What does it mean to say that "business" has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but "business" as a whole cannot be said to have responsibilities, even in this vague sense. – Milton Friedman, The New York Times Magazine, September 13, 1970
In 1970, Milton Friedman declared, “The business of business is business,” reigniting the debate on the role of the corporation in society. While the primary responsibility of publicly-traded companies is to increase profits, the digital age and the complexities of globalization have forced multinational corporations (MNCs) to view their exposure more broadly and weigh more carefully the factors contributing to their bottom line. These concerns have spurred a corporate social responsibility (CSR) movement demanding that firms account for a triple bottom line that considers people and the planet, as well as profits. Ultimately, this calculus drives business strategy while attending to the needs of employees, customers and communities, as well as the environment, in order to generate revenue.
Milton Friedman was correct at the basic level: without sustained profits, corporations cease to exist. But since his vigorous defense in the New York Times, the business landscape has drastically changed. Since the turn of the millennium, U.S. courts have moved towards bestowing upon corporations the privileges of personhood. This was apparent with the 2010 Supreme Court ruling on the case of Citizens United, which allowed unlimited campaign contributions by corporate entities. The highest court also agreed to hear the case of a company asserting a right to "personal privacy." In the ruling on FCC vs. AT&T in 2009, the United States Court of Appeals for the Third Circuit noted that
“Corporations, like human beings, face public embarrassment, harassment, and stigma."
“Only people can have responsibilities,” wrote Friedman. But if corporations are imbued with more of the privileges of people, do the responsibilities of personhood follow?
Today, the public holds corporations more responsible for their social and environmental impact. In the industrial age, physical goods, their production, by-products and disposal drove the demands for socially responsible behavior. Like the products themselves, the collateral damage they caused was physical. Employee safety, benefits and labor rights led to standards and regulations. Less obvious was the long-term damage caused to the environment, the scope of which we are only now beginning to fully understand.
Dioxins dumped decades ago are just now surfacing in breast milk and body fat, their cumulative effect causing skin lesions, brain damage and cancer. In these instances, the latent effects and disconnect between cause and effect is a delayed feedback loop that is hard to identify, rectify and compensate for.
However, in the information age, physical ruinations are not the critical concern. Instead, the devastation concerns personal information stored in the cloud, on servers scattered across the internet.
The advent of the digital age has allowed companies to consider information as exchangeable “materials” -- how personal data and social relations are turned into economic relations. Where you are, what you did, what multimedia you recorded and what you published are goods in this new economy. With new goods come new responsibilities about which consumers and corporations are still unclear and ill-equipped to manage.
The definition of “public” has changed as well. Businesses now deal with multiple publics consisting of an array of stakeholders across international boundaries with competing demands and varying cultural definitions of social responsibility. Each of these publics has the ability to influence how a business achieves its objectives.
What might a company do to stay on course, with respect to CSR? While individuals depend on their consciences to drive their decision-making, it is unclear whether corporations have a systemic conscience built in as a critical guard against what would otherwise be considered psychopathic behavior.
Many corporations have attempted to present their guiding principles and values in the myriad of mission and value statements developed at off-site meetings. Payless ShoeSource values the democratization of fashion. Zappos is about “delivering happiness” to the world. HCL Technologies puts employees first and customers second while DaVita values accountability and fun.
Google’s mantra is now famous and widely known: “Don’t be evil.” Stating it is one thing, but conducting business with it as a corporate conscience is another. A motto like Google’s can only serve as a bumper guard against excessive overreach. Even CEO Eric Schmidt was sanguine about this when he declared, "Google policy is to get right up to the creepy line and not cross it."
Herein lies the conundrum.
Acting responsibly toward employees, communities and the environment does not ensure profitability. However, lack of such responsible behavior incurs the wrath of consumers and watchdog groups, inevitably putting the bottom line at risk.
Social activists and media outlets are able to rapidly highlight reputation, morale and regulatory problems that can quickly erode profitability. Technology and rapid communication allow a new breed of media-savvy stakeholders to champion their definition of social responsibility, and hold corporations accountable. Add to this equation the complexity of globalization requiring corporations to abide by sovereign laws of nations whose values may conflict with their own, or their stakeholders. This was observed quite clearly in 2003, when human rights activists exerted pressure on several Western oil companies that ultimately pulled out of Sudan.
To act responsibly and create a profit, corporations must balance their own values, the demands of stakeholders, and the politics and policies of the host country; clearly, the job of a strong super-ego. This perfect storm prompts the question, “Socially responsible to whom?”
Historically, concerns about social responsibility focus on ownership, the environment, labor issues and philanthropy. The results of these efforts are concrete and visual. In 1977, when India demanded that Coke reveal its secret formula and share ownership of its Indian divisions, Coke acted in the best interests of their shareholders and stopped doing business in India. When ForestEthics, an activist organization, wanted Victoria’s Secret to print its catalogue on enviro-friendly paper (paper developed using sustainable forestry), the nonprofit flooded the Internet with pictures of scantily clad models holding chain saws. Nike, Gap and others faced charges of child labor and unfair working conditions, whereas now, they work closely with NGOs to assess and alter their practices. DaVita, a $6 billion kidney dialysis firm, opened treatment centers in developing countries with the aim and support to make the centers self-sustaining. Philanthropy is frequently used by MNCs for positive public relations value. One need look no further than a company’s web site for images of smiling children standing in front of company-sponsored schools or employees in jeans feeding starving refugees.
The economic rationale for many of these CSR issues is clear. In India, Hindustan Lever Ltd. created a project that used micro-financing as a means of economic development and market penetration. Other examples would be Colgate’s and Pepsi’s efforts to clean up Indian water supplies. Colgate’s motivation is to sell toothpaste, clean water being a necessary ingredient, and Pepsi requires clean water to produce soft drinks (presumably to supply customers for Colgate toothpaste). Higher standards of living create new markets. Reducing carbon footprints saves money. Treating employees well increases productivity and counters boycotts. Philanthropy buys good will and, as in DaVita’s case, provides test markets for expanding locations.
The motivation for these actions is clear, but with the accelerating rate of digital expansion, another issue is coming to the fore. With the advent of the information age, privacy is emerging as a new frontier in social responsibility.
Privacy issues differ from traditional CSR concerns, in that privacy is abstract. As a consumer’s concern, the concept of privacy is intractable to most users of information services. That is, until a privacy breach becomes real, as when credit card numbers are released, private correspondence is revealed or stalkers lure victims over the Internet.
But what is similar is the “delayed feedback loop” in which direct consequences of decisions are separated in time and space from their causes. Privacy issues amplify the principles of CSR and become fertile ground for the question, “Socially responsible to whom: activists, host nations, shareholders, corporate values, or customers and end users?”
The complexities of these types of relationships have been tested through the experience of American information technology companies attempting to do business in China, such as Microsoft, Yahoo! and Google. The effort to craft a responsible strategy in the face of multiple governments, customers and cultural climates has resulted in a fascinating laboratory that is the dot-com industry in the People’s Republic of China.
Google in China
In 2005, China’s search market, with an audience of 300-400 million Internet users, represented a natural strategic move for Google. With its heavily-censored media and Internet industries, China’s policies seemed to completely counter Google’s corporate mission “to organize the world’s information and make it universally accessible and useful.”
In earlier years, other Western dot-coms made missteps when it came to privacy. Yahoo! entered into China quite early (TK) in a high-profile partnership with China’s B2B powerhouse, Alibaba. In 2005, however, Yahoo! became the target of great criticism when Yahoo! China handed over location information to the PRC authorities about journalist Shi Tao regarding his Yahoo! Mail account, the result of which landed him in jail for 10 years.
In this case, what could a corporation do when asked to comply with the sovereign laws of the land? After all, a foreign company operating in the United States would have to comply with a U.S. court-issued subpoena to reveal personal user data to the FBI. But in China, where due process and the right to privacy are rare, one has to question whether a foreign company, knowing these risks, should set up shop in the first place.
This was the situation facing Google in 2005 when it started its China operation.
In an effort to be responsible to both the demands of China’s sovereign laws and its own corporate values, Google introduced only some of its well-known services. With reasoning similar to Yahoo!’s when it first launched, Google stated as its rationale, “The decision in 2006 to enter the PRC market was made with the belief that benefits of increased access to information for people in China and a more open internet outweighed our discomfort in agreeing to censor some results” (Google official blog Jan 12, 2010).
But there was a big difference from Yahoo!’s approach.
Google did not launch anything that required its servers in China to store the personal user data of its users. Ads, music and search did not require retention of private information, so those were the earliest to appear on domestic (China) servers. Other products such as mail and messaging were also available, but were hosted on servers outside of the PRC.
Through this careful selection, Google did not have the private data of users on China’s soil, and therefore could not be required to hand it over to the authorities.
Although it was an imperfect compromise, and one that still draws criticism from human rights groups, Google’s move made waves. It abided by China’s regulations on content restrictions by framing their effort as providing a better customer experience. It claimed that uncensored search results would mean many of the links on search engine results pages, when clicked, would not work, which would lead to a bad user experience.
Google’s public policy statement at the time reflected this uneasy tension.
“While removing search results is inconsistent with Google’s mission, providing no information (or a heavily degraded user experience that amounts to no information) is more inconsistent with our mission.” Google official blog Jan 27, 2006
Under this policy, human rights in China, Falun Gong, Tibetan rights and many other controversial stories would be blocked.
The more pressing issue was that if Google delivered unfiltered search results, it would be in violation of China’s content standards. This would be a clear act of social irresponsibility in the face of stringent domestic Internet regulations, which China’s citizens have, surprisingly, expressed support for.
One feature that Google did add, in a move quite different from those of other companies, was a warning message at the bottom of each search page:
“In accordance with local laws, regulations and policies, part of the search result is not shown.”
Even by this small measure, Google was increasing the transparency of search. There were significant ripple effects in doing this, as other search engines in China started putting the same caveat on their search result pages. While it may have been a small adjustment, users were potentially being made aware of “known unknowns.”
This uneasy state of affairs continued until late 2009. But in January 2010, Google reported on its official blog that it experienced cyber-intrusions originating from China-based computers, resulting in targeted attacks on their corporate infrastructure and possible theft of Google’s intellectual property. It was of such great concern that Google announced a reconsideration of its entire China strategy.
In an unusual public display of corporate contemplation, the official Google blog had legal counsel David Drummond reflect on the events:
“We have evidence to suggest that a primary goal of the attackers was accessing the Gmail accounts of Chinese human rights activists… we have discovered that the accounts of dozens of U.S.-, China- and Europe-based Gmail users who are advocates of human rights in China appear to have been routinely accessed by third parties. These accounts have not been accessed through any security breach at Google, but most likely via phishing scams or malware placed on the users' computers.”
Google saw its social responsibility extending to users of their system, human rights advocates or otherwise, and the need to protect their privacy.
Then, in unprecedented fashion, Google threw down the gauntlet.
“These attacks and the surveillance they have uncovered -- combined with the attempts over the past year to further limit free speech on the web -- have led us to conclude that we should review the feasibility of our business operations in China. We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all. We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.”
Shortly after, Google altered its services and redirected search users in China to Hong Kong, where search results would not be filtered by Google, although sensitive content would still be blocked by China’s Great Firewall censorship system.
The blog post was remarkable in that it sought to simultaneously explain Google’s rationale and reiterate its values to multiple stakeholders including China’s government, NGOs and customers on both sides of the Pacific. It is hard to imagine many other companies – Yahoo!, Microsoft or otherwise – that would engage in such public and transparent dialogue about their corporate mindset.
In the end, to whom was Google being socially responsible?
To their shareholders the move is perhaps cause for concern. Since the blog post, Google’s market share has slipped from roughly ⅓ to ⅕ of China’s search market. The accolades from human rights NGOs and China’s elite Internet users, however, have been largely positive. An argument can be made that in a censorship-laden country like China, the financial returns from search may be minimal, while the good will arising from being seen as a leader in the battle to protect users’ privacy rights may prove to be a long term win.
Or is social responsibility even the issue?
We assigned the above case to students and asked them if this is a case of a company acting with social responsibility. Many responded vehemently that this is not an incident of social responsibility but rather an instance of a corporation making a wise decision in support of its business strategy. We agree.
However, we believe this is not an instance of “either or” thinking (either they were responsible to themselves or their stakeholders), but rather an instance of “both and” thinking. This was a company acting with social responsibility and in support of its own business strategy. The sensibilities in this case are the sensibilities MNCs face as they negotiate their way through the physical and digital world of the 21st century, juggling the needs of stakeholders and host countries along with their own needs. The cornerstone of this juggling is the new frontier for public diplomacy.