How hypocrisy and facades can be good for people, planet, and profit

Prof Charles Cho

Prof Charles Cho

Profs Charles Cho, Matias Laine, Robin W. Roberts and Michelle Rodrigue take the Council on Business & Society on the second part of their journey into corporate sustainability: when something that is not quite right can be made to burn a brighter light

Of organized hypocrisy and organizational façades – the beneficial paradox

The theories of organized hypocrisy and organisational façade – that contradictory societal and institutional pressures in essence require organizations to engage in hypocrisy and develop façades – seem to support the assumption that sustainability is just talk, but Prof. Charles Cho and his colleagues’ publication of an article in Elsevier in 2015* seems to advocate that these can be beneficial. How is this paradox explained?

iStock@Sustainability-Business-000043011458_XXXLargeIf corporate sustainability is indeed “just talk”, then it can also be beneficial in that such talk may create space and stimulation for organizations to work with areas in/for which they are currently weak. Moreover, the talk may also create expectations, which the organization subsequently seeks to live up to. A closer look at the theory of organized hypocrisy leads Prof. Charles Cho and his colleagues to discern positive offshoots: “Aspirational talk is distinguished from lies in that aspirational talk is publicly visible, includes ideals that generate expectation of future action, and intends to stimulate organizational change. Thus, this form of hypocrisy is intended to mobilize actions that are congruent with some future talk. Brunsson (2007) states that explicitly articulating organizational goals in areas viewed as weak is not unusual. Indeed, the public display of these goals admits that relevant actions have not satisfied certain stakeholder interests, thus closing the chronological distance between decisions and actions.” (P.84, Organized hypocrisy, organizational façades, and sustainability, 2015)

However, whether organized hypocrisy and organizational façades are also beneficial for the broader society is debatable (P.91). Christensen et al. (2013) argue that aspirational talk could provide a way through which new ideas are born, and Abrahamson and Baumard (2008) purport that organizational façades may allow needed space for organizations to innovate and improve the realities of their contributions to society. Brunsson goes on to talk about how aspirational talk allows society to keep from admitting a moral failure as well as an environmental/social failure. The brutal truth is too difficult to grasp. Energy companies cannot say that they don’t care if they ruin the environment and promote adverse climate change. In other words, if we think better of ourselves, we may actually, eventually improve our actions to become more “moral” and consequently more concerned with planetary sustainability.

*Organized hypocrisy, organizational façades, and sustainability reporting by Charles H. Cho, Matias Laine, Robin W. Roberts, Michelle Rodrigue, issue 40 of Accounting, Organizations and Society, Elsevier 2015 (see below).

A pretty picture: beyond the green scenery and onto slippery slopes

business analyze sustainable development opportunities

Corporations, therefore, are prone to erect rational, progressive and reputation façades that are defined and executed through various means of corporate initiatives and communication, thus creating a bucolic picture of their business and willingness to include people and the planet in their activities. There are many independent auditors and government bodies keeping a watch on the landscape, but do they see beyond the glowing picture and do companies take notice?

The initial answer must be – not really. Corporate sustainability disclosures are to a large extent voluntary, and despite the slow diffusion of sustainability reporting assurance, such processes remain relatively light. There again, NGOs and other stakeholders do indeed question and highlight possible discrepancies between a corporation’s talk and action in public. However, this may be a very dangerous and slippery slope, not least because there is a growing movement towards a focus on investors as the main audience for sustainability reporting. For example, the SASB (Sustainability Accounting Standards Board), and the GRI (Global Reporting Initiative) among many are now becoming interested in how the destructive planetary sustainability activities translate into organizational financial risks. Materiality has become a key rationalization for immoral activities. Is it material to a multinational company’s sustainability report if that company employs “only” 1000 child laborers or destroys “only” 1000 acres of pristine habitat?

Can society understand or forgive?

sign direction right - wrongAll corporate stakeholders make their own assessment of the most important sustainability issues of a corporation be they human rights, environmental protection, or diversity in the workforce and make requests to the corporation in this respect. Prof. Charles Cho et al argue that erecting different façades is the corporate response to the multiple, various, conflicting stakeholder demands faced by corporations with respect to sustainability issues. Should civil society understand or forgive or should the people raise awareness about this? Prof. Cho and his fellow authors argue for awareness. The more we raise awareness on these issues, they state, the better the chance that firms improve their sustainability management by taking increasing numbers of issues into consideration… although, they add, we do recognize there is some level of idealism involved here.

People, planet or profit? Can businesses do all three? 

To what extent is corporate growth – indeed the necessity for sustainable business growth – hindered by the pressures to own sustainable development policies? Can there be a win-win or does one necessarily dominate the other? Prof. Cho and his colleagues answer by stating that corporate growth is not by definition in contradiction with sustainability policies and practices (although global economic growth may well be, especially if based heavily on carbohydrons). There is, for instance, a steadily growing segment of consumers who are readily paying premiums for environmentally less harmful products and thereby supporting organizations with advanced practices.

To a certain extent, however, this argument depends on the industry in which the organization operates. There are industries, for instance those relying on coal and oil, which do not go well together with long-term planetary sustainability. Looking at the global stock markets and indexes, it seems that taking environmental issues into account does not necessarily make a corporation lose out in terms of stock price. On the other hand, Charles Cho and his fellow authors would argue that in general, large corporations are primarily (or only?) concerned with business sustainability—a rational façade. Take Coca-Cola for example—it takes 3 liters of water to make one liter of Coca-Cola. They help dig water wells in Africa, find ways to reduce water consumption per liter of Coke, invest in biodegradable bottling, etc. That said, their overall absolute consumption continues to climb as they focus on growth in consumption. Are they more efficient? Yes. Is planetary sustainability improved? No.

Does it pay to be honest?

Council on Business & SocietyTo what extent does it pay to be honest in terms of corporate sustainability reporting? As information tends to spread so much faster than before, the reputation risks that relate to greenwashing have increased, something that was observed in many corporate reports especially in the 1990s. As Groucho Marx said: “The secret of life is honesty and fair dealing…If you can fake those, you’ve got it made”

This said, corporate sustainability reporting is here to stay and it will continue to develop. Stakeholders increasingly require information about how organizations are doing in terms of economic, environment and social issues, and how their policies are developing. It is worth re-stating that corporate sustainability reporting as a whole is a relatively recent phenomena and that it has already developed substantially in a short period of time. Moreover, reporting will continue to advance the core mission of large corporations. The use of each façade will be strategically and wisely determined. It is up to civil society to demand more authentic accountability from the corporate sector through regulations that advance planetary sustainability.

Solutions for a win-win for business and society

Businessman keeping a green leaf in his pocketWhat solutions for the future exist for both business and society to benefit from corporate sustainable development? A direct, if drastic, first reply might be the banning of oil and coal and the development of a real full price accounting system, which would internalize most of the externalities to prices. Short of this, and as a wider, pragmatic option, international agreements and action plans are required on several fronts, for instance with climate change and marine ecosystems, with the protection of the ozone layer being a good example here. Moreover, increase in societal awareness, which will result in further stakeholder and shareholder pressure on organizations, is needed.

From a micro perspective, however, it is not really possible to provide a solution at the organizational level through reporting, standard setting or enhanced voluntary reporting. In essence, and something that would constitute key leverage for positive win-win transformation, the fundamental definition of corporate accountability must be changed to internalize its responsibilities beyond shareholder wealth maximization.

Links

Prof. Charles Cho (bio)

ESSEC CEMAS

View the video of Prof. Charles Cho on ESSEC CEMAS

View the paper on ScienceDirect: Organized hypocrisy, organizational façades, and sustainability reporting by Charles H. Cho, Matias Laine, Robin W. Roberts, Michelle Rodrigue, issue 40 of Accounting, Organizations and Society, Elsevier 2015.

Additional links on the theme of sustainability reporting:

The GRI (Global Reporting Initiative) website

The IIRC (International Integrated Reporting Council) website

SASB (Sustainability Accounting Standards Board)

CSEAR (Centre for Social and Environmental Accounting Research) 

CSEAR France

The Council on Business & Society Global Alliance is an ongoing international dialogue between six of the world’s leading business schools and an organiser of Forums focusing on issues at the crossroads of business and society – The Council Community helps bring together business leaders, academics, students and journalists from around the world. #CouncilonBusinessandSociety

 

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