Corporate Responsibility with Prakash Sethi

Prakash SethiPrakash Sethi

Matt Smith:

This is the La Trobe University podcast. I’d be your host, Matt Smith. Good morning, good afternoon and good evening; it does all depend on where you’re standing. Joining me today is Professor Prakash Sethi from the City University of New York. Thank you for joining me today. Now you’re here to talk to me about corporate responsibility and how does it work.

Prakash Sethi:

Corporate responsibility depends on which corporation you’re talking about and for which people you’re talking about their responsibility. The two things are very different. We talk in generic terms in the sense that a company as a corporate citizen of any society has certain obligations, certain responsibilities that go beyond the normal business of making money in the sense, treating your workers right and everything else.

But there’s another kind of responsibility in the sense to what extent a company exploits the common good and to what extent a company contributes to the creation of common good. To me that is what I talk in terms of corporate social responsibility. And the second phrase is, holding the corporation accountable for what its role is as a socially responsible corporate citizen.

So we don’t talk about corporate social responsibility without the second sub-clause, corporate social accountability. And so clearly, you would have something at the generic level. We should all treat our fellow human beings right. But in practical terms it depends on the corporation, the context of its business activity and the people or the institutions that are adversely impacted by the company.

So in that sense corporate social responsibility means what would normally be expected of a responsible company under a given set of circumstances. So you could be very good to shareholders, but awful to your customers. Is the company socially responsible? Yes as far as the shareholders are concerned. Is it socially responsible in terms of the customers? No, it is not.

So making a generic statement really doesn’t add much to our learning in terms of everybody is socially responsible. Everybody is a good person. But it depends on where you are.

Matt Smith:

What benefit is there to a company to be socially responsible?

Prakash Sethi:

I don’t really care what the benefit is to the company or not. What would the company suffer if it was not socially responsible is an equally important question. Yes, you could abuse the customer and using a very narrow-minded example, say you’ll make money today. But what if all these customers lose faith in you and don’t buy your products? So essentially, you are not saying, “What’s good for me?” But you should also say, “How would I be hurt if I don’t do what is not only good for me, but for somebody else?”

You live in a society, you work in a society and therefore there are certain expectations that society makes upon you. At the very minimum level, those expectations are the laws. The minimum wage law, the minimum working hours laws. They’re essentially societal expectations. But laws never lead social change. It almost always follows social change. If all of us decided child labour is bad, the law would change.

So what I look at social responsibility is we know social consensus expectations are changing. And therefore, if I do those things voluntarily I’m being a forward-looking member of the community. If I don’t do it, the society will impose its conditions. Societal expectations constantly change. And if you don’t constantly change with them to narrow the gap, society will impose conditions on you.

So essentially, at the most elementary level, social responsibility is trying to understand and anticipate changes in societal expectations. And meet them in a manner that plays to your strength rather than to your weaknesses.

Matt Smith:

So what sort of work have you been doing with Mattel?

Prakash Sethi:

Mattel work is very interesting and extremely unusual in the sense in China and other developing countries you always hear about working conditions. You always hear about abuse of workers, child labour, everything else. And the companies claim that they have their own standards which they abide by and therefore in their factories or the factories they buy from them are above the minimum standards. The Chinese law is very good but Chinese practice is non-existent.

So the Chinese law is just as good in terms of employment standards as yours or mine would be. But if the what we call “law in books” and “law in action”, in most societies the gap between law in books and law in action is very narrow. In China, it is very large. And so if you simply depended on saying, “There’s a law in the books. I don’t have to do anything.” You would be way off base.

And so what we are trying to do or what these companies do to their Codes of Conduct is say that, “We are trying to make law in action as good as the law in books are through our Code of Conduct.” In practice this is not so. They all would say, “We have a Code of Conduct. Trust me, we comply with it.” There are industry groups that make the same claims.

Mattel got into a crisis situation at one time, long before I knew them. In the sense that one of the factories which made Barbie dolls for them, without Mattel’s knowledge that company was using 15-year old girls while the law in Indonesia is 16 years old.

Matt Smith:

So child labour

Prakash Sethi:

Child labour, and we have a program in the US called 20/20 which is an investigative journalism program. Two people from that program happened to go to that factory with a placard saying, “Great American apparel company, we are here to buy some toys and some clothing. We want to see which factories we choose.” And the factory manager was overly anxious to please them.

They were walking around, they said, “You have a lot of young girls working.” He said, “Yes, they are very good because they can use their fingers more nimble than the others can do.” He said, “Our orders are going to be a big order and we want everything by Thanksgiving to make sure that the Christmas sale...” “Don’t worry about it. Our workers can work a lot of hours.” All on tape. It showed up on national TV. And Mattel didn’t even know about it and they said, “This is not what we do.” But the point is the factory owner’s son admitted that they’re doing it.

Anyway, Mattel had a policy. Mattel would not employ children to make toys. And every other company said the same thing. So they decided that they want to have a standard of credibility that people would believe in. I didn’t know them, they didn’t know me. I don’t know how they found out about me. I had been writing about Corporate Codes of Conducts and what needs to be done to have some teeth in them.

They came to me, they said, “Would you work with us?” Took me about six months to figure it out and I said, “Yes, I will. But here are the conditions.” I said, “I don’t need a Code of Conduct. I need details about how this code would work.” Every code says, “We will treat our workers right.” I want to know what that “right” means. Does it mean 60 people in a dorm room or does it mean five people in a dorm room? Does it means two fans or a latrine 60 yards a way or does it mean hot and cold running water?

So we worked with the company to create detailed operational standards that nobody had ever done before. So for China we had a 60-page long compliance checklist. So if you go to a factory we’ll say the factory cannot have more than 16 workers per room. The minimum square footage per worker should be so and so. Every worker should have a private locker. All kinds of conditions, which was not done before.

And then we would randomly choose a factory, any factory we want to in the cluster of their main factories and we would take a team of people there. Depending on the number of workers, we would take six or seven Chinese young women and men, essentially the same age group that the workers are, very conversant with the local dialect of those workers. Then we would randomly choose a group of workers in a way that the group would represent statistically the entire worker population. Then we would create our own questionnaire in New York, translate them in Chinese and then these workers would be interviewed one on one, in private for about 45 minutes each. And we’d ask them all kinds of questions. Then we take the information.

Then what we would do is we will take I think a chief accountant and about six or five, depending on again the size, of payroll analysts. These are the people who work on Chinese books. They would take the employment data, the work record, and the wage data of the same workers that we interviewed. They would take that data and the worker data home and match them. If they don’t match, the company is in trouble.

Based on that we would prepare a report which we would give to the company. This is our draft report. The company would have 30 days to come back to us with three answers; “We understand you made statements but they’re inaccurate because you did not read the data right.” In other words, they would provide us with convincing evidence that we made an error. In that case, we would take that finding out of the report.

The second idea is, “Yes, you found these problems in terms of dormitories or in terms of food or cafeteria, wages. Yes, we agree with that and here is how we will fix it.” There would be a timeline, there would be performance standards and if we agree with that, that’s fine. The final report would say that these were our negative findings and this is the company’s response. The original findings are never omitted. The public knows those findings.

And the third thing is they say, “We don’t agree with you.” In that case, we would publish our findings and the company’s response at the same time in public. It’s never happened because the company cannot simply afford to say, “We don’t agree with you.” They have to have a reason for it.

Matt Smith:

They couldn’t afford to lose the business either I suppose.

Prakash Sethi:

Yes. They could lose my business, which is not very large business. That was our business. We could walk away from it. The first set of reports came in, people didn’t believe it because it’s like selling used cars. Everybody makes the same claim. How do you know which claim is valid? So our credibility was on the line and unlike any other company or industry group we put our entire report on the website, our website and the company’s website. If you don’t agree with it, look at it, tell us where we did wrong.

So after the third or the second iteration, that became the Rolls Royce standard and the company is very proud of it. We are very proud of it. We’ve learned a lot from it. Not everything works. But people know that this company is finding mistakes, correcting them and fixing them.

Matt Smith:

Yes and they’re now setting an example to other companies that way.

Prakash Sethi:

Correct. But to the best of our knowledge no other company has chosen fit to follow that example.

Matt Smith:

It’s a big thing to undertake.

Prakash Sethi:

Yes and most companies feel it’s cheaper not to undertake it.

Matt Smith:

One thing that I wanted to ask you about is that you’re here to help launch a new course at Graduate School of Management. It’s a Graduate Certificate in Corporate Responsibility. Why is this sort of course is important and why is further education important in this area?

Prakash Sethi:

I want to be part of it because there are very few schools in the world that are doing it. The area is not developing and starting a new program is not an easy task in any university with a lot of bureaucracies. So I’m very challenged by it and I feel privileged that they’ve asked me to be part of it.

And so the idea is that we would work together to create a program. They already have a program, I would add some to it. And hopefully this program would become the Rolls Royce of CSR programs because there isn’t any. And the most important thing is this, companies right now are very aware the world has changed. They can’t simply give money to the local orphanage and say, “We are the good guys.” We ask them, “What are you doing about the climate change?” We are asking, “What are you doing about the pollution?” We are asking, “What about lead in the children’s toys?

So we are not asking questions about be good. We are asking them, “How does what you do as your main business impact society both positively and negatively?” Clearly positively, we want to accentuate it but negatively we would want to correct it. The question is this is a new area and in that sense, this program would be a real ground breaker.

Matt Smith:

One last question, is globalization ethical and do you think ethical global companies exist?

Prakash Sethi:

There is nothing ethical or unethical about globalization that’s working in different countries. It’s how you do it makes it ethical or unethical and that’s what we’ve been talking about social accountability. And so we want to make sure that we fill the gap between what the countries should have been doing to protect their workers but are unable to, to make sure that the companies do it.

Now mind you, good companies are willing to do that. But the problem is that the bad companies make it uncompetitive for them to do so because the worst offenders set the ground rules. We want to be sure that it doesn’t happen. We don’t succeed most of the time. We succeed some of the time but that’s more than zero.

Matt Smith:

Professor Sethi, thank you for your time today.

Prakash Sethi:

Thank you very much.

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