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In the Nation's Interest

Business Must Answer the Call for a New Era of Responsiblity

In his inaugural address, President Barack Obama called for a "new era of responsibility." Obama anchored his appeal in part to the ideal that all Americans should recognize our fundamental stake in one another, and pursue common purpose and mutual respect above self interest and indifference. This call to responsibility and recognition of interdependence resonates with our recent research on the role of business and society.

Corporate leaders, confronting the many economic challenges ahead, would be well advised to translate President Obama's call into new ways of thinking and doing business. American corporations have been deeply wounded by events stretching at least as far back as the corporate scandals of Enron and WorldCom, and forward to today's economic and financial crisis. The cumulative effect has been an overall erosion of public confidence in business and business leaders. Today, public anger has boiled over, heated by reports of greed, conflicts of interest, and other misdeeds, and by the growing expenditure of public money to support private businesses. The rebuilding of trust and confidence in corporate America won't be easy. The economic climate creates pressures for businesses to cut costs at every corner; to lay off workers, reduce benefits, eliminate corporate responsibility programs and end philanthropic projects altogether. Any initiative or governance policy seemingly unrelated to the maximization of today's share price, that lacks a clear-cut "business case," or doesn't literally buttress this quarter's bottom line, is at risk of being cut.

Beyond the moment, however, the picture may be different. Businesses that fail to heed the call for true responsibility are likely to find themselves at a disadvantage as society increasingly comes to value social engagement and the pursuit of common purpose rather than self interest. Corporate leaders should be national leaders in rethinking the short-term incentives and systems that were prime contributors to the steep rise and fall of the U.S. economy. They should be focusing on programs and policies that will add to the sustainability of their business for the long term, and that will reassure customers, suppliers, employees, and others that theirs is a business in which to have confidence.

This means acting responsibly, pragmatically, and mindful of broader societal concerns. It means becoming more energy efficient throughout the supply chain by cutting waste and investing in new technologies. It means reducing carbon emissions, preparing for climate-change legislation, adhering to good labor practices, and respecting fundamental human rights for all people, everywhere. It means identifying what works, what doesn't, what will add long-term value to the firm even with short-run costs, and acting accordingly. It means not reverting to short-term solutions that might look good in quarterly financial reports but fail to enhance the durable value of the firm. Short-term pressures, of course, are real and difficult to evade even in good economic times. In the midst of today's economic downturn, some shedding of jobs, cutting of benefits or social programs, especially among smaller firms, is inevitable. But business leaders must lift their sights to gain greater perspective and, ultimately, performance.

To make corporate responsibility integral to the company's daily operations and long-term strategic goals requires not just a change in governance structure or corporate policy but, more fundamentally, a change in how executives and boards of directors think about corporate responsibility.

In the last quarter of the twentieth century, businesses responded to social pressures by appointing corporate social responsibility (CSR) officers and initiating CSR programs to demonstrate corporate concern with society's interests. Whatever their successes, first- and second-generation CSR activities, based on charitable donations and other targeted projects, tended to treat societal issues as if they were somehow apart from the corporation itself.
The next generation of efforts to restore trust and confidence in business must instead recognize the interdependence of business and society. Our society depends on corporations to innovate and invest, thereby improving living standards, creating jobs and wealth, and providing social goods. But corporations, too, depend on society. At the most fundamental level, society establishes a system of justice, secures property rights, and thereby provides the environment in which businesses can exist and prosper. An excellent and equitable education system is needed to provide a productive and innovative workforce. Intelligent policies towards land, water, energy, transportation, communication, health care, and other concerns are needed to sustain the environment, improve commerce, and maintain a vibrant society. It is without question in each corporation's interest to sustain the society in which it operates.

In his inaugural address President Obama put it this way: "The success of our economy has always depended not just on the size of our gross domestic product, but on the reach of our prosperity; on the ability to extend opportunity to every willing heart-not out of charity, but because it is the surest route to our common good."

This is also the best way to build a sustainable and successful business.

Commentaries are the views of the authors and do not necessarily represent policies of the Committee for Economic Development.