Usury and the Credit Crunch

Historically, "usury" is term given to the charging of (excessive) interest. For over 4,000 years, it has been repeated condemned and criticised by religious, philosophical and economic traditions. This is summarised in a paper by Wayne Visser and Alastair McIntosh of Scotland’s Centre for Human Ecology, published  as "A short review of the historical critique of usury” in the journal, Accounting, Business & Financial History (1998, 8:2, pp. 175-198). Early in 2009, following requests from Muslim scholars to reprint and translate the article, the authors added the following postscript. The full piece can be read at http://www.alastairmcintosh.com/articles/1998_usury.htm.

POSTSCRIPT ON THE CREDIT CRUNCH, 2009: The global so-called “credit crunch” (defined as “a severe shortage of money or credit”) is generally considered to have “started” on 9 August 2007 when disturbing figures from the French bank BNP Paribas raised the cost of credit and awoke the financial community to the wider seriousness of the situation (see the BBC’s detailed timeline at http://news.bbc.co.uk/1/hi/business/7521250.stm).

Underlying this had been a rise in US interest rates between 2004 and 2005 from 1% to 5.35%, resulting in high levels of default at the “sub-prime” end, which is to say, the high risk end of the housing market. Because mortgage lenders had sold on their debts via hedge funds to other financial institutions, the consequence of irresponsible lending spread contagiously through banking systems, especially in the West, as house prices started to fall and the real estate asset value underpinning the loans became negative.  When BNP Paribas told its investors that they would not be able to draw money out of two of its funds owing to a “complete evaporation of liquidity” it was the start of a domino effect, forcing governments to step in and avert potentially catastrophic runs on major banks.  

From the perspective of our paper on usury which we now revisit more than a decade after its first publication in 1998, we find it instructive to reflect on how far such problems can be laid at the door of an interest-based banking system. Full consideration of this is beyond our current scope, but in this postscript we will confine ourselves to making three brief observations.  

First, the credit crunch was a consequence of the preceding credit bubble inevitably bursting. In certain Western countries, including Britain and America, governments had deregulated financial agencies to an extent where irresponsible lending became normalised. For example, in Britain, through until 2008, it was easy for people to get mortgage loans on property of 120% of the property value with few questions asked. Property prices were rising sharply, the global economy was booming, and traditional banking caution was thrown to the wind. People re-mortgaged their homes to pay off credit card debts that carried very high rates of interest, and which had been sold to them by aggressive marketing. People had started to believe that ever-rising house values and continuing economic good times would generate property values that would continuously outstrip their liabilities. Far from failing to dispel this notion, leading lenders exploited it. City staff were rewarded with massive “fat cat” bonuses based on the size and quantity of loans made. Concerns about their overall quality of lending portfolios were silenced through hedging – the selling on and spreading out of risk on speculatively buoyant markets.  

While everybody played the game and interest rates remained low the system appeared to be working. It met investor expectations with high rewards. But as US interest rates rose in a necessary effort to counteract the economic knock-on effects of house price inflation, the consequences of having bought into a usurious and greed-driven system started to hit home. Loan default rates reached the point of crisis. Those who were able to see it coming, mostly the wealthy and well-advised who had a greater variety of financial options open to them, were able to bail out in time. Those who had been caught with little option if they wanted to buy a house to live in were squashed – leaving many young families now struggling to pay off debts as their house values fell into negative equity. As the media rightly observed, Wall Street’s gains are Main Street’s losses, with the negative externalities of financial speculation passed on to society as a whole.  We might learn from this that an economics that canonises greed lays in store catastrophic weaknesses that will eventually hit the poor hardest. 

Our second point is that globalisation, whilst creating massive new economic wealth from deregulated trade, has reduced resilience in the world financial system. Fire walls between different countries’ economies that were held in place by measures such as controls on foreign currency transactions substantially fell away in the years that followed the “new right” economics of Reagan and Thatcher. Enabled by computerised production planning and stock control, new notions of just-in-time commercal supply systems profitably maximised economic efficiency. But there was a hidden cost. It also reduced the resilience that slack allows in highly interdependent chains of supply. Without slack, supply networks, like the socio-ecological systems on which they depend, become brittle. They become prone to breaking rather than bending when placed under stress. And for a monetarily based economic supply system, a bank running out of liquidity is like a car suddenly losing its oil. Devoid of lubrication the engine grinds to a sudden halt. That was why, in 2008, governments were left with no option but to bail out the banks.  

This loss of resilience is what distinguishes the current situation from the bank crashes of the 1920s. Back then, society and especially its food production was less industrialised. People lived closer to the land. Most essential services such as food production were local production for local consumption. But today, essential chains of supply are long, often global, and therefore subject to international market and financial vagaries. A glimpse of the consequences of such dependency can be seen from what happened in Britain in September 2000 when fuel tanker drivers went on strike. Within five days, panic buying emptied some supermarket shelves and the media carried sporadic reports of fighting at the checkouts. The Blair government, fearing civil unrest, capitulated. Applied to the situation in 2008, we might ask much more unrest might have broken out if bank failure had resulted in the sudden loss of financial lubrication with its consequent immediate knock-on effects?  

We might learn from this that the risks are too high for governments to wash their hands of regulating modern economies. Unfettered free markets expose the very fabric of civil society to the law of the jungle on a bad day. Overly deregulated markets can only be transient phenomena, like handing out free pizza. Because of their abstract nature based on confidence – the word means “faith together” – financial markets are all the more volatile. The brazenness by which financial engineers or rather, marketeers, tried to spread risk by creating derivative “products” driven ultimately by mortgage interest rates and their effect on property values reveal a massive collapse of responsibility. That collapse happened because faith shifted from having direct equity connection to tangible assets onto abstract financial connections that could be many times removed and diluted from the reality on the ground. Such derivatives had become ships of fantasy. Devoid of anchors, they drifted fecklessly with no bearings on the landmarks of reality until the rocks struck.  

Our third observation is that many people ask whether the “credit crunch” (the term sounds disarmingly like a packet of breakfast cereal, with a free gift inside) signals the “end of capitalism”. On the contrary, we consider that it represents only a cyclical spasm in the process by which capitalism periodically restructures itself in a crash that most hurts the weak. The consequence of job losses and repossessions in the housing market are that the relatively disadvantaged, many now saddled with negative equity, will be forced long term to work harder to pay off debts, including their share of the national debt that will manifest in tax rises. As such, the creditors – many from their offshore tax havens - retain and reconsolidate a grip that they would not have had if their involvement in the process had been through risk-shared equity holdings, as with Islamic banking principles. These investors will, in future, be the people who find themselves in a position to buy up repossessed (which is to say, bankrupt) housing stock, and thereby strengthen their arm in future as rentiers to those who have lost out. The relatively poor will be forced to work yet harder on a treadmill that damages family life and with it, weakens the future fabric of society.  

Capitalism can be understood at many different levels, from honest trade and entrepreneurialism all the way to its advanced Anglo-American casino version. In the latter, the role of money undergoes a shift. It changes from its primary role as a means of recording and lubricating exchanges of goods and services. It takes on second order abstract qualities of being speculative. Here money alone generates more money, and the principle of usury – defining it as the lending of money at real positive rates of interest (i.e. rates greater than what is needed to cover inflation and risk) – is the inner wheel driving the system.  

Although we believe capitalism in one form or another is here to stay, the "credit crunch" may go down in history as the most serious challenge yet to financially speculative advanced capitalism. Henceforth electorates and their governments should give more determined consideration to the oligarchic principle of allowing so much power and latitude to shareholders and their financial analysts whose investment motivation is purely to ‘play the market’.  

2009 will probably mark the point at which the pendulum starts to swing back to more carefully and strongly regulated financial markets. As it turns out, this approach is entirely consistent with the philosophy of the iconic economists Adam Smith (who was after all a ‘moral philosopher’) and John Maynard Keynes (who warned against the dangers of speculative activities). Ironically, these are often cited by neoliberal market fundamentalists in support of their ideological deregulatory stance. Any of us who have knowingly participated in usury-related casino economics share the responsibility for what has happened. Whilst neither of the current writers is a Moslem, we cannot help but be reminded of the Islamic hadith that states: “The taker of usury and the giver of it and the writer of its papers and the witness to it, are equal in crime.” To put it in the language of other Abrahamic religions, we have worshipped at the shrine of Mammon, the god of wealth. Mammon has now transmogrified into Moloch – the fire-filled hollow stone god of the Hebrew Bible. Into his lap the children were reputedly sacrificed … and that, in the name of idolatrously seeking future economic prosperity.  

Through the lens of such metaphor the “credit crunch” must, like the “climate change crunch”, be understood spiritually, or in terms of deep values. It is our consumer greed that has driven the problems now faced. Whatever our religious background if any, the crises of present times can be seen as a spiritual, or a values-based wake-up call. As such, modernity may still have something to learn from the ancients.  

Alastair McIntosh & Wayne Visser

CSR and the financial crisis

Earlier today I attended a lunchtime event organized by Net Impact and hosted by Columbia University’s School of International and Public Affairs (SIPA) on the topic of CSR and the financial crisis. The impressive panel featured Prof Geoff Heal (Columbia Business School), Kara Hartnett Hurst (Business for Social Responsibility), Prof Jenik Radon (SIPA) and Aaron Hurst (Taproot Foundation). Below are a couple of quick points made during the discussion - please see the podcast section of slate.com for the full commentary http://www.slate.com which I expect to be made available shortly.

Prof Geoff Heal suggested that there isn’t a great deal of historical data relating to the impact assessment of a recession on CSR policies and practices. Unsurprisingly, it was presumed that profits will be harder to come by in such times, but where CSR is embedded and contributes toward the bottom line, we can expect such policies to subsist; yet if these practices relate more toward PR or philanthropy, one might predict more reduced roles. Invariably, some firms will fall into each of these categories. It was suggested that Business 2 Consumer CSR (especially if tied to brand value) would be less impacted than Business 2 Business CSR, where some cutbacks might well be anticipated, which is somewhat of a moot point. He did however suggest that there is some evidence to suggest that, in an increasingly competitive environment, CSR policies can actually contribute to greater profits (such as in retail). 

Kara Hartnett Hurst suggested that business at BSR is booming, which is indeed indicative. Again, those companies with more integrated CSR programs weren’t cutting back given they have recognized their investment in, and the value of, CSR to a variety of stakeholders. She also noted how there has been a relative increase in the recognition and confidence of CSR given how it is associated with better governance structures and longer term shareholder value. That said, it was acknowledged, more generally, that business conditions are not good and that ‘flat is the new up' - but while reductions are happening, CSR has been less visibly impacted. 

Aaron Hurst highlighted several drivers that will promote further change in CSR over the next months, including the next administration. It was acknowledged, however, that financial philanthropy might well be cutback in this tough economic climate but conversely, increasingly people had their time to offer (he added that it was perhaps because they no longer had a job!).

The commentary was pretty broad ranging yet there were some interesting points of view from the panel on the financial bailout, as well as various recommendations for the incoming Obama team. Overall, the discussion was worth listening to, if you can find the opportunity.

Responsabilidad Social en tiempos de crisis financiera

Responsabilidad Social, Ano 2, Numero 16, Noviembre del 2008

Por Wayne Visser

No hay nada pequeño o trivial acerca de esta crisis financiera. Y es probable que la crisis financiera tenga un impacto sustancial en materia de Responsabilidad Social Empresarial (RSE). La pregunta es, ¿Cuál será el impacto? ¿Quién ganará y quién perderá?

Según un sondeo ejecutado en el blog de CSR Internacional durante el mes de octubre, 44% de los ejecutivos relacionados con la responsabilidad social creen que la RSE se incrementará como consecuencia de la crisis. Otro 26% cree que va a cambiar, mientras que el 22% piensa que se debilitará.

Se trata de un resultado poco sorprendente y tal vez oculta una respuesta más compleja. En mi opinión, el impacto de la crisis variará dependiendo del tipo de RSE que se practique.

Diferentes impactos

Filantropía. RSE enfocada en acciones filantrópicas será la más afectada. 
Tengo pocas dudas de que quienes han adoptado esta versión inmadura de la RSE, van a sufrir importantes recortes en su presupuesto durante la próxima recesión.

Independientemente del hecho de que los más necesitados de la caridad serán más afectados por la crisis, las empresas de todo el mundo se verán obligadas a la reducción de costos, y los presupuestos de la filantropía será uno de los primeros en ser recortados. 

RSE estratégica.  Ésta será la menos afectada

Es probable el concepto estratégico de la RSE de Michael Porter y Mark Kramer pagará dividendos a sus seguidores a raíz de la crisis financiera.

Ambos expertos sostienen que "entre más estrechamente vinculada está la cuestión social al modelo de negocios, mayor será la oportunidad de apalancamiento de la empresa para sus recursos y para beneficiar a la sociedad". 
Por ejemplo, el compromiso de Coca-Cola por convertirse en una empresa neutral en agua está tan estrechamente vinculado a su actividad principal, que no pueden permitirse el lujo de abandonar este programa estratégico de responsabilidad social. 

Ellos saben que si no son percibidos como usuarios responsables de los escasos recursos hídricos de las comunidades en que operan, sus negocios, en última instancia, fracasarán.

RSE Integrada. La RSE sólo puede ser resistente si es parte del ADN de una organización.

En otras palabras, la RSE sólo sobrevivirá los caprichos de los volubles mercados, la fluctuación de las utilidades, las crisis financieras y los caprichos de liderazgo si está totalmente arraigada en la cultura corporativa, la estrategia y los sistemas de gobernanza.

La inminente recesión será la última prueba de ADN para las empresas. En un año tendremos una idea mucho mejor de quién ha impulsado la responsabilidad social en el corazón de su negocio y quién lo lleva como una máscara.

RSE 2.0.  Para aquellas empresas que están atentas a las oportunidades de la revolución de la RSE 2.0, incluso la recesión presentará grandes oportunidades para el crecimiento de los negocios, así como beneficios financieros.

Esto se debe a que la RSE 2.0 se refiere a  la creación de soluciones para los más urgentes y difíciles problemas del mundo, tales como el estrés hídrico y el cambio climático.

A diferencia de la a RSE del pasado, la RSE 2,0 se impulsa con la ola de sustentabilidad de los mercados. 

Por ejemplo, la demanda de fuentes de energía renovables y tecnologías bajas en carbono ahora supera con creces la oferta.

Y dado el aumento de los costos del cambio climático, los altos precios del petróleo y ambiciosos objetivos políticos, de hasta 80% de reducción en las emisiones de gases de efecto invernadero hasta 2050, las empresas que se han posicionado estratégicamente como proveedores de tecnologías limpias seguirán beneficiándose de este mercado de 284 millones de dólares, que se espera que crezca a más de 1.3 billones para 2017.

Prueba de fuego

Por lo tanto, la respuesta a la pregunta, ¿Cuál es la relación entre la crisis financiera y la responsabilidad social de las empresas? es que depende.

Del mismo modo, la respuesta a la pregunta ¿Cómo va a ser responsabilidad social de las empresas afectada por la crisis financiera? depende de cuán profunda es la RSE dentro de la organización.

Es decir, si es filantrópica, estratégica o integrada, o incluso la responsabilidad social de las empresas en su más revolucionaria versión 2.0.

De cualquier manera, la recesión que se avecina no sólo será una prueba de fuego para el compromiso de las empresas con la RSE, sino para la RSE.

Puede ser que ha llegado el momento de la RSE para adaptarse o morir.

El autor es Director y Fundador de CSR Internacional, con base en Cambridge, Inglaterra.

Download:

http://www.waynevisser.com/article_waynevisser_csr_financial_crisis_spanish.pdf 

CSR and the Financial Crisis: Taking Stock

The scale of the crisis

There is nothing small or trivial about this financial crisis. According to the Bank of England’s recent Financial Stability Report, governments worldwide have already pledged more than $7 trillion in loans, guarantees, capital injections, and other assistance in their coordinated effort to prop up the global financial system. And the ILO estimates the crisis will cost 20 million jobs by next year.

This is not the first financial crisis the world has seen over the past century. The worst, of course, resulted in the Great Depression in the 1930s. But there have been numerous others, all of which carried painful economic and human costs. For example, the crises in Argentina (1981-1990), South Korea (1997-1999) and Thailand (1997-2000) all cost more than 30% of those countries’ GDPs.

But even by historical standards, the 2008 crisis is BIG. In what’s been dubbed “Wall Street’s Red October”, the S&P 500 plunged 16.9%, or 198 points, for the month. That's the worst-ever monthly point decline for the S&P 500. The Dow similarly dropped 14.1%, or 1,526 points. And the ILO estimates that the crisis will bring the total unemployed to more than 210 million for the first time in history.

The key difference is that, unlike the Asian and Latin American crises in the 1980s, this crisis is truly global. Some countries, like Iceland and Pakistan, are threatened by bankruptcy. Others, like Japan, have been hit by huge volatility in the markets. And even the cash-rich, high-flyers like China are seeing their growth suffering as a result. But what does any of this have to do with corporate social responsibility (CSR)?

The links to CSR

Irresponsible banking

I’d like to suggest a multi-level approach to this. At the first and most obvious level, we can say the financial crisis is a direct result of irresponsible banking. According to the Mortgage Bankers Association, the number of sub-prime loans offered to risky borrowers increased more than 15 times since 1998. Essentially, the banks got greedy and compromised good banking practices of credit risk assessment.

Irresponsible financial markets

At another level, the crisis is the predictable consequence of irresponsible financial markets. Since the deregulation of the 1980s, the derivatives market has grown to around $600 trillion dollars, almost 10 times the value of global GDP. This speculative trading (which some call the "casino economy") is meant to hedge risk, but it also increases the volatility and systemic risk of financial markets.

We would do well to recall economist John Maynard Keynes’ warning: “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

Irresponsible corporations

Others argue that the crisis is the inevitable consequence of irresponsible corporations. This is linked to the short-termism of shareholder value driven public companies. At the extreme, authors like Joel Bakan suggest that corporations have “a legally defined mandate to relentlessly pursue—without exception—its own self-interest regardless of the often harmful consequences it might cause to others.” This behaviour in humans, he notes, would be characterized as pathological.

Irresponsible executives

The financial crisis has been further inflamed, some claim, by irresponsible executives, as evidenced by their outrageous pay packages. In 2007, the CEO of a Standard & Poor’s 500 company received, on average, $14.2 million in total compensation, according to The Corporate Library. United for a Fair Economy reports that, in 2006, CEOs received more than 364 times the pay of the average U.S. worker (up from 42 times in 1980).

More specifically, it seems the leaders of Wall Street’s top banks are still in line to receive pay deals in 2008 worth more than $70bn, a substantial proportion of which is expected to be paid in discretionary bonuses. “Many critics of investment banks,” reports The Guardian, “have questioned why firms continue to siphon off billions of dollars of bank earnings into bonus pools rather than using the funds to shore up the capital position of the crisis-stricken institutions.”

Irresponsible capitalism

Some would even go so far as to say that the current financial crisis represents a systemic failure of shareholder-driven, free market capitalism. Among such critics is European Central Bank President Jean-Claude Trichet, who argues that the current financial crisis is partly a result of the demise of the original Bretton Woods’ agreement, after deregulation since the 1970s.

Trichet’s conclusion is unequivocal: “It’s absolutely clear that financial markets need discipline: macroeconomic discipline, monetary discipline, market discipline.” British Prime Minister Gordon Brown and French President Nicolas Sarkozy agree, stating that the turmoil has shown the world's post-Second World War financial architecture is not fit for the task of controlling today’s global financial system.

The impacts on CSR

Irrespective of its causes, it is likely that the financial crisis will have a substantial impact on CSR. The question is, how will this impact play out? Who will win and who will lose? According to a poll run on the CSR International blog during October, 44% of CSR professionals believe that CSR will increase as a result of the crisis. A further 26% believe it will change, while 22% think it will weaken. This is a slightly surprising result and perhaps masks a more complex answer. In my opinion, the impact on CSR will vary depending on the type of CSR being practiced.

Philanthropic CSR will be worst hit

I have little doubt that those who have adopted an immature version of CSR, in which CSR is primarily about philanthropy (sponsorship, donations, charity and employee volunteering), will suffer substantial cut backs during the coming recession. Irrespective of the fact that those most in need of charity will be worst hit by the crisis, companies around the world will be forced into cost-cutting and philanthropy budgets will be among the first to be trimmed.

Strategic CSR will be less affected

It is likely that Michael Porter and Mark Kramer’s concept of strategic CSR will pay dividends for its followers in the aftermath of the financial crisis. They argue that “the more closely tied a social issue is to a company’s business, the greater the opportunity to leverage the firm’s resources—and benefit society.” Hence, companies that have aligned their philanthropic and broader CSR efforts with their core business are more likely to protect these initiatives, even during the recession.

For example, the commitment Coca-Cola has made to become a water neutral company is so closely tied to its core business (which is, after all, mostly about selling huge volumes of sugar water), that they cannot afford to abandon this as a superfluous CSR programme. They know that if they are not perceived to be responsibly managing the scarce water resources of the communities in which they operate, their business will ultimately fail (as they have already found to their detriment in India).

Embedded CSR will be largely unaffected

CSR can only be resilient if it is part of the DNA of an organisation. In other words, CSR will only survive the vagaries of fickle markets, fluctuating profits, financial crises and leadership whims if it is totally embedded in the corporate culture, strategy and governance systems. The impending recession will be the ultimate DNA-test for companies. A year from now, we will have a much better idea of who has driven CSR deep into the heart of their business and who has simply been wearing it as a mask.

One example may be the UK’s Co-operative Bank. Although it will not emerge from the financial crisis completely unscathed, its deeply ingrained ethical approach to banking – introduced in 1992 – is unlikely to change and may even have contributed to its robustness over the past 12 months. As Jonathan Porritt, Chairman of the UK’s Sustainable Development Commission says, “at the very least, the relative resilience of this business model should prompt both Treasury and the sector’s regulators to think again about alternative ownership and governance structures in the financial services sector.”

CSR 2.0 will continue to strengthen

For those companies that are alive to the opportunities of the CSR 2.0 revolution, even the recession will present large opportunities for business growth and financial profits. This is because CSR 2.0 is all about the creation of scalable solutions to the world’s most urgent and intractable problems, such as water stress and climate change. Unlike the defensive, incremental, risk-based CSR of the past (CSR 1.0), CSR 2.0 rides the wave of emerging responsible and sustainable markets.

For example, the demand for renewable energy and low-carbon technologies now far exceeds the supply. And given the escalating costs of climate change, the high oil price and ambitious political targets (of up to an 80% reduction in greenhouse gas emissions by 2050), companies that have strategically positioned themselves as clean technology solutions providers will continue to benefit from this $284 billion market, which is expected to grow to over $1.3 trillion by 2017.

Conclusion

Hence, the answer to the question, “What is the relationship between the financial crisis and CSR?” is that it depends. It depends on your beliefs about how deep the irresponsibility behind the economic meltdown runs – is it banks simply overextending themselves, or a far more systemic failure in the corporate, financial and capitalist models?

Similarly, the answer to “How will CSR be affected by the financial crisis?” depends on how deep CSR runs within the organisation – is it superficial philanthropic CSR, something more strategic or embedded, or even the more revolutionary CSR 2.0 version? Either way, the recession ahead will not only be an acid test for companies’ CSR commitment, but for CSR itself. It may very well be that the time has come for CSR to adapt or die.

Food for thought: The NON financial crises and CSR

In the midst of the financial crisis media hype, it is easy to forget that other "non-financial" crises continue unabated. I am particularly struck at the moment by the food crisis and its implications for CSR. Here are some of the facts, according to Oxfam:

• The number of malnourished people in the world rose by 44 million in 2008
• In the horn of Africa, 17 million people are on the brink of starvation
• Five months after countries pledged $12 bn to the global food emergency, less than $1 bn has been given
• Meanwhile, over 30% of the world's grain crop goes to feeding animals rather than people directly
• And food companies continue to see sales and profits rise, e.g. Nestle's global sales rose 8.9% January to June and Tesco saw profits up 10% from last year

Of course, food is not the only silent crisis in our midst. A recent study by Pavan Sukhdev, the Deutsche Bank economist who led a European study on ecosystems, reports that we are losing natural capital worth between $2-5 trillion every year as a result deforestation alone. Compare that with the losses incurred so far by the financial sector of "only" $1-1.5 trillion.

As George Monbiot argues in The Guardian, the two crises have the same cause. "In both cases, those who exploit the resource have demanded impossible rates of return and invoked debts that can never be repaid. In both cases we denied the likely consequences".

What are the implications for CSR? Are we seeing a food crisis looming at the macro-scale similar to what we saw in Zimbabwe at a micro-scale? And in this case, do companies with operations in developing countries need to start thinking about food security as one of their first and main CSR priorities? Or perhaps business should be lobbying Western governments to deliver on their aid promises? Maybe companies, with their vast land ownership and excess capital, should be the leaders in a reforestation revolution on a massive scale?

One thing is for sure, both the food and ecological crises are likely to get worse rather than better in the coming recession years. And companies, especially those in the food and extractives sectors, are going to find it increasingly hard to justify excessive profits when people around the world are dying from starvation and the world's lungs are being damaged by cancerous economic growth.

Financial crisis: Beyond reasonable greed?

"Greed is good". Remember the phrase immortalised by Michael Douglas who played Gordon Gekko in the 1987 movie Wall Street? Well, the world has more than lived up to these words by pursuing the principle that excessive greed is even better.

This was the opening gambit for my first book, entitled "Beyond Reasonable Greed", co-authored with Clem Sunter and published in 2002. Now, watching the financial crisis snowball over the past few weeks, I can't help feeling a sense of deja vu. Here are some extracts, which seem even more relevant today than they were when we published the book in the wake of Enron's crash:

"Bad magic has moved many companies into a state that is beyond reasonable greed. And the public have a good idea of the boundary between ‘reasonable’ and ‘obscene’. For example, we have had several disclosures on the size of individual packages and the terms of share incentive schemes which have caused tremendous hue and cry. They have been clearly out of wack with the norm. To give companies the benefit of the doubt, they may not have consciously exceeded the limits of reasonableness. Their boards probably comprise the normal spectrum of saints and sinners; but somehow they have allowed themselves to be collectively swept along by the prevailing paradigm of success which is purely financial, and that in turn has led to unreasonable behaviour.

We are reminded of the African tale of the Earth Mother placing a fig tree into the care of a troupe of monkeys. However, the monkeys not only ate the fruit, they stripped the bark and broke off the branches as well. In other words, they went beyond reasonable greed. When the Earth Mother returned, the fig tree had withered and died and the skeletons of the monkeys lay scattered on the ground. 

As the title of our book suggests, we do not expect humankind to dispense entirely with its selfish side. We will always want some measure of success in material and spiritual terms for ourselves and our families. But when an individual, a family, a clan or a nation pursues its self-interest to the point of unreasonable greed, the whole system risks collapse. We all have heard of the American dream: the idea that anybody can become a ‘somebody’ in the land of freedom and opportunity. That dream will end in tatters if it doesn’t become more universally applicable – to anybody anywhere in the world.

Bluntly put, we are seeking a Reformation in business along the same lines as the one precipitated by Martin Luther in 1517. On October 31 of that year, he wrote an attack on the sale of indulgences (remissions of punishment for sin) in 95 theses which he nailed to a church door.  His basic point was that the Church had become too interested in enriching itself at the expense of its true mission of providing spiritual leadership. It had lost the support of the population at large with its mercenary practices and obsession with grandeur and wealth.

In exactly the same way, the modern corporate world has lost the confidence of the person in the street. The high priests of business – the board of directors – are perceived as just another example of a group of privileged people driven by unreasonable greed and feathering their own nests. The customers and shareholders come a poor second and other stakeholders trail even further behind. The modern equivalent of indulgences is an astronomical salary, a large wad of share options and a corporate jet. And the modern equivalent of the flowery and unintelligible prayers which the Church used to recite in order to extract its indulgences from the peasantry is the purple prose and lofty sentiments expressed by companies in their mission statement, combined with a set of accounts that only the initiated can understand.

Eventually, we hope to persuade you to join us in starting a chain reaction where one day the international community will say: it’s a miracle how business has turned its back on unreasonable greed. Mahatma Gandhi summed up our message better than we can: “The Earth has enough for everyone’s need but not for everyone’s greed”.

Guest column: Crane & Matten on CSR and the financial crisis

CSR Professors Andrew Crane and Dirk Matten of Schulich Business School, who I've been spending some time with this week, have been tracking the implications of the financial crisis on their blog (http://craneandmatten.blogspot.com) for a few weeks now. Here is one recent entry:

"As the turmoil in financial markets continues unabated, some of those in the responsible business arena are considering what the likely effects of all this are going to be on the practice of CSR. The last decade or so has seen a seemingly unstoppable rise in interest, attention, and action on CSR issues, at least from some quarters of the business community. But with recession around the corner (or apparently already arriving for some countries), what is the prognosis for responsible business when times are haOut here in the blogosphere a range of opinions are circulating. One post that has gotten quite a lot of attention came from Adam Jones of the Financial Times, who was among the first to raise the issue, and ended up somewhat hedging his bets:

"I suspect there are lots of Milton Friedman-reading managers in the private sector who grumblingly tolerated CSR programmes during the boom and would now love to get rid of them on similar cost grounds. Instead of throwing the money changers out of the temple, it would be a case of throwing the CSR priests out of the marketplace. But that would be a pretty dumb move at a time when the public mood is for more accountability and regulation, not less."

Reenita Malhotra, writing on her "Inspired Economist" blog, focused on the specific effects on CSR in the investment banking industry, arguing that such enterprises should be protected exactly because of their positive social benefits:

"A high return on investment has enabled many of the investment banks to show a solid to commitment to corporate social responsibility in the last few years"

Taking an opposite point of view, Nic Paton at the online resource Management-Issues suggested that a lack of attention to genuine CSR was actually to blame for the crisis in the first place:

"While many companies believed they were engaging in corporate social responsibility, they were in fact missing the point. Truly responsible business, rather than chasing a fast buck and in the process taking overly dangerous risks, would have considered the interests of all those who had a stake in their business."

Finally, Mallen Baker, writing for Business Respect, has taken a similar line, but has also sought to move the debate forward by looking at what this should mean for practicing CSR in the future

"Bear Stearns produced no CSR report of any sort. Lehman Brothers did not produce a CSR report, but they produced a philanthropy report. Even if they had gone further, it seems unlikely that the complex nature of how they created wealth would have been a feature. Now it needs to change. If anything is to come out of this, it has to be that corporate social responsibility once and for all leaves behind the philanthropy tag, and we see clear focus on two areas:

• How we create a different ownership structure for businesses where responsibility for consequences is a more real feature of share ownership.
  
• That the oversight and accountability demanded of companies now goes into the detail of how they make their money - and what are the consequences of their actions.

Two months ago, such concepts were unthinkable. Now they are essential."

Pretty profound stuff. But the prognosis for CSR is, as far as we can see, far from clear. Changing ownership structures for businesses seems a long way off, unless by this Baker means the movement into public ownership of banking institutions in the UK, US, Iceland and elsewhere. But somehow we doubt that's what he is getting at.

So, really, it's probably too soon to say for sure what will happen next on the rocky road of CSR. But hopefully our poll at the top of the page will give some indication of where our readers think it should be heading....