PAINE: Enron offers lessons not only for CSR advocates, but for anybody who studies organizations. It’s a powerful reminder that what’s visible is not always what’s really going on at the core — especially when you’re talking about large organizations. But it also shows that high-profile voluntary civic activities can sometimes mask unfulfilled civic responsibilities, such as obeying the law and paying taxes, which are also fundamental to good corporate citizenship.
Enron is a real case study in the difficulty of getting accurate information. But actually few companies have reliable systems for tracking and communicating ethical performance.
S+B: More companies are issuing annual reports evaluating social performance. And there are also many initiatives going on around the world to develop better measures of social performance and reporting standards. Progress on both fronts seems to be steady but slow. Do companies need to put more support behind these efforts?
PAINE: There are two separate dimensions of this issue. One is managerial. Do managers need a better way to understand the social aspects of their performance? I think they do. I frequently encounter managers who speak glowingly about their company’s high ethical standards, and yet they have no way of knowing what’s actually going on in their organization, because there’s no attempt to gather and measure any information. I’ve often said to people, “How would you react to a manager who told you that sales were better than ever, but had no sales data of any kind to prove it?”
The other aspect has to do with external audiences. Do investors and others have the information in this area they need? The information needs of managerial and external audiences are not unrelated. If managers don’t have good information about what’s going on, it’s unlikely that external parties will be in any better position to make valid judgments.
S+B: Because they don’t have good information or ways to measure performance either.
PAINE: Right. You can send your form to some person in a company who may fill it out, but then what information are they using to answer your questions? I do think measurement and assessment are crucial, but this whole discipline is only in its infancy. We have some methodologies, but they strike me as not really methodologies. They’re more like laundry lists of topics.
You see this problem not only in various attempts by external groups but also inside companies. How do you get your mind around what it is you’re doing and decide what metrics are most important? No company can pay attention to everything. Plus, there’s a wide discrepancy between what CSR groups say is important and what a typical ethics officer would say is important. For example, truthfulness and candor are essential in virtually every corporate activity — sales, accounting, research. But you rarely find this is an explicit part of CSR agendas. Obviously, we need a more coherent and comprehensive framework for evaluating ethical performance.
Business Schools and Ethics
S+B: What role should business schools play in inculcating this broader view of corporate social responsibility and ethical behavior?
PAINE: Until now business schools have not done a great job of preparing students for these challenges. Part of the reason has been this disconnect between the economics discipline and the ethics discipline. It goes right back to the training of faculty members. You get people who are trained in ethics or law or moral philosophy who don’t feel well prepared to deal with the financial side, and you’ve got people trained on the financial side who don’t feel very comfortable on the ethics side. The poor students are caught in the middle.