'Misguided Virtue: False Doctrines of CSR' by David Henderson

From the former chief economist of the Organisation for Economic Co-operation and Development, now Visiting Professor at the Westminster Business School

Today’s conception of ‘corporate social responsibility’ (CSR) has caught on, both in the business world and more generally. It is now widely agreed that businesses should run their affairs, in close conjunction with a range of different ‘stakeholders’, so as to pursue the goal of ‘sustainable development’. They should embrace ‘corporate citizenship’.

Only by acting in this way (it is said) can businesses respond to ‘society’s expectations’: this is supposedly the key both to long-run commercial success for individual companies' businesses and to ensuring public support for private enterprise. Capitalism has to be given ‘a human face’.

From what I have seen and read, CSR has few opponents or serious critics. There is a wide-ranging consensus in its favour.

I believe that this consensus view is misguided, and that its acceptance has the potential to do harm. Here is a partial list of the unconvincing or worrying aspects of CSR.

Contrary to what is typically stated or assumed by CSR supporters, neither ‘sustainable development’ nor the measures to achieve it are well defined or universally agreed.

In embracing CSR, many corporations and business organizations have failed to contest, or have weakly surrendered to, the arguments and demands of anti-business activist groups. They have treated these arguments and demands as embodying ‘society’s expectations’. They have failed to make an informed case for the market economy. With few exceptions, the contribution of the business world to public debate on these issues has been, and continues to be, inadequate or worse.

Often though not always, supporters of CSR, both in the business world and outside, present a misleading picture of recent trends in the world economy and their implications for public policy. In particular, it is wrongly maintained that ‘globalization’ has brought with it ‘marginalization’, ‘social exclusion’, and a shift of power to multinational enterprises.

For individual businesses, CSR means imposing a wider range of concerns on management, installing more elaborate accounting and reporting systems, bringing in new and time-consuming consultative processes, and adopting self-imposed and more exacting norms and standards. All this is likely to raise costs and impair performance.

‘Socially responsible’ firms have an incentive to see to it that their unregenerate competitors are compelled to follow their example. This will increase the pressure for over-regulation of business and reduce the extent of competition.

I believe that the adoption of CSR by businesses generally, with the acquiescence or support of governments, would reduce welfare and undermine the market economy.

As they stand, these are no more than statements of opinion. However, they are based on arguments and evidence, which can be read in an essay of mine which has been published by the New Zealand Business Roundtable and is available at www.nzbr.org.nz Reviews of this have appeared in the Financial Times (16 May, by Martin Wolf) and The Australian (14 May, by Alan Wood).

David Henderson