Twenty years ago the social contract in America and most western countries was clear. Governments took care of society and made sure business could operate effectively, business took care of business and growing the economy, and nonprofits and charities filled in the chinks in the social fabric that governments missed. Corporate social responsibility in this contract was fairly simple to understand. You paid your taxes, obeyed the law, employed and treated people fairly, and gave a little money to charity.

Today this social contract is fast unraveling, and as it does, business is suddenly finding itself expected to play a different role in society. Last September’s Hurricane Katrina disaster highlighted this changing role. Fortune proclaimed “Crisis Management: When Government Broke Down, Business Stepped Up.” One article noted “Wal-Mart employees arrived so early in the disaster area that they often wound up running their own relief efforts. If the federal government would have responded as quickly as Wal-Mart, we could have saved more lives."

What is happening here? Why did business seem more capable of responding to disaster than government?

Part of the answer is because government simply no longer has the capability to maintain its end of the traditional social contract. In the last two decades, governments have seen their power and political legitimacy steadily eroded. On the one hand, disaffected voters have demanded a roll back of an inefficient and bureaucratic welfare state. On the other hand, increasingly powerful international financial markets demand that governments balance their books and reign in spending on social programs. In the United States, discretionary federal spending on social programs shrank from 70 percent of the federal budget in the 1960s to 28 percent of the federal budget by 2003. The result is that by 2005, 61 percent of Americans said they do not trust the government to do what's right on social policy. Global polls show similar declines in confidence in governments around the world with few exceptions.

In contrast to governments, the private sector has seen remarkable growth in both economic power and political influence over the past two decades. Twenty-five of the world’s top economies are now businesses. A rough estimate suggests that the 300 largest multinationals own or control at least one-quarter of the entire world's productive assets, worth about $5 trillion. These companies’ total annual sales are comparable to or greater than the yearly gross domestic product (GDP) of most countries.

Given this shift in the relative power and influence of government and business, it is not surprising that the social contract that defined the welfare state is now collapsing. As we work to define a new social contract, nowhere are expectations higher than for business. Citizens expect and believe that business should be doing much more. We are seeing increased demands for business to visibly demonstrate its accountability and responsibility to society through responsible business practices. In a relatively short period of time we have seen an explosion of “extra legal” codes of conduct for business and a demand for social reporting that demonstrates accountability from the supply chain to the environment. At the same time, citizens are also looking to business to be a leader and/or partner in working with governments and civil society organizations to find and support solutions to a wide range of social challenges, from AIDS and global poverty to education and inner city redevelopment.

In this environment it is clear that “charity” is no longer a sufficient response to meet society’s expectations for business. The challenge to business now is to actively engage with governments and civil society in defining a new social contract that is realistic and achievable and will ensure continued social well being. The great value business can bring to this new social contract is not simply philanthropy but, much more importantly, its entrepreneurial approach to problem solving and the organizational drive and resources that can help contribute to practical and sustainable solutions to systemic social challenges.

So, is this the end of corporate philanthropy? How do corporate philanthropy managers remain relevant to the business? What role can they play in helping their companies address the challenges and find the opportunities in this new emerging social contract? These are just a few of the questions The Center for Corporate Citizenship is exploring with leading companies in programs such as our CI Leadership Roundtable, which is designed to assist current and future leaders in corporate community involvement to be aware of and prepare for changing public policy and public expectations for corporate engagement on social issues.

What is clear from this work is that corporate philanthropy and those who manage it have the potential to be critical assets and drivers in helping companies make the transition to a new social contract. It is a challenging journey with enormous potential. It requires, however, a new orientation to the way philanthropy managers see and manage their role in the company. It requires the capacity to listen to and engage a myriad of key stakeholders that have interest and influence in today’s global society. It requires leadership and philanthropy managers to see themselves as change drivers, helping their companies see outside the box and innovate to meet the challenges of this new environment. We are convinced, based on the work of the Roundtable, that there is bright future ahead for those that commit to this journey.

The Roundtable's next meeting will be held March 23-24, 2006 at the Peabody Hotel in Orlando, Florida – in conjunction with The Center’s annual International Corporate Citizenship Conference, March 26-28.  For more information, contact Billy Brittingham at 617.552.2555 or brittiwi@bc.edu.