Foolish Book Review: Corporate Responsibility, Part 2

How can we better address major global concerns such as extreme poverty, the environment, and education? This is perhaps the most pressing question we can ask of civil society at the turn of the millennium.

Governments are tackling these questions, but one of the major limitations of state-funded intervention is that it is risk-averse, willing to put money only toward proven projects. Risk taking is more to the liking of private individuals, foundations, non-profits, and leading philanthropists. To be sure, this latter group is doing their part.

Co-founder of Intel (Nasdaq: INTC  ) , Gordon Moore (yep, that's where Moore's Law comes from) has given or pledged $7.3 billion, leaving him with a net worth of $4.6 billion. After amassing his wealth with Microsoft (Nasdaq: MSFT  ) , Bill Gates has been spending much of his time giving to nonprofits around the world; he has given $28 billion so far, leaving him with a net worth of roughly $51 billion. The leading philanthropists have been challenged by Ted Turner, formerly of AOL-Time Warner (NYSE: TWX  ) , and his call of giving, as he urges his peers to do even more, stating that if it doesn't hurt when pledging, then it isn't really giving; Turner has given over $1.2 billion and has $2 billion remaining in net worth.

However, the primary weakness of intervention by foundations, philanthropists, non-profits, and private donors like ourselves is that we do not have the technological or personnel infrastructure to maximize the impact of those funds. Who does? Corporations do. Some of the leading advocates of corporate social responsibility (CSR) base their argument on the notion that corporations are the best equipped to address the world's greatest concerns because they not only have the funding, but they also have the resources to maximize results.

Among those calling for corporations to do more, a lot more, in addressing the world's greatest challenges is former CEO of Canon (NYSE: CAJ  ) , Ryuzaburo Kaku. In Part 2 of the series highlighting key essays from Harvard Business Review on Corporate Responsibility, we will review his article titled "The Path of Kyosei." (Part 1 on "Serving the World's Poor, Profitably" can be found here.)

There is no future in business if there is no future in Earth
Kaku makes the case for his argument right from the outset, arguing that already many business leaders recognize they have a "moral duty to respond to global problems." What the vast majority fails to recognize, however, is that survival of their corporation depends on socially responsible engagement. He writes, "Global corporations rely on educated workers, consumers with money to spend, a healthy natural environment, and peaceful coexistence between nations and ethnic groups."

Since it is in the interest of corporations to work for peace and global prosperity, this reality becomes the greatest source of hope for Kaku. Failure is not an option, as he explains, "Global companies have no future if the earth has no future."

What about that whole fiduciary responsibility thing?
Naysayers of CSR argue that the purpose of corporate leadership is to fulfill the corporation's ends: to produce profits. Is it possible that this fiduciary responsibility can co-exist and even complement a social responsibility? Kaku believes so, stating, "We realized that our business decisions could, if properly managed, be profitable and, at the same time, contribute to the well-being of people around the world."

During his tenure as Canon's president from 1977 to 1989, net sales increased from 195.4 billion yen to 1.35 trillion yen. All the while, this revenue growth was being achieved under a philosophy he applied called kyosei. The term kyosei is best defined as a "spirit of cooperation," in which individuals and organizations (corporations, governments, nonprofits, etc.) "work together for the common good."

Five stages of corporate Kyosei
For Kaku, kyosei is analogous to building a pyramid in which the strength of each new layer is dependent upon the solidity of the preceding layers. The foundation then, or stage one, is a sound business model. Here, corporations contribute to society through employment, purchasing locally produced raw materials, and producing goods needed by society. In the meantime, a company makes a profit. But profit making is just "the beginning of a company's obligations," argues Kaku.

The second stage is sound cooperation between leadership and laborers. Remarkably, at the time of this writing, in the history of Canon Tokyo, the company never "fired a domestic employee and has never asked any employee to take early retirement." To make it through the slow times, Canon Tokyo transfers employees to other parts of the company and/or reduces the number of recruits.

Third, a sound cooperation with the community is needed. Kaku provided examples of two U.S. products for the blind and sight-impaired that Canon distributes in Japan "on a break-even basis." Canon also developed a product of its own that aids with speech communication, which is marketed in Japan on a "not-for-profit basis."

Fourth, global activism is required to engage trade imbalances, income imbalances, and environmental imbalances. Canon helps with trade imbalances by erecting new factories in countries where Japan has some of the largest trade surpluses. Further, it seeks materials from local suppliers situated in the host country to further reduce trade imbalances. Raising a new middle class in developing countries is also important to Canon, so to address income imbalances it also strives to open manufacturing plants in developing nations. Finally, for environmental imbalances, Canon aims to develop products that are not only profitable, but also help the planet.

The fifth stage Kaku outlines is the necessary cooperation between governments and corporations. Here, Kaku argues that the really powerful corporations have the ability to positively influence political leadership to address pollution reduction, for example.

A healthy balance of competition and cooperation
Kaku provided an example of how Canon ramped up its R&D expenses during his tenure as the company sought to gain a competitive advantage while also "helping to provide for the common good." In the R&D process, Canon wanted to minimize waste and maximize creativity for the aim of making products that were in demand by consumers as well as "in harmony with the environment."

The end result of its R&D efforts is that the company gained a series of important laser-printing patents, which it was then able to use as bargaining chips to form a working partnership with one of its most fierce competitors, Hewlett-Packard (NYSE: HPQ  ) .

His point is that from a position of strength, a corporation is able to forge healthy partnerships with employees, communities, governments, and even competitors. And it is this spirit of cooperation -- kyosei -- that is needed to tackle the world's greatest problems.

Kaku concludes, "If corporations run their businesses with the sole aim of gaining more market share or earning more profits, they may well lead the world into economic, environmental, and social ruin. But if they work together, in a spirit of kyosei, they can bring food to the poor, peace to war-torn areas, and renewal to the natural world."

Other articles with social responsibility messages:

Intel and Microsoft are Motley Fool Inside Value recommendations. Time Warner is a Motley Fool Stock Advisor recommendation.

Fool contributor Jeremy MacNealy is writing a law and ethics thesis paper on corporate social responsibility as part of a graduate program at Duke University. He is ranked 426 out of 13,045 participants at Motley Fool CAPS. He has no financial interest in any company mentioned. The Motley Fool has a disclosure policy.


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