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Is There a Case Against CSR?

Leon Kaye | Tuesday August 24th, 2010 | 10 Comments

Corporate social responsibility is more than “doing well by doing good.”  Companies have found that implementing measures related to environmental, social and governance (ESG) issues make a solid business case as well.  Consumers have also become more aware of the impacts that their favorite products have on the planet and people, and are urging companies to respond in kind.  CSR approaches are hardly monolithic:  some companies focus on taking care of their employees and communities, like Ohio-based Smuckers.  Others, like Timberland, educate their consumers on the where, why and how their products are manufactured, and work with their vendors to improve working conditions and economic opportunities for their workers.  Many companies follow a reporting standard like that of the Global Reporting Initiative; others simply maintain a portal or issue an annual report.

University of Michigan business administration professor Aneel Karnani believes, however, that for companies to act in the public interest, while profiting from their operations, is “fundamentally flawed.”

Professor Karnani makes the case that doing what is best for society comes at a price tag, the sacrifice of profits.  And since executives are hired with the understanding that they will maximize profits, they cannot act against the shareholders’ interests—or else, quite simply, they will be fired.  Hence the problem of greenwashing:  companies often just respond by saying they do a lot about corporate responsibility issues, but actually do very little.

Karnani has a point.  Companies do what they do because they are responsible to their shareholders.  The Ben & Jerry’s acquisition by Unilever years ago is a case in point—the Vermont outfit’s owners did not want to sell, but really had no choice because they would have faced an expensive lawsuit they surely would have lost.  States like California have considered a workaround, such as an H Corp or B Corporation, which would allow companies to set concrete CSR objectives as part of the company’s mission.  Currently, you are either a company or a non-profit, with no compromise between the two possible.

But Karnani’s solution?  More government regulation.

The problem with relying on regulation is the constant tension between the private and public sectors.  Many regulators do not have the private sector experience or an understanding of the context under which businesses operate—so a new regulation can either be too oppressive or not go far enough.  Some would simply counter–and laugh while doing so–that in the US, the private sector has too much say already with the strength they have in lobbyists and the cash on hand to pay them.  Large business interests such as insurance and energy spend heaps of money on lobbying because of the exponential gains they receive in return.  Business and government really should be genuinecollaborators, not adversaries, and not partners in corruption.

Furthermore, increased regulation is not a solution because businesses respond quite well to regulations they deem excessive:  they pack up and move.  Whether it is a big box store moving across a city border to avoid higher taxes, a factory across a state line to avoid unions or environmental regulations, or an entire supply chain across an ocean to manufacture products without any social or environmental concerns, businesses can and will respond to regulations with a moving truck.  But even that is changing:  an abuse in a factory, revealed with a tiny video camera and a Twitter account, can embarrass a company—hence the pragmatic embrace of CSR.  It is better to be proactive and genuine than post pictures of flowers and polar bears on a vapid web site–and then suddenly get exposed and embarrassed–not to mention the financial repercussions.

Karnani equates that “social responsibility is a financial calculation for executives,” which makes CSR a lost cause.  But as CSR consultant Elaine Cohen states:

Yes, there is an element of sacrificing short term profit for greater long term profit, which continues to be in shareholder real interests. Talk to Ray Anderson of Interface, Stuart Rose of Marks and Spencer, Jeff Immelt of GE and many others, and they confirm that CSR-type activities repay themselves many times over.

In the old days, companies would just create a philanthropic organization and let the spouse or cronies run the show, giving donations here and there.  Now, companies have become increasingly transparent about their business practices, and are making more moves to improve factory conditions, reducing energy consumption, or sourcing more responsible materials.  It is a trend that should be encouraged.  And while Professor Karnani brings up some valid concerns, his view that CSR is a waste of time is short-sighted.


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  • http://www.leapcr.com Ben Leap

    Great article. I think the case against CSR is based on an incomplete understanding of what it actually constitutes.

    I think Elaine makes a really good point. Starbucks CEO credits the employee volunteering program he did with saving the company, and certainly Microsoft have reclaimed a lot of their credibility with their extensive CSR work which will definitely have an impact on their bottom line, at least in time.

    The key issue is that CSR is still seen as merely a philanthropic exercise, not as a holistic approach to long term profit through long term sustainability.

  • jon

    CSR is not a substitute for higher taxes and better regulation.

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  • http://www.facebook.com/Sundiver2000 Rob Bryan

    I disagree with quite a few of your points Leon.

    “Furthermore, increased regulation is not a solution because businesses respond quite well to regulations they deem excessive: they pack up and move.”
    Okay. They have that right of course. This Milton Friedman red herring is irrelevant. It doesn’t matter if they move because THE MARKET DOESN’T MOVE! The companies are there because the market is there. How many communities would be glad if Wal-Mart moved? lots. The ultimate solution of course is uniform worldwide regulation. Since that’s still a bit far off, access to the market is the mechanism we have to work with. Your argument that businesses will behave because they might suffer a PR crisis is clearly not working. Yes I’m advocating tariffs. It’s irresponsible to force our pollution on those who live elsewhere.

    “The problem with relying on regulation is the constant tension between the private and public sectors.” Uh, the tension is there because the businesses in question need regulation because they are pathological in their pursuit of profit. This is the same argument that gave us the economic meltdown and the Macondo blowout. Clearly, pathological profit seeking entities need regulation. Collaboration between the regulators and the regulated is kind of a silly idea isn’t it? (Though the MMS had a very good time in Denver…)

    So is the idea of “doing well while doing good”. If we expect PPS (pathological profit seeking) corporations to do the right thing only when it makes economic sense, we get what we’ve got, which isn’t working.

    “Currently, you are either a company or a non-profit, with no compromise between the two possible.” This is incorrect. I guess you are not familiar with social enterprise. The L3C has been adopted in 6 or 7 states and the benefit corporation in two.

    Your last paragraph makes sense. Encouraging responsible behavior is certainly a good idea, but the leap you’re making to it being a substitute for regulation? Really. It’s people, planet, profit, not the reverse.

    “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.” Attributed to John Maynard Keynes.

  • GetSolar

    Leon, I agree with your point of view in that CSR can be–and usually is– beneficial to companies’ long term profits. However, Professor Karnani’s point about greenwashing is well taken. It’s very frustrating to see companies use “environmental initiatives” to promote themselves when these initiatives clearly add no value. As consumer awareness increases, this is likely to be less of a problem. Thanks for the article.

  • http://www.triplepundit.com/author/leon-kaye/ Leon Kaye

    Thanks for the comments. I don’t think regulation can be the sole driving force–and I’m not convinced slapping tariffs is the way to go, either.

    The way business law stands, companies will maximize profits for shareholders. It’s not pathological, it’s just the fact.

    So many issues are structural–a Senate that behaves like a House of Lords, the way business law is written, etc.

    The greenwashing is frustrating, too. Clearer, more transparent disclosure can help.

    Thanks for all the thoughts–all were appreciated and well thought out.

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  • http://nickpalmer.blogspot.com Nick Palmer

    Leon Kaye wrote:
    “Professor Karnani makes the case that doing what is best for society comes at a price tag, the sacrifice of profits…. executives… cannot act against the shareholders’ interests—or else, quite simply, they will be fired.”

    If the costs to the “people and planet” of corporations are legally included in the bottom line then ordinary simple business decisions to maximise profit will solve the whole gigantic thorny problem.

    We only have a difficult situation now because corporations operate without being responsible for their full impacts. Currently, it is financially irresponsible to shareholders to do all the decent things as that will entail manufacturing a product or service which costs more than the opposition’s.

    Use ecological economics – solves everything.

  • http://www.sDialogue.com Perry Goldschein

    Thanks, Leon, for making some good points on this. I agree that corporate formation and structure should continue to evolve, and also that greenwashing is frustrating; and these things don’t make much of a case against CSR.

    My blog post on the topic is titled The Case Against CSR? Not! Four CSR Myths Debunked and is at:

    http://sdialogue.com/csr/the-case-against-csr-not-four-csr-myths-debunked/

  • http://www.changents.com Deron Triff

    Having partnered with top corporate citizens like P&G & Timberland, we (at Changents) believe deeply that purpose-driven values can be leveraged as a business strategy. The new book “More than Promote” by John Rooks makes a compelling case for strategies that drive a “Triple ROI” of corporate, civic and cultural value – simultaneously and mutually reinforcing. It’s great to see the debate Professor Kamani has stirred up. For me, it has reinforced my belief that a conscious capitalism movement is reaching the tipping point in America.

    I also want point out that there is hybrid between for profit and non-profit. It is a new structure called the L3C. While I am a stronger proponent of the BCorp route, L3C is an option for some organizations.

    Deron Triff
    CEO
    Changents.com

  • http://www.causecast.org/ Ryan Scott

    “social responsibility is a financial calculation for executives,”

    Of course it is.

    But what seems to be missing is all the well known stats on cause marketing and CSR by extension. People switch to brands that support causes. Therefore its a competitive advantage and affects the bottom line. Ignore it at the peril of your profits.

    His argument ignores a lot of readily available data.

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  • http://www.jonathanmariano.com Jonathan Mariano

    IMHO, CSR is fine just as long as CSR is NOT mandated by the government. Once CSR becomes mandated, it is no longer the “responsibility” of the corporate entity, but of the government (GSR).

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