Corporate Social Responsibility: needed or bad?

Aneel Karnani writes in The Case Against Corporate Social Responsibility (MIT Sloan Management Review):

[I]n cases where private profits and public interests are aligned, the idea of corporate social responsibility is irrelevant: Companies that simply do everything they can to boost profits will end up increasing social welfare. In circumstances in which profits and social welfare are in direct opposition, an appeal to corporate social responsibility will almost always be ineffective, because executives are unlikely to act voluntarily in the public interest and against shareholder interests.

Irrelevant or ineffective, take your pick.

As many of the commenters of the post point out this argumentation provides an excuse for corporations to do nothing rather than a constructive proposal forward to aligning social problems with entrepreneurial interests wherever possible.

The role of companies in addressing society’s problems is presented as a black and white issue: profit interests are either aligned with or contrary to social welfare. But why are profit and public interests aligned in some cases and in others not? Is it just a matter of waiting for sufficient consumer demand to create viable markets, or do we not rather have to ask how demand is created? It is as if markets appear out of nothing and sometimes are aligned with and sometimes contrary to public welfare; as if no marketing campaign has ever been successful to influence people’s shopping behavior. Executives and shareholders seem to live in a world that is separate from that of consumers and just wait for the latter to express new desires to fulfill.

And why should consumers not prefer products and services produced in ways that do not risk the lives of employees?  Why should consumers not want products that do not harm ecosystems, biodiversity, or the livelihoods of people (e.g. fishermen after the BP spill in the Gulf of Mexico)? Does it really all just boil down to financial cost and return as Karnani suggests?

He writes: “Executives are hired to maximize profits; that is their responsibility to their company’s shareholders.” Why do we assume that shareholders now and always will want to maximize short-term financial return? Is it (short term financial gain) inscribed into our genes, so that we cannot possibly place other goals above it? What about the growing investments in green and socially responsible companies where return is still lower than in many companies without such goals? What about people paying premiums for products and services they could get cheaper but at the expense of workers, the environment, or their own health?

Besides, who decided that executives are only hired to maximize profits? I found (interestingly, on the same page under related articles) a post from 2002 called Beyond Selfishness by Mintzberg, Simons and Basu. The post describes how corporate executives themselves moved in the mid 1990s from a view that corporations had economic and social responsibilities to one that made maximum return and “the shareholders the bottomline”.

The point is not that large corporations can or should be the ones solving all our problems, but that they, too, shape societal consensus and norms just like any other actor – and probably more than most given their financial strength and ubiquity. Companies, especially popular brands, do have the power to influence consumer behavior and thus demand. In this sense, CSR initiatives can play an important role in pushing the boundaries of consumers and shareholders towards more long-term thinking and sustainability. This in turn can create new markets and drive new types of investments. And even greenwashing can have positive effects: a company that publicly states goals to reduce emissions or to treat workers better (even with no intention to comply), can more easily be held accountable for (and shamed into) reaching them by others.

Mintzberg et al. write “that concern for others is [not] suddenly going to replace self-interest, but that there has to be a balance between the two.”

I believe that to achieve this balance is neither the responsibility of “the government”, nor of civil society organizations, nor of “the corporation” alone, it is the responsibility of all citizens… consumers, employees, activists, shareholders and executives alike.

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One thought on “Corporate Social Responsibility: needed or bad?

  1. Pingback: Corporate Social Responsibility: Needed Or Bad? Sustainable …

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