Responsible innovation in industry: a cautionary note on corporate social responsibility

ABSTRACT

In their recent paper, “Responsible Innovation: A Primer for Policymakers”, Valdivia and Guston offer their definition of the emerging concept of “responsible innovation” (RI). To illustrate how “RI” operates in the policy arena, Valdivia and Guston present three initiatives focusing on industry, universities and national laboratories, and the federal government. This commentary, however, will focus only on the “industry” initiative and the concept of “corporate social responsibility”, which represents the managerial philosophy proposed by Valdivia and Guston to promote RI in industry. According to Valdivia and Guston: “CSR must be extended to innovation in emerging technologies in order for responsible innovation to influence both new entrants and incumbent firms working at the forefront of innovation.” An alternative managerial framework – corporate citizenship – is proposed that incorporates the concept of social responsibility into the organizational structure of the firm and is reflective of the ISO 26000 voluntary international standard on social responsibility. For RI, corporate citizenship is the managerial framework which will most effectively promote a concept which has increasing salience for advanced manufacturing economies concerned with biotechnology, nanotechnology, and information technology, and their respective ethical, environmental, political, and social effects on society.

KEYWORDS:

• Corporate social responsibility
• global corporate citizenship
• International Organization for Standardization
• new product development
• responsible innovation

1. Introduction

In their recent paper, “Responsible Innovation: A Primer for Policymakers” (2015, 2–3), Valdivia, fellow for the Center for Technology Innovation in Governance Studies, and Guston, Professor of Politics and Global Studies at Arizona State University, argue that the concept of “responsible innovation” (RI) “seeks to imbue in the actors of the innovation system a more robust sense of individual and collective responsibility” by pursuing a “governance of innovation where that choice is more consonant with democratic principles”. Furthermore, “RI appreciates the power of free markets in organizing innovation and realizing social expectations but differs with it in being self-conscious about the social costs that markets do not internalize” (Valdivia and Guston 2015, 2). To illustrate how RI operates in the policy arena, Valdivia and Guston (2015) present three initiatives, each with a distinct institutional focus: industry, universities and national laboratories, and the federal government. This essay, however, will focus only on the “industry” initiative and the concept of “corporate social responsibility” (CSR) that represents the managerial philosophy proposed by Valdivia and Guston (2015, 12) to promote RI.

From an industry perspective, identifying the most effective private governance¹ mechanism for firms (and industries) to promote RI will maximize the social welfare benefits for all stakeholders affected by technological innovation. To this end, incorporating RI into the respective company or industry new product development model is imperative. Relevant RI issues include: product liability (explicitly recognizing first-, second-, and third-order potential consequences); utilizing insights from “proxy” experiences with products having similar attributes; ascertaining how this emerging technology aligns with corporate values and citizenship policies of the firm and industry; recognizing how this emerging technology is aligned with the image and reputation associated with the firm and industry; considering how the status of a company, being privately owned vs. publicly owned, affects RI corporate governance decisions; the reception of a specific technology-based industry to establishing RI “best practices” through a “peak” industry association; and the limits established by intellectual property rights (trade secrets vs. patents) in a specific technology-based industry and its impact on the effectiveness of industry (vs. company) self-regulation² approaches to RI.

2. CSR and RI

According to Valdivia and Guston (2015, 12), management scholars have

recently reformulated CSR as a business theory that causally connects good stakeholder management to profitability (emphasis added) (Freeman 1984). The promise of long-term profitability (Burke and Logsdon 1996; Serafeim 2014) has promoted wider acceptance of CSR in the business community.³

Valdivia and Guston (2015, 12), however, have found that CSR and innovation are only discussed in two general contexts: social entrepreneurship, new ventures that are focused on addressing social issues, and clean technologies, focused on environmental consciousness. This CSR and innovation deficiency is problematic for Valdivia and Guston (2015, 12): “CSR must be extended to innovation in emerging technologies in order for responsible innovation to influence both new entrants and incumbent firms working at the forefront of innovation.”

The broad acceptance of the social responsibility concept by the international business community culminated in formal codification when the International Organization for Standardization (ISO) issued in 2010 a voluntary standard, ISO 26000 “Guidance in Social Responsibility”, intended for application by private, nonprofit, and public sector organizations. ISO 26000 defines “social responsibility” as (International Organization for Standardization 2010, 3):

the responsibility of an organization for the impacts of its decisions and activities on society and the environment, through transparent and ethical behavior that contributes to sustainable development, including health and the welfare of society; takes into account the expectations of stakeholders; is in compliance with applicable law and consistent with international norms of behavior; and is integrated throughout the organization and practiced in its relationships. (Emphasis added)

Specifically, ISO 26000 directly addresses seven principles of what makes up social responsibility: accountability, transparency, ethical behavior, respect for stakeholder interests, respect for the rule of law, respect for international business norms, and respect for human rights. Yet, while guidance in implementation is provided for companies, the ISO 26000 standard also recognizes that what social responsibility “means” ultimately varies from one company to another – leaving some of the same ambiguity in place regarding, for example, what a “socially responsible” firm is within the same industry.

Critics (and supporters) of CSR are particularly vocal about the inherent weaknesses of this concept when adopted among publicly held corporations. For example, Vogel, Solomon P. Lee Chair in Business Ethics at the University of California Berkeley, Haas School of Business, and supporter of CSR, argues that it only makes business sense if the costs of more virtuous behavior remain modest (2005). Moreover, Karnani, professor of strategy at the University of Michigan’s Ross School of Business, writes that when “profits and social welfare are in direct opposition, an appeal to corporate social responsibility will almost always be ineffective, because executives are unlikely to act voluntarily in the public interest and against shareholder interests” (2012).

Likewise, Mayer, Peter Moores Professor of Management Studies at the University of Oxford, further argues that CSR “was rightly dismissed as empty rhetoric and jettisoned when recession forced a return to more traditional shareholder value” (2013, 243). Lastly, Wellstein, co-editor in chief of the Business and Human Rights Journal, writes in her blog that CSR

is losing steam. Many – perhaps too many? – corporations have embraced it, but too often they seem to look at it merely as a new source for growth and profits or as an act of charity, rather than as a philosophy that transforms the way they do business. (2015)

In summary, while agreeing with Valdivia and Guston’s (2015) inclusion of “industry” in their development of the concept of RI, legitimate criticisms of CSR, including ongoing conceptual ambiguity, a failing benefit–cost ratio (for the corporation), embracing a philanthropy approach rather than philosophically transforming business, and managerial resistance to policies contrary to shareholder interests, reveal that it is easily manipulated and lacking in value. So, if not CSR to promote RI in industry, what is the alternative managerial framework applicable that utilizes both “economic incentives” and “a change in business culture?” One potential answer is found in the concept of “corporate citizenship”.

3. Corporate citizenship: an alternative framework for RI

An integrative, managerial approach which has been jointly developed by business academics and industry is “global corporate citizenship”. Post, professor emeritus at Boston University’s School of Management, argues that global corporate citizenship, like global business in the twenty-first century, is about values (2002, 144) and offers the following definition (2000, 8):

Global corporate citizenship is the process of identifying, analyzing, and responding to the company’s social, political, and economic responsibilities as defined through law and public policy, stakeholder expectations, and voluntary acts flowing from corporate values and business strategies. Corporate citizenship involves actual results (what corporations do) and the processes through which they are achieved (how they do it).⁴

This definition of corporate citizenship, unlike CSR, is explicitly focused on the company’s process of implementing socially responsible behavior and the measurable results of that behavior on society. Based on their extensive studies of the organizational processes underpinning the socially responsible behavior of hundreds of corporations, Mirvins and Googins (2006), of the Center for Corporate Citizenship, Boston College, have taken the concept of corporate citizenship up to the next level of analysis with their five-stage, evolutionary model of corporate citizenship (Table 1). This model involves seven dimensions, including definition and actions making up corporate citizenship; strategic intent (involving purpose and intended achievements); degree of leadership support; organizational structure of the corporate citizenship function; issue management response; level of stakeholder engagement; and public performance transparency. As they progress through each of the model’s stages, those companies embracing the corporate citizenship concept engage in increasingly complex and sophisticated patterns of organizational activity.

Table 1. The stages of corporate citizenship.

	Stage 1 Elementary	Stage 2 Engaged	Stage 3 Innovative	Stage 4 Integrated	Stage 5 Transforming
Citizenship content	Jobs, profits and taxes	Philanthropy, environmental protection	Stakeholder management	Sustainability or triple bottom line	Change the game
Strategic intent	Legal compliance	License to operate	Business case	Value proposition	Market creation or social change
Leadership	Lip service, out of touch	Supporter, in the loop	Steward, on top of it	Champion, in front of it	Visionary, ahead of the pack
Structure	Marginal: staff driven	Functional ownership	Cross-functional coordination	Organizational alignment	Mainstream business driven
Issues management	Defensive	Reactive policies	Responsive programmes	Pro-active, systems	Defining
Stakeholder relationships	Unilateral	Interactive	Mutual influence	Partnership	Multi-organization alliances
Transparency	Flank protection	Public relations	Public reporting	Assurance	Full disclosure

Note: Mirvins and Googins (2006, 108).

Mirvins and Googins’s (2006, 108) five “Stages of Corporate Citizenship” model consists of the following: Stage 1, Elementary, is “episodic” and such programs are “underdeveloped”; Stage 2, Engaged, where executive management “wakes up” and embraces “a new outlook on their company’s role in society”; Stage 3, Innovative, where executive management deepens its corporate citizenship agenda as top executives “assumes more of a stewardship role”; Stage 4, Integrated, involves an attempt by executive management “to integrate citizenship from top-to-bottom and throughout its businesses”; and Stage 5, Transformative, with the “strategic intent” of executive management being “to create new markets by fusing their citizenship and business agenda”. Stage 3 (Innovative), Stage 4 (Integrated), and Stage 5 (Transformative) are the advanced corporate citizenship stages where executive management needs to be situated to effectively address and implement the RI concept.

The ISO 26000 international standard recognizes that social responsibility should be an integral part of a business enterprise’s strategy, with assigned responsibilities and accountability at all levels of the organization be reflected in decision-making and considered in the implementation of a company’s operational activities. Yet, unlike the traditional view of CSR, which adds optional, socially desirable activities for a company to engage in (and just as easily disposed of when not considered “essential” to the shorter term success of the company), corporate citizenship is an applied, integrative approach to implementing socially responsible policies and behavior congruent with the fundamental values of the firm’s stakeholders and embedded in its organizational structure, operations, and performance metrics.

4. Corporate citizenship and RI in industry

In conclusion, the traditional concept of CSR has developed a vocal group of naysayers – and in this scholar’s opinion, justifiably so. An alternative managerial framework – corporate citizenship – is a twenty-first-century approach that both incorporates the integrative, sustainable nature of the concept of responsibility that is espoused in the ISO 26000 international standard, yet recognizes distinct categories of responsible organizational behavior which are based on identifiable corporate practices and subsequent measurable performance.

Corporate citizenship is a concept that has been embraced by the World Economic Forum (WEF), recognized as the international institution for public–private cooperation. The WEF’s membership comprises 1000 companies, typically multinational enterprises with more than 5 billion dollars in annual revenue (2015). Since 2002, the WEF has published reports and white papers, and holding sessions at its annual meeting in Davos, Switzerland, on the impact of corporate citizenship in business practices.⁵ Moreover, in its “The State of Corporate Citizenship 2014”, a research study that examines how executives view corporate citizenship and their firms’ performance in the environmental, social, and governance dimensions of business as well as how corporate citizenship contributes to business objectives, the Center for Corporate Citizenship, Carroll School of Management, Boston College, found that the majority of executive respondents, across all business types and industries, confirm that corporate citizenship helps them successfully achieve strategic goals, ultimately improving performance (2014).

For RI, corporate citizenship is the managerial framework which will most effectively promote a concept which has increasing salience for advanced manufacturing economies concerned with biotechnology, nanotechnology, and information technology, and their respective ethical, environmental, political, and social effects on society. With RI being actively considered in the corporate decision-making calculus in the earliest stages of the new product development process, industry will be able to actually anticipate potential technology-based scenarios and more effectively manage the negative externalities of emerging technologies on its stakeholders and society.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Thomas A. Hemphill, a professor of strategy, innovation and public policy, School of Management, University of Michigan-Flint, received his Ph.D. in Business Administration with a primary field in Strategic Management and Public Policy and secondary field in Technology and Innovation Policy from The George Washington University. His technology and innovation management publications can be found in: Bulletin of Science, Technology & Society; Innovation: Management, Policy & Practice; International Journal of Innovation Management; International Journal of Innovation and Technology Management; Journal of Responsible Innovation, Knowledge, Technology & Policy; Research-Technology Management; Science and Public Policy; Technology Analysis & Strategic Management; and Technology in Society.

Notes

1. Stringham (2015) defines “private governance” as “the various forms of private enforcement, self-governance, self-regulation, or informal mechanisms that private individuals, companies or clubs (as opposed to government) use to create order, facilitate exchange, and protect property rights”.

2. Self-regulation exists when a firm, an industry, or the business community establishes its own standards of behavior (1) when no such public statutory or regulatory requirement exists or (2) when such standards assist in complying with or exceeding existing statutory or regulatory requirements (Hemphill 1992).

3. In a November/December 2007 global online survey of 1122 respondents, primarily from Europe (42%), Asia (23%), and North America (19%), undertaken by the Economist Intelligence Unit, 53.5% of the firms responding agreed that CSR “is a necessary cost of doing business” and 53.3% agreed that it “gives us a distinctive position in the market”. Moreover, only 3.8% of the responding firms agreed with the statement that CSR was a “waste of time and money” (The Economist Intelligence Unit 2008).

4. Post (2002, 149) further elaborates on his definition:

There are two ways to approach the question. One involves substantive actions – a list of do’s and don’ts. Firms in many industries have developed policy statements and codes of conduct that are intended to guide their managers toward the right answer. The other approach is to focus on the process through which managers address the question of “what to do.” This involves education, as in helping managers reconnect to the idea of management as public work, not just private work. (Emphasis in the original)

5. Examples of these reports, white papers, and information sessions include the following: Global Corporate Citizenship: The Leadership Challenge for CEOs and Boards (2002); Principles of Corporate Citizenship: The Logistics & Transportation Industry Corporate Citizenship Initiative 2004–2006 (2004); Mainstreaming Responsible Investment (2005); “Corporate Global Citizenship in the 21st Century”: Session at the World Economic Forum Meeting (2008); Innovations in Corporate Global Citizenship: Responding to the Haiti Earthquake (2010); and Emerging Best Practices of Chinese Globalizers: The Corporate Global Citizenship Challenge (2012).