Corporate Social Responsibility

Stephen DeAngelis

February 05, 2008

Capitalism has been never been known for altruism. Marx wrote his Manifesto because he believed that capitalism was based on exploitation (especially exploitation of workers). Unscrupulous capitalists have searched for every possible shortcut to increase profits — cheap material, shoddy labor, and so forth. Eventually such practices catch up with those that use them; but not before a lot of harm has been done. Trying to keep both the consumer and the stockholder happy has proven difficult for some companies. More and more, however, both consumers and stockholders are coming to understand that corporate social responsibility is a good (and perhaps profitable) thing [“How good should your business be?,” The Economist, 19 January 2008].

“How wonderful to think that you can make money and save the planet at the same time. ‘Doing well by doing good’ has become a popular business mantra: the phrase conjures up a Panglossian best-of-all-possible-worlds, the idea that firms can be successful by acting in the broader interests of society as a whole even while they satisfy the narrow interests of shareholders.”

The Economist notes that global warming and high-minded young workers have both played a role in getting companies to “see the light.”

“These are high times for what is clunkingly called corporate social responsibility (CSR). No longer is it enough for annual reports to have a philanthropic paragraph about the charity committee; now companies put out long tracts full of claims about their fair trading and carbon neutralising. One huge push for CSR has come from climate change: ‘sustainability’ is its most dynamic branch. Another has been the internet, which helps activists scrutinise corporate behaviour around the globe. But the biggest force is the presumption that a modern business needs to be, or at least appear to be, ‘good’ to hang on to customers and recruit clever young people.”

The article reports that progress towards real corporate social responsibility has been uneven at best and it raises the question about whether corporate social responsibility is “a good thing for business and for society as a whole”? The answer seems to be that when its “genuine social responsibility” it may be; when it’s simply “public relations,” it’s probably not.

“Much good corporate citizenship is a smug form of public relations. Public relations is part of business. A bad name has seldom been more expensive, especially when there is a war for talent and customers can look at your supply chain in Vietnam on YouTube. Public companies, remember, are creations of the state. In return for the privilege of limited liability, society has always demanded vaguely good behaviour from them. The cost of this implicit social franchise, whether shareholders like it or not, has risen. Companies as varied as Nike in clothing, GlaxoSmithKline in pharmaceuticals and Wal-Mart in retailing have had to change their ways quickly to avoid consumer or regulatory backlashes.”

There have been, the article notes, some corporate success stories with regards to CSR.

“CSR has got more focused: there are fewer opera houses, more productive partnerships with NGOs. Greenery, in particular, has paid off for some companies’ shareholders. Toyota stole a march on other carmakers by appearing greener. European power companies which helped set up the continent’s carbon-trading system did extremely well out of it.”

With politicians touting support for “green-collar” jobs, companies that appear environmentally friendly are likely to do well in the future — at least in the public affairs arena. Whether it helps the bottom line is still an open question.

“Some people complain that this sort of ‘good corporate citizenship’ is merely another form of self-interest. Correct — and good. They should be happy that this category has grown. The difficulties with CSR come when companies get it out of proportion. For instance, there is a lot of guff about responsibility being at the core of a firm’s strategy. But even the business gurus who promote the idea admit that examples are scarce. And being a champion at responsibility does not guarantee great financial results, as recent setbacks at Starbucks and Marks & Spencer have shown. An inconvenient truth for advocates of CSR is that the connection between good corporate behaviour and good financial performance is fuzzy at best.”

Does that mean that corporate social responsiblity should be abandoned. Not quite.

“The latest academic research suggests that a positive link exists, but that it is a weak one. Of course, it’s not clear which way the causality runs — whether profitable companies feel rich enough to splash out on CSR, or CSR brings profits. Either way, there is no evidence to suggest that CSR is destroying shareholder value, as Milton Friedman and others feared. But nor is it obviously the most productive way for managers to spend their energies.”

Most corporate social responsibility will likely be conducted in enlightened self-interest. For example, health programs will supported in areas where health challenges keep workers off the job. Education will be supported in areas where educated workers increase efficiency.

“If companies need to be vigilant about the limits of CSR, the same applies even more to society as a whole. A dangerous myth is gaining ground: that unadorned capitalism fails to serve the public interest. Profits are not good, goes the logic of much CSR; hence the attraction of turning companies into instruments of social policy. In fact, the opposite is true. The main contribution of companies to society comes precisely from those profits (and the products, services, salaries and ideas that competitive capitalism creates). If the business of business stops being business, we all lose. … Above all, it is governments, not firms, that should arbitrate between interest groups for the public interest. So the apparent triumph of CSR should prompt humility, not hubris. There is money to be made in doing good. But firms are not there to solve the world’s political problems. It is the job of governments to govern; don’t let them wiggle out of it.”

I agree that the best thing businesses can do is provide good jobs that pay fair wages. Good jobs help people out of poverty while increasing their self-esteem. CSR is appropriate when it comes to companies acting more “green,” but they must stay in business (which means they must be profitable) if they are going to support other socially responsible causes as well.