Smith is famous for citing the “invisible hand” of the market economy that so efficiently organizes the supply of labor, capital, goods and services in the economy. In his most well-known work, The Wealth of Nations, Smith famously writes, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages." Historically many free-market thinkers and participants (i.e. businesses and customers) have accepted with little argument that this relieves business of any responsibility to explicitly seek out ways to make the world better. After all, it is precisely through their combined self-interest that we all improve our collective lot, right?
While Smith’s first work (and what he personally considered his best) was the Theory of Moral Sentiments, in which he theorized that moral sentiment arises from man’s place in society, he remains most famous for his work in identifying how human self-interest works hand-in-hand with the market economy to achieve the best possible allocation of goods and services.
History has shown us both the superiority of the market economy, as well as its limitations, such as the miserable conditions that workers and the poor have often found themselves in, from the start of the Industrial Revolution in 19th century England to present day labor abuses that can still be found in scores of nations around the globe. Marxism and Communism arose in the 20th century to answer the abuses of the capitalist market economy.
Interestingly Marx and Engels, the founders of what became Communism, were also Westerners. But Communism never succeeded in taking true root in the West, but instead became associated with the East. One of the reasons that communism failed in the West is that Western governments, spurred by social reformers and labor movements eventually developed the rules in which the free market operated in such a way that protections existed for those workers and vulnerable populations who in other parts of the world became (at least nominally) represented by communist, new anti-capitalist, anti-free-market leaders.
The victory of the free-market economy over the centrally planned economies of the former Soviet Union and China during the 20th century has helped to perpetuate and to some extent validate not just the economic and legal systems of the West, but also the intellectual, philosophical, and social roots from which those systems grew. In the West, particularly the Anglo-American, North American strand of it, there is a longstanding view of the role of business as being solely oriented toward wealth accumulation for shareholders. As noted, the terms under which said wealth are accumulated have been negotiated and modified over many decades to avoid a variety of potential negative outcomes that can impact various stakeholders. Those modifications of business terms from earlier laissez-faire rules to greater government regulation nonetheless did little to alter the fundamental view in the West that business not only has no obligation other than to make money, but that it is wrong or at least misguided for businesses to do anything but make money.
The rationale for this idea is the practical view that businesses are solely for wealth creation, and that the ‘invisible hand’ observed by Adam Smith will somehow be damaged by the impingement on it of any sort of altruistic principle or action. One of the most notable contemporary proponents of this thinking is the globally known and respected news magazine, the Economist. Probably the most widely read and respected publication by global business and political leaders, the Economist has argued against the rising tide of corporate social responsibility (CSR) proponents, who have increasingly called for the role of business in society to be reviewed and expanded. In the view of the Economist and similar advocates for a narrow view of corporate roles, the only role business should play is wealth creation and any dilution of this role, through additional responsibilities (social or otherwise) may be harmful to shareholders or society.
In contrast to this, we have a global CSR movement gaining force, including a significant number of major corporations, that believe corporations, like individuals, should be concerned with more than merely profit, and that they should be concerned with the ramifications of their behavior upon the larger community. Such concern is the foundation for altruistic behavior. It is also a potentially potent detriment to the bottom line. Thus the idea readily kindles opposition. And actually the potential impacts are not only financial but political and macroeconomic in nature.
Think of global oil firms seeking concessions in Congo, Nigeria, or Sudan as an example. All these areas are zones of conflict where indigenous people in the areas where resources are found feel deprived, neglected and abused, often leading to violence. If a corporation is weighed down with corporate social responsibility, it would have to consider the voice of the local people, even if the nations’ rulers did not. This could easily cost it millions or billions of dollars. It could also easily make the project impossible for the company to pursue.
It also has political ramifications. Some nations are known to be squeamish about dealing with despotic regimes; other nations have no qualms about doing so. In the race to secure dwindling global resources of oil, gas, special metals and other materials, ethical concerns and corporate social responsibility can sometimes be speed bumps, and other times road blocks to corporate success, and concomitant national competitiveness in the global arena.
Having brought up the differences between different national viewpoints, I should also mention the important role of culture in the debate over CSR. What we are witnessing in Western nations, both through legal regulation and also through stakeholder and peer-pressure for corporations to adopt various degrees of CSR, is the gradual evolution and integration of the corporation into the matrix of the socioeconomic and governmental framework of the nation. Traditionally in the West, at least in theory or in ideology, the corporation was independent of government and social forces.
In the East a different model has long existed, one that exists in contrast to that in the West. As an example we can look at the case of Japan, where the corporation has historically had closely integrated ties with government and society; corporations in Japan have been expected to take care of their workers, guaranteeing them security and employment in exchange for the right to make comprehensive demands on the employees’ time and allegiance. Similarly Japanese corporations and the government had close relations and were seen as existing in a symbiotic rather than adversarial or strictly regulatory relationship.
These traditions in Japan are part of a broader more generally Eastern conception of not just the corporation but of society, which looks on the society as being more on the sum of its parts. It emphasizes both rights and responsibilities of membership for both individual and corporate members in the social system. This contrasts with the view we see coming from the West of a chiefly individualistic way of seeing society; for the West the greatest achievement of society is captured in the individual and not in the community. This general view was naturally expanded to include the role of business, and as business developed into larger more elaborate legal and organizational forms called corporations, the individualistic, independent, social identity of the West, which emphasizes self-reliance and personal freedom was inevitably extended toward the new corporate ‘persons’.
Historically however, neither the cultural and economic collectivistic orientation of the East nor the individualistic, self-reliant, independence orientation of the West was able to achieve complete victory and dominance for their culture predispositions. The market-economies of the West have proven their superiority as a means of economic allocation. But the rise of CSR initiatives at least indicates if not proves that the historic orientation of the corporation in the West gives too little shrift to the powerful social impacts that corporations have in their daily activities and the concomitant responsibility that should attend that power.
The contrast between Western and Eastern corporations can also call our attention to another key issue related to the topic of corporate social responsibility, and that is the issue of corporate governance. Originally of course, corporations started as small businesses with a sole proprietor or family at the helm. But as industrial development progressed and the corporation evolved, corporations have become large, complex organizations with a separation between management and the owners (known as shareholders).
In theory the executive managers of a corporation are controlled by and accountable to the owners, the shareholders; however the wide diffusion of ownership and related issues often result in corporate governance situations where managers are accountable most of all to 1) themselves and 2) the day-to-day and quarter-to-quarter results of their stock on the particular stock exchange(s) where it is traded. Should management feel a sense of responsibility to society in addition to its fiduciary responsibility? That still controversial idea is what CSR is ultimately about.
At this point in time, many of those companies that embrace CSR may be considered, potentially, to be altruistic. This is because CSR is not a legal requirement. It is a philosophical idea and social commitment that is not required by law. Some critics suggest that very few of the companies that sign on to CSR initiatives like that of the United Nations Global Compact are truly altruistic, and that they really only want to use CSR initiatives to achieve positive marketing and public relations goals.
There can be little doubt that this is true of some organizations, just as it would be true of the supposed altruism of many individuals, who can be motivated by tax breaks, fear of divine retribution, or a psychological desire to be loved, rather than true altruism. But as I stated earlier, only god can truly judge.
The philosophical question of altruism is one that has never been completely and finally put to rest. Many people believe in altruism; on the other hand many people believe in the opposite idea, termed psychological egoism, which postulates that ultimately everything that anyone does is for self-centered, egoistic reasons. I do not intend to venture into the realm of philosophy, but only to cite the question.
What I will tell you is that CSR today is in my opinion an altruistic pursuit, because it is something that is voluntary and not required and something that acknowledges the moral correctness of caring for the welfare of others in both our immediate and larger global communities.
The real reason that I am here today to speak to you is that I have always believed that successful businesses, because they have power, capital and influence, have a moral imperative to do good in the world. Therefore the mission of my own group, TAGorg has always been to “contribute to the socioeconomic development of the Arab world.” I would also like to note that pursuing a moral imperative does not always mean sacrifice. My firm has achieved great success while doing its best to fulfill our mission. Similarly, firms that commit to environmental protections in their activities or to protecting their employees or their contractors’ employees from mistreatment find that good behavior often pays dividends, even if it is not always obvious in the immediate line-item accounts.
I fully support the UN Global Compact and all other CSR initiatives around the world. And in a more general sense I advocate and support altruistic behavior by corporations. I believe that the simplistic view that corporations and businesses only exist to make money ignores the socioeconomic and governmental matrix in which they exist and the compounded social impacts that their existence and activities generate.
But a word of caution: I do not believe that CSR is the “solution” to our world’s social and economic problems; rather it is just one limited, if positive, way to address them. It is also one step on the road to a new understanding of the role of the corporation in society. It is a way to gently lead some of the old unruly supporters of corporate independence from society to a new fuller understanding of corporations’ true role in society. This is in effect a dialectical operation of sorts, the development of a synthesis between Eastern and Western economic models.
As this transition, this synthesis develops, CSR will gradually need to be supplemented by a more rigorous global regulatory system. To understand what I mean, look at the role of altruism and philanthropy in your own communities. The giving of Zakat and simple generosity in society are very helpful and valuable. But it is not enough to replace the role of a beneficent government system that provides unemployment insurance, labor standards, professional associations, health care for the poor and so on.
Similarly, in the global arena, much of what is covered under the Global Compact must eventually be governed by global institutions such as the International Court of Human Rights, the World Trade Organization, the International Labor Organization, and so on. Stronger global institutions are needed in order to achieve the bulk of what CSR initiatives seek to contribute to.
But the inertia of entrenched corporate interests and conflicting national interests will make progress slow on the global regulatory front, and so in the meantime CSR will continue to be one of the central and important ways in which global businesses can show that they are good corporate citizens and that although the roots of altruism may be hard to discern, its branches and fruits are visible to all.
Thank you,
Talal Abu-Ghazaleh