Business

The case against CSR is the wrong one

In the Wall Street Journal, Michigan professor of strategy Aneel Karnani advocates against the concept of Corporate Social Responsibility stating that “the idea that companies have a responsibility to act in the public interest and will profit from doing so is fundamentally flawed.” His case, however, has four shortcomings.

The basic argument against CSR is that it is either “irrelevant or ineffective.” Irrelevant because companies will do what is “right” in cases where public good coincides with private profit – and hence CSR is not required. Yet, this is to simplify the argument. Indeed, advocates of corporate responsibility, including the Rainforest Action Network mentioned by Karnani, work by ensuring that irresponsible behaviour comes with an economic cost. Thus, if CSR does nothing else but raise awareness amongst corporate executives that they must consider the social consequences of their actions, together with political and economic considerations, that by itself makes it worthwhile.

If not irrelevant, CSR is ineffective in Karnani’s opinion. Where companies must choose between public good and private profit they will inevitably choose the later unless coerced otherwise. But to not do something simply because it is unlikely to work is hardly a strategy, and a sure recipe for the stagnation of human progress. Should we not demand of others what is right simply because our pleas are expected to fall on deaf ears? This ignores both our moral responsibility to highlight what is wrong and past history which illustrates that what might be strange today may be very normal tomorrow.

Were abolitionists to have taken this stance, for instance, we would still be living in the age of slavery; if anti-colonialists and freedom fighters had taken this view India would still be governed by the English East India Company. Of course, it has been argued that slavery ended because its profitability declined following the Industrial Revolution – yet, humanitarian concerns no doubt had a part to play. And in any case, raising those concerns was the right thing to do.

Finally, Karnani ignores a very real transition taking place at the margins of society – the growing belief that sacrificing profit to pursue social good can be acceptable. While currently restricted to the field of social entrepreneurship, this view of businesses as “social” revisits the question of what is the core purpose of business – the maximization of private profit or the maximization of a public good. It therefore questions the Milton Friedman view that underlines Karnani’s own argument that companies have no responsibility to act in the public interest. Promoted most prominently by Mohammad Yunus, this view is increasingly encapsulated in emerging legislation allowing the incorporation of for-profit charities in countries including India, the UK and USA.

The one real shortcoming of CSR has been overlooked by Karnani. CSR, as it is normally practiced today, imposes the ethics of developed countries on the operations of corporations in developing countries. Aside from the obvious ethical dilemma as to who’s ethics we are to apply to corporate behaviour, this leads to situations such as Nike closing factories employing child labor, with substantial negative impact on the children. While corporations have become more aware of the impact of their work, it is unclear if advocacy networks themselves have realized that their proposed ethics might cause as much harm as good.

As such, Karnani’s suggestion that CSR is irrelevant and ineffective is unfortunate. Neither is a good enough reason not to demand responsible behaviour of corporations or expect good moral conduct from those that lead them.