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Harvard Business School professor Michael Porter claims that “proponents of CSR (Corporate Social Responsibility) have used four arguments to make their case: moral obligation, sustainability, license to operate, and reputation.” (Porter & Kramer, 2006)

• Moral Obligation, deals with something that Professor Timothy Weiskel refers to as “the oughtness of things.” Porter suggests this is where “companies have a duty to be good citizens and to ‘do the right thing.’” (Porter & Kramer, 2006)

• Sustainability, “emphasizes environmental and community stewardship.” (Porter & Kramer, 2006)

• Reputation “is used by many companies to justify CSR initiatives on the grounds that they will improve a company’s image, strengthen its brand, enliven morale, and even raise the value of stock.” (Porter & Kramer, 2006)

• License to Operate, “derives from the fact that every company needs tacit or explicit permission from governments, communities, and numerous other stakeholders to do business.” (Porter & Kramer, 2006)

I believe you can rank these four arguments hierarchically as shown in the graphic below. In viewing it this way, a firm can choose which level it feels is appropriate, necessary or desired. Porter’s paper did not include these levels. It instead listed the factors independently, but I think the levels work to display the differing levels of commitment which a firm can make.

Level 1: License to Operate – To me, this seems an example of a lowest common denominator; keep the barbarians at bay mentality. You’re a step above legal requirements, but not making significant efforts to do anything beyond maximize profitability. “Many corporations no longer perceive their social obligations as necessarily synonymous with their legal responsibilities. Two decades of tightening regulatory rules and legal threats have led many businesspeople to assume that any hazards and harms that their enterprise engenders, even if not clearly illegal today, will sooner or later be subject to public censure, government action and legal liability. Community groups and NGOs have also come to play important roles in pressuring corporations to curb adverse social impacts.” (Guggingham, Kagan, & Thornton, 2002) A firm working at this level is attempting to stay one step ahead of the issues which would force it to close its doors. This is far from aspirational or inspirational positioning, but it is likely the most heavily populated level.

Level 2: Reputation – This takes the further step of working to protect the firm’s reputation. Making choices like using dolphin safe nets for tuna fishing may not make an operation sustainable, but they help minimize the reputational hits caused by perceptional issues.

Level 3: Sustainability – This, along with financial needs, is where those of us looking to transform business typically focus. We work to find ways to minimize damages and restore benefits, while operating profitable organizations.

Level 4: Moral Obligation - These are the things that no one can require you to do, but which decision makers believe the business is ethically responsible for doing. Few companies choose to operate at this level, but those who do are highly respected and are believed to command loyalty premiums due to their position.

So what do you think? Does this pyramid help clear the muddied waters of CSR? And do you see License to Operate becoming a more important factor for businesses in the future? (I do.) Finally, if you think License to Operate is gaining importance, how do you think it might change today's corporate status quo?

Please share your thoughts in the comments section below.

-Chris

References

Guggingham, N., Kagan, R. A., & Thornton, D. A. (2002). Social License and Environmental Protection: why businesses go beyond compliance. Retrieved March 3, 2012, from London School of Economics (LSE) Research Online: http://eprints.lse.ac.uk/35990/1/Disspaper8.pdf

Porter, M. E., & Kramer, M. R. (2006). Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review, 78-93.