David Vogel Interview: Conversations with History; Institute of International Studies, UC Berkeley

Business, Government, and Ethics in an Era of Globalization; Conversation with David Vogel, Solomon P. Lee Distinguished Professor in Business Ethics, Haas School of Business, University of California, Berkeley; July 11, 2007, by Harry Kreisler

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Doing Good while Doing Well

One of the major themes in your work is this question of doing good in the world and getting business to respond to those initiatives. Your book published by Brookings, The Market for Virtue, addresses these issues, and I would like to talk a little about that, and then pick up some of the environmental issues. At one point, in talking about the United States, you quote Huntington: "In the United States the single all pervasive 'ought' rampages wildly beyond the control of the 'is.' The result is a unique and ever-present challenge posed by the gap between the ideals by which the society lives and the institutions by which it functions."  I think this is in the earlier book, but it struck me as very relevant to the "Virtue" book, because we are a leader in the world, in activist groups defining an agenda ...

I don't think that's true anymore, actually.

You think it's coming from elsewhere?

I think it's very global, and I think activist groups, NGOs pressuring firms, are now actually more active in Europe than in the U.S. London has become much more of a center for global NGO activism than the United States is. No, I think there's a lot of pressure in the U.S., but European NGO activism has really mushroomed in the last five, ten years, and if you look at ethical consumption of fair trade products, things of that sort, the demand for them is much higher in Europe than in the U.S.

Now the bottom line in all this, as you point out, is the relationship between ethics and the business of making money, which is what business does, and you're suggesting in this book that there is a basic conflict in how these two things can go together.

Right. The book was written because the dominant perspective on corporate responsibility within the business community, and by most academics who study it, and professionals in the field, is that the two go hand in hand, that you need to do well to do good and to do good you will do well. I think that's pretty naïve and simplistic. I think you can do good and do well, but I don't think being virtuous is either a necessary or sufficient condition for being profitable.

In your book you analyze questions such as the environment, labor practices, and so on. I believe you're saying that the results are evidenced but they don't have the broad impact within particular companies or across companies that one might think was the case.

Corporate efforts are very uneven, some as window dressing, some more substantive, but the more interesting question is the overall impact of the corporate efforts, not on the companies but on the problems they're designed to address, and here I think it's very sporadic. We don't have a lot of good evidence but the more we study it, the more we see that there are isolated areas in which corporate social responsibility has made a difference, but they're isolated, and there are many huge, important areas where the impact has been quite disappointing.

There are various tools employed, voluntary agreements, and so forth. What is the overall assessment of the tools? Don't they accomplish what the framers originally intended?

The problem is that when the tools make business sense for companies, and they can help them deal with risks, improve their supply chains, etc., they can work, but when the tools run up against economic interests, when they threaten to impose costs, then there are real limits to how well they work. Private enforcement is very difficult and without legal penalties.

You're talking about voluntary agreements.

All these codes, yes.

For example, to limit the diamond trade and not buy diamonds from [human rights violators].

Right. These are very hard to enforce, they're hard to monitor without legal sanctions. They basically will only work if the companies and the suppliers and the consumers buy into them -- essentially believe in their spirit and find it in their interest to work out; and I think that happens fairly rarely.

Labor standards are a clear example. The fact is that companies mostly care about low costs and they need to keep their prices down, and that interferes with the ability of their suppliers to treat their workers better. Consumers, also, by and large, care about prices and style, not about how products are made. Those are major constraints on, for example, in this very important area, the impact of corporate codes on labor standards. In fact, there's a growing amount of evidence that those codes, by and large, although they've reduced some of the most flagrant abuses, health and safety, harassment, etc., when it comes to areas like overtime, unionization, wages, their impact has been extremely modest.

You don't get the best result possible, but the second best is better than nothing.

It depends what your benchmark is. On balance, it has made the world a better place in many areas. Has it made the world a much better place? No. Is it capable of making the world a much better place? Well, maybe at the margin. How does it compare to the role of government? Well, when you don't have effective state governance, CSR [corporate social responsibility] is a good second-best alternative. But when you have effective state governance, then that's much better.

Is it a case that we're getting a lot of symbolic results that may, in fact, make activists in the wealthier countries feel better about the implications of their own lifestyle, the products they buy, and so on, or is that too cynical a view?

There's a little of that. I wish actually there were more of that, but I think the interest of consumers in so-called ethical consumption is very limited, very uneven, very sporadic. It's confined to relatively few people and relatively few products. Something upwards of 90% of the things that we buy and services we consume all day long, we just don't bother to think about these issues. That's built into the nature of the market economy. There are ways that we can engage in ethical activity through charitable contributions, through engaging in political activity, etc. There are other vehicles that we have to express our values. The marketplace, on the whole, does not seem to be, in most cases, a very effective vehicle for people to express their values, though in principle it would seem like a perfect vehicle, that you can essentially vote your values every day. That's part of the hope and claim of the CSR movement, that they can politicize consumption and make consumption into an arena for political activity. The reality is that it's very sporadic. I don't see that changing.

To what extent do the Europeans have a better record with regard to their companies than the United States?

I don't think European companies are any better or worse. I think across the board it's pretty stable. You have some good examples in the U.S. and some poor and some good examples in Europe. I don't think it's better examples [in Europe]. I don't think that European firms are on balance any more responsible or less responsible than American firms. I think the pattern is quite similar.

What is the analysis then of this interplay between activism and the medium for change? [Your analysis] offers a somewhat pessimistic view.

Yes, I'm reasonably pessimistic about the potential of corporate responsibility. There are success stories and there will be continue to be success stories, [but] they're going to be unusual, sporadic, uneven, isolated. I don't see it as a generic pattern of responsibility. If we care about making companies behave better, we need to legally require them to do so. In some cases we do that, in many cases we don't.

Does this skepticism apply also to the efforts of the private philanthropy that emerges from corporate wealth and the efforts of individuals such as former President Clinton to work at changing the world by influencing corporations? Are you as cynical with regard to that area, or not?

Only moderately less so. Some of the initiatives, for example, the Gates Foundation's on distributing drugs and medical care in developing countries, are very important and consequential. In other cases, it'd be nice to see what it all adds up to.

One of the paradoxes of the whole philanthropy, social investment, corporate responsibility, and social enterprise movement is there seems to be a lot of input, a lot of activity, but I don't see really much systematic evidence of output. Show me a particular issue or problem, and injustice, an abuse which these efforts have significantly, in some measurable way, ameliorated. There are isolated areas but it's still pretty isolate. So, the verdict is out. I'm skeptical but I'm open to evidence about these impacts.

Some areas, micro-lending, for example, seems to have been quite effective in having a positive social impact, and some of the efforts on global climate change, the voluntary efforts, also seem to be constructive and useful. There are isolate areas, but I think they're atypical.

It's about getting governments to create laws that enforce the implementation of these new standards.

Yes. If you look back historically, the U.S., Europe, and you ask in which areas we have made measurable substantial improvements in corporate performance -- environment would be one example; not discriminating against workers would be another example in the U.S. -- I don't think there's any question that the key driver has been regulation and policy. Once you have regulations in place, companies can then exceed those standards, they can make a good-faith effort to comply with them, there can be room for private initiatives. But without the bottom line, the minimum threshold set by the state, it's very difficult to get lots of companies to make lots of changes.

Can this only happen at the national level, where you have national legislations, or is Europe evidence of the fact that at some mid-level range you can achieve things, [such as] in the European Community? What are the implications of that for global regulations?

We have some effective areas of global regulation. Ozone depletion, for example, is a very effective area. Some of the other areas, endangered species, whales, etc., have had fairly effective global regulation. We have had some areas of effective regulation, but they're few and far in between. The concerns about corporate responsibility have precisely emerged out of a frustration about the inability to have effective global governance in so many areas -- labor standards, forestry, etc., and therefore, the CSR movement becomes a substitute for effective global-state based governance.

So that the effort to achieve something on a global level is less successful, but then you get an impact at the national level if you get groups organizing within the national polity.

I'm not sure they get the impact at the national level, but these global pressure on firms -- these corporate codes are essentially private treaties, if you will, which in principle commit companies to do this and that. If you think about it more broadly, the impact of these private codes is probably not much better or worse than the impact of most international agreements, human rights agreements, the ILO, also which are very tricky, very soft laws, very uneven enforcement. If you compare private global regulation to public global regulation, they look pretty comparable. If you compare private regulation to state regulation, then state regulation looks a lot better. Depends on your benchmark.

You are suggesting and mentioning the Bill Gates Foundation, and one can think of Branson, the head of Virgin, where there is an idealism motivating one or another corporate executive, but you're suggesting the real result comes if it's an identifiable area that they focus on to achieve good. Then there're greater possibilities there for something.

Yes. The Gates Foundation is important. Private philanthropy can play a very important role, but this is not Microsoft, this is Gates. The standard CSR argument is that companies will do these things, it'll make them more profitable; but this has nothing to do with Microsoft's profits. The Gates Foundation is in the tradition of Carnegie, Rockefeller. They didn't make a business case for corporate responsibility, they were ruthless, profit-seeking people in their business roles and they took their resources privately and distributed them in very important ways.

Private philanthropy at that level has played an enormous constructive role. The impact of Rockefeller and Carnegie on America, for example, has been extraordinarily positive, and I think Buffet and Gates can play a similar role. The Ford Foundation plays a very important role in private philanthropy, and one of the things which is interesting and exciting is the overlap where you're beginning to get essentially philanthropic organizations funding either for-profit or social ventures which are non-profit but are meant to be financially self-sustaining, like the micro-lending.

It's almost a fourth sector emerging. You have the public sector, the private sector, then you have the nonprofit sector, and this is sort of the commercial nonprofit sector. The Google Foundation, for example, is essentially giving seed money to support business ventures which will will be financially self-sufficient, mainly non-profit, but will also have some public impact. So, there's a lot of interesting activity there. That's a new development which a lot of people are very excited about. I think it's too early to say what overall impact it will have. Maybe ten years from now I can write a book evaluating its impact. I think it's an exciting development, but it's too early to say what its staying power will be.

Beyond what you just discussed, do you think that the entrepreneurial wealth coming out of Silicon Valley, and the group that made that money, are distinctive in a way that their predecessors and other corporate fields were not in terms of what might be achieved?

No, I don't think they're distinctive. I think there's been a long tradition in America of wealthy people who make a lot of money in business and who become very generous philanthropists. That's been a strong pattern in the U.S. that I think comes in some ways out of the Protestant ethic, U.S. religion traditions. It's been very strong, and I think it continues. There's a lot more money around now, so of course you're seeing more of these initiatives, but I don't think it's anything historically different than was true in the past. I think Buffet and Gates are very much within the American tradition of people essentially giving away large fortunes.

Do you think the problem of corruption in business is worse in this recent period than it has been in earlier periods? Because there's obviously a lot of press about that ...

You mean within the U.S. or globally?

Within the U.S., first of all.

No, I think it's probably always pretty much the same. There are always issues, always things you can investigate and be outraged about. I don't think it's much worse or better. The corporate ethics movement would argue it's better. I'm not so sure it is. They would argue that there's been progress, companies are more ethical. I think that abuses -- not corruption, but simply abuses of consumers -- very unethical activity by companies which skirts on the border of legality, some of the lending policies, for example, [preying on] poor people, [unethical] mortgages, etc. -- those things are kind of ubiquitous. In a market economy you will always get people who will cut corners and take advantage of other people. I don't think that's getting any better, I don't think it's getting any worse. I think that's just the price you pay for capitalism.

So, I guess if students were watching this interview and they either were concerned as activists or researchers about ethics and business, my sense is that you would say there are real limits to what reality allows, but the idealism is still worth the effort.

Yes. Certainly the good news is that there are companies which can be profitable and ethical, and that's encouraging, and that sends a very good message to business students, that you don't need to be corrupt and irresponsible to make money.  On the other hand, there's also a large place in our economy, or at least not a trivially small place, for irresponsible, crooked, corrupt, unethical people to also make money. Students can make choices.

The good news is students can make choices, but the bad news is that the market system doesn't result in a uniform improvement in business ethics.

Well, on that note, David, which was partially optimistic but partially pessimistic, let me show your book again, The Market for Virtue, which is a good book for students and others who are interested in these issues [and who hope to understand] the limits of what can be accomplished. Thank you very much for joining us today.

Thank you.

And thank you very much for joining us for this Conversation with History.

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