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Friday, January 8, 2010

The Rational and the Reasonable: A Useful Distinction for Understanding CSR

In my work as a lawyer advising business clients on labour, employment and human rights issues I have found that there is a general confusion about two types of related but distinct forms of logic: the "rational" and the "reasonable". The distinction between the rational and the reasonable has been recognized explicitly or implicitly by philosophers like Max Weber, Chaim Perelman, and John Rawls. In my view, understanding the distinction is of essential importance to understanding Corporate Social Responsibility (CSR) obligations. Proper understanding of the distinction can allow business to maximize fundamental business objectives like profitability while ensuring social sustainability. Failure to recognize and act upon the distinction is a recipe for disaster. Let me explain...

Both rationality and reasonableness refer to the character of logical validity. If we say someone is acting "rationally" or "reasonably", we mean in both cases that they are acting logically. There are occasions where the terms will be synonymous. Sometimes however, there will be an essential distinction between the terms. For example, we can say that someone is acting "rationally", but that they are entirely "unreasonable". We may, to use a blunt example, say that a criminal acted "rationally" because they carried out their crime in a logical way. They have acted "unreasonably" however because we believe that crime is wrong. Such a statement makes sense because of the subtle difference between the terms. Rationality is a form of logic that flows from premises that are self-evident or incontestable. Such premises may be objectively or empirically verifiable. They may also simply be squarely within the personal preference of the actor under consideration. In this sense, economic actors are said to be "rational" insofar as they act upon their own preferences. Those preferences, as logical premises used to draw logical conclusions regarding the "rationality" of the economic actor, cannot be contested. We cannot challenge someone's preferences as "invalid" or "untrue". A person's preferences are their preferences, and as such are self-evident and uncontestable facts, to the extent they are identifiable.

Evaluations of "reasonableness" do not flow from self-evident premises. Instead, we evaluate reasonableness based upon shared preferences, or values, or other normative considerations which themselves may be subject to contestation because different audiences may have different understandings of what is reasonable or not. Reasonableness, as a question, is therefore determined by considering the preferences, values, or interests of a broader social audience than simply the actor being evaluated as "reasonable" or "not reasonable". For an assessment of reasonableness or unreasonableness to be logically true, the one making the assessment must give consideration to whether the criteria used to assess reasonableness are persuasive, and then consider whether the evaluated actor is acting in a way consistent with acceptable premises. Only then will the conclusion of "reasonableness" or "unreasonableness" have any meaning. Conversely, this means that a reasonableness assessment can be challenged on the basis that it has applied the wrong premises, meaning that the criteria of "reasonableness" are not persuasive and should not be used, or that the evaluated actor actually has acted in a manner consistent with such premises.

On the contrary, if a conclusion of rationality is drawn it will be valid so long as the premises are empirically true, and the evaluation is logically sound. Normative concepts, such as values etc., cannot be shown to be empirically true in this way (except to show that they are empirically shared by a salient audience and are thus appropriate for such an audience to use in a reasonableness evaluation). As such, reasonableness evaluation is not an empirical exercise, as much as it is an act of persuasion, employing the logic of argumentation.

If you're still reading this I thank you! Here's where it gets interesting. Social obligations, like CSR obligations, or law, are inherently normative. They are not "self-evident", in that they represent logical constraints that are founded upon normative values, which themselves are subject to contestation. The question of "compliance" with CSR obligations, or any social obligations for that matter, will therefore not be based upon a consideration of empirically self-evident premises. Instead, compliance with CSR and social obligations will be analogous to a reasonableness evaluation, and will employ the logic of argumentation. Compliance must therefore be considered in two stages (1) what premises/constraints (read: CSR obligations) apply AND (2) is the evaluated actor acting reasonably within such constraints? A determination of compliance (reasonableness) will necessarily depend upon the answer to both of these questions.

This distinction has great significance for making sense of how businesses must approach compliance with CSR. Inherently, CSR obligations will not be satisfied by "rational" arguments that are not persuasive to the appropriate audience. The appropriate "audience" in the case of CSR for most businesses will comprise legitimate stakeholders. Where a business has legitimate stakeholders that do not share a businesses profit objective, or that have interests or values other than that objective, then the fact of profitability will not be a persuasive argument for compliance. This may seem self-evident, but as an advocate for business, I can attest to the fact that it is often very tempting for businesses making representations or submissions to human rights or labour tribunals to attempt to over-rely on arguments associated with "operational efficiency" or "business objectives". Such arguments may be relevant, but they are not likely in themselves to be persuasive. That is because the applicable premises used in human rights and labour relations fora are based upon interests that are divergent from the profit motive. To be persuasive in such contexts, the business actor must be able to justify their "rational" interest within the applicable "reasonableness" framework.

This analysis leads to several useful conclusions for understanding CSR. If a business determines that complying with social expectations or obligations is desirable, then it must see business objectives as being pursued within the constraints of such obligations. For example, a profit maximization objective means that profit will be maximized insofar as the addition of profit does not violate these identified constraints. It will then become necessary to clearly identify what such constraints are so that they are not inadvertently violated. Once these constraints, which we may call "rules", are identified however, the business will be free pursue its objective to the greatest extent possible, so long as the rules are not violated. This is already how most businesses operate within the context of legal obligations, either consciously or unconsciously. The approach can be extrapolated to CSR types of social obligations.

Identification of constraints can best be done through consensus identification processes such as stakeholder engagement. Such processes allow business to identify the interests, values and normative frameworks of relevant stakeholders, so that the parameters of "reasonable" action can be determined in advance of action. Once understood, and allowing for the possibility that such norms may change over time, the business will know the parameters within which they can pursue their rational objectives (such as profit) in a way that is reasonable. Achieving such "reasonableness" is synonymous with achieving "compliance".

In conclusion, while it is tempting to view the rational objectives of business as being synonymous with reasonableness objectives like legitimacy, or compliance with social obligations like CSR or law, they are in fact quite distinct. CSR and law, once identified, should be viewed as constraints within which rational objectives can be maximized. Rationality and reasonableness are not either/or propositions. Instead, they are two different types of logic that can and should co-exist and that must be given consideration in the pursuit of business objectives within a CSR mandate.

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