Corporate Social Responsibility

The Economist has a great article called "Two Faced Capitalism." It addresses the rise in demands for corporate social responsibility.

One of the biggest corporate fads of the 1990s—less overpowering, no doubt, than dotcom mania, but also longer-lived—was the flowering of "corporate social responsibility" (CSR). The idea that it is not enough for firms to make money for their owners is one that you might expect to be an article of faith among anti-globalists and eco-warriors. Many bosses now share, or say they share, the same conviction.

No doubt the movement is growing. The basic arguments for and against are presented in these passages.

Is this a good thing? Possibly not. From an ethical point of view, the problem with conscientious (as opposed to fake) CSR is obvious: it is philanthropy at other people's expense. As a rule, so far as public companies are concerned, managers do not own the firms they work for. They are entrusted with the care of assets belonging to others, the firm's shareholders. Supporting good causes out of their own generous salaries, bonuses, deferred compensation, options packages and incentive schemes would be admirable; doing it out of income that would otherwise be paid to shareholders is a more dubious proposition. Anyway, is it really for managers and NGOs to decide social-policy priorities among themselves? In a democracy, that is a job for voters and elected politicians.

Advocates of CSR typically respond that this misses the point: corporate virtue is good for profits. And so it may be, on occasion. The trouble is, CSR that pays dividends, so to speak, is unlikely to impress the people whose complaints first put CSR on the board's agenda. So there is a dilemma. Profit-maximising CSR does not silence the critics, which was the initial aim; CSR that is not profit-maximising might silence the critics but is, in fact, unethical.

I agree with Peter Drucker who wrote that one is responsible for one's impacts, whether they are intended or not. The problem is, how do we trace impacts and assign responsibility in a complex chaotic world? If Wal-Mart drives down prices so far that a supplier goes out of business and people lose their jobs, is Wal-Mart responsible for helping out those jobless? Or is it the fault of consumers who shop there and demand low prices? Or is it the fault of Target and Kmart because they don't step in and buy enough to keep the supplier afloat (is inaction a form of action?)? If so, then is the reverse true? If Intel is so profitable that it keeps hiring and hiring should they get a tax break for employing so many people? These are tough questions.

I tend to err on the side of business and say that a business is only responsible for major, direct, negative effects of its policies (like pollution). My problem with making companies too concerned with social activities is that the causes they champion aren't necessarily the causes I, as a shareholder, would prefer they champion. Why should they get to make the decisions about which charities get funding? Shouldn't they give that money to shareholders and let them decide what to do with it? Ultimately, I wish these people that hate corporate profits so much would form their own non-profit companies. Let them figure out how to produce pharmaceuticals and computers and cars and everything else without using profitability as a guide. If they succeed, then great we will all be better off. But my guess is that they will fail. When companies follow profit, they follow what consumers want. Profit comes from satisfying consumer needs. That is social responsibility. There is a demand for solutions to societal problems. Over time that demand is being met. That is why a poor person today eats better than a king did several generations ago.

I don't believe markets can fix everything. When there is coercive power, as opposed to free exchange, they don't work. When there is a largely asymmetrical distribution of information, they don't work well. But they are better than anything else. The last thing I want is someone else deciding what I should do with my money. Should I do good? Yes. I should. But that is for me to decide, not for someone else to decide for me. Let corporations focus on making money. Let individuals decide what to do with it.