Arguments against corporate social responsibility - And some responses

23 May 2008

Man presenting polluting company

Arguments against corporate social responsibility (CSR)

Some of the most commonly heard arguments against CSR you will hear include:

  1. Businesses are owned by their shareholders - money spent on CSR by managers is theft of the rightful property of the owners
  2. The companies that focus most on CSR are not successful businesses in the marketplace
  3. Times are hard - we have to focus on the bottom line in order to survive
  4. It's the responsibility of the government to deal with social benefit, not business
  5. Companies don't care - they only focus on profit, so CSR is just a PR smokescreen

Getting into the detail

If the arguments for a socially responsible approach were widely accepted, nobody would even using the label "CSR" because everyone would be doing it. Those of us who spend our time marshalling the case for would do well to spend a little time hearing the case against, and considering what should be the response.

Of course, one of the challenges in considering cases "for" and "against" CSR is the wide variety of definitions of CSR that people use. We assume here we are talking about responsibility in how the company carries out its core function - not simply about companies giving money away to charity.

Below are some of the key arguments most often used against CSR and some responses.

Businesses are owned by their shareholders - money spent on CSR by managers is theft of the rightful property of the owners

This is the voice of the laisser-faire 1980s, still being given powerful voice by advocates such as Elaine Sternberg. Sternberg argues that there is a human rights case against CSR, which is that a stakeholder approach to management deprives shareholders of their property rights. She states that the objectives sought by conventional views of social responsibility are absurd. Not all aspects of CSR are guilty of this, however. Sternberg states that ordinary decency, honesty and fairness should be expected of any corporation.

Response: In the first instance, this case strongly depends on the model of social responsibility adopted by the business being a philanthropic one. The starting point assumption is that, through CSR, corporations simply get to "give away" money which rightfully belongs to other people. If CSR is seen as a process by which the business manages its relationships with a variety of influential stakeholders who can have a real influence on its licence to operate, the business case becomes immediately apparent. CSR is about building relationships with customers, about attracting and retaining talented staff, about managing risk, and about assuring reputation.

The market capitalisation of a company often far exceeds the "property" value of the company. For instance, as much as 96% of Coca Cola is made up of "intangibles" - a major part of which rests on the reputation of the company. Only a fool would run risks with a company's reputation when it is so large a part of what the shares represent.

In any case, if shareholders are to be accorded full property rights one would expect to see the balancing feature of responsibility for the actions taken by the enterprises they often fleetingly own. Since most shareholders remain completely unaware of any such responsibility, it can only fall to the management - the "controlling mind" of the company, to take that responsibility on.

The leading companies who report on their social responsibility are basket cases - the most effective business leaders don't waste time with this stuff.

When surveys are carried out of the "Most Respected Business Leaders" you will often find names there, such as Bill Gates of Microsoft, a few years ago Jack Welch of GE, who have not achieved their world class status by playing nice. Welch is still remembered for the brutal downsizing he led his business through, and for the environmental pollution incidents and prosecutions. Microsoft has had one of the highest profile cases of bullying market dominance of recent times - and Gates has been able to achieve the financial status where he can choose to give lots of money away by being ruthless in business. Doesn't that go to prove that "real men don't do CSR"?!

Response: There is no denying the force of this argument. We do not live in a Disney world where virtue is always seen to be rewarded, and that's a fact. Nevertheless, the picture is not as simple as the above argument makes out.

In the first instance, very few businesses operate in a black or white framework, where they are either wholly virtuous or wholly without redemption. There are many aspects in the way Jack Welch restructured General Electric which would play to the kind of agenda recognisable to advocates of social responsibility - in particular that of employee empowerment. Welch has gone on record as saying that he believes the time has passed when making a profit and paying taxes was all that a company had to worry about. And since Welch moved on, General Electric has been busy catching up big time with its EcoMagination initiative.

Also, many of the leading companies with regard to their social responsibility are equally successful companies. The same "Most Respected" surveys will usually provide other names at, or near, the top such as IBM and Motorola - and these are companies that have been much more strongly associated with the CSR movement. Coca Cola achieved its place partially because of its profile in social responsibility. When still in charge, Sir John Browne of BP was widely respected as having led BP into a strong position as one of the world's leading companies whilst also showing environmental leadership. The events that latterly tarnished that reputation simply show that skill in execution is key to success - but even those events don't disprove the fact that success in business and commitment to responsibility can go hand in hand.

Our company is too busy surviving hard times to do this. We can't afford to take our eye off the ball - we have to focus on core business.

It's all very well for the very big companies with lots of resources at their disposal. For those fighting for survival, it's a very different picture. You can't go spending money on unnecessary frills when you're laying people off and morale is rock bottom. And the odd bit of employee volunteering won't make any difference to our people when they feel cynical and negative about how the company operates.

Response: Managing your social responsibility is like any other aspect of managing your business. You can do it well, or you can do it badly. If the process of managing social responsibility leads you to take your eye off the ball and stop paying attention to core business, the problem is not that you're doing it at all - it's that you're doing it badly. Well managed CSR supports the business objectives of the company, builds relationships with key stakeholders whose opinion will be most valuable when times are hard, and should reduce business costs and maximise its effectiveness.

If you don't believe me, ask yourself if the following statements make sense:

  • Times are hard, therefore it is in my interest to pollute more and run an increased risk of prosecutions and fines, not to mention attracting the attention of environmental pressure groups
  • Times are hard, therefore I can afford to lose some of my most talented people - serving or potential - by erecting barriers on the basis of race, gender, age or sexual orientation. And it doesn't matter if employment tribunals occur as a result of my poor employment practices.
  • Times are hard, therefore I need to ignore changing values in my customer base towards socially responsible goods and services. I can keep making things just the way I always have.
  • Times are hard, so I can ignore the fact that the local communities around my plant are poor living environments with low education achievement, meaning that my best staff won't want to live in them and our future staff will need supplementary training in basic skills such as literacy which they should be getting at school. Our company can be an island of prosperity in a sea of deprivation. 

It's the responsibility of the politicians to deal with all this stuff. It's not our role to get involved

Business has traditionally been beyond morality and public policy. We will do what we're allowed to do. We expect governments to provide the legal framework that says what society will put up with. There's no point, for instance, allowing smoking to remain legal - even making large tax receipt from it - and then acting as though tobacco companies are all immediately beyond the pale. If you think it's so dreadful, you should make it illegal. If not, then let us get on with the job of meeting the demand out there of adults who can choose for themselves.

Response: In some areas, this is right - albeit that it is getting increasingly difficult to sustain. If you consider that of all the institutions which are currently getting more powerful in the world, they are essentially the global players - the multinational corporations and the non-governmental organisations. The institutions which are decreasing in power and influence are those tied to the jurisdiction of the nation state - governments first and foremost. It is tempting therefore to look towards the multinationals to take a lead in creating solutions for global problems where the governments seem incapable of achieving co-operative solutions. The interest of Unilever in sustainable fisheries comes to mind. However, there is a strong case that says that the democratic deficit created by such a process is too important to ignore. To whom are the multinational corporations accountable?

Outside of that "macro" scale, the argument holds up less well. Many companies actually spend considerable time and money seeking to influence the formation of public policy in their area of interest. And since that area of interest can range far and wide - from international treaties on climate change, through to domestic policy on health (such as that relating to smoking) or transport - the fact is the lobbying activities of companies show that they have a role like it or not. And if that lobbying has involved blocking legislation that serves a social end purely in order to continue to profit in the short term, then the company is on very dodgy ground.

If CSR is simply about obeying the law and paying taxes, then perhaps the above statement is fair comment. If it is about managing the demands and expectations of opinion formers, customers, shareholders, local communities, governments and environmental NGOs - if it is about managing risk and reputation, and investing in community resources on which you later depend - then the argument is a nonsense.

I have no time for this. I've got to get out and sell more to make our profit line.

Response: I have spoken to a lot of business managers about environmental performance, and it always struck me how difficult a sell waste minimisation was to managers who really needed to save money. Study after study after study has shown that just about any business you can think of, if it undertakes waste minimisation for the first time, can shift 1% of its overall turnover straight onto its bottom line. That is not an insignificant figure. And yet, getting out and selling more product somehow remains more attractive for business managers than making more profit through wasting less. It will take a long time and a change in fundamental attitudes towards doing business before this one shifts. In the mean time, keep looking at the evidence.

Corporations don't really care - they're just out to screw the poor and the environment to make their obscene profits

Corporations have their share of things to answer for - but I simply don't recognise the cynical caricature of business leaders in many of the people I deal with in business today. The fact is that if you're interested in the real solutions to world poverty or environmental degradation, you have to have some kind of view about how solutions will be found. I haven't yet seen the vision described by the anti-corporatist movement that shows how the problems will be solved by "us" somehow triumphing over "them" - big business.

The solutions to these common problems will either be common solutions or they won't be solutions. By all means give careful scrutiny to those who wield the most power. But recognise CSR as a business framework which enables the common solution of wealth creation as if people and the environment mattered.

Since writing this article, an update has been added dealing with the most recent critiques

Reply to the Case Against CSR - Updated - Added Aug 2010


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