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Adopting CSR uncritically can be damaging
by Linda Seebach
Scripps Howard News Service


January 29, 2005

The movement for "corporate social responsibility" would seem to have everything going for it. No one's in favor of corporate irresponsibility, after all.

Not so fast, says Clive Crook in a Jan. 22 survey of the subject in The Economist (at The idea of good corporate citizenship goes back a long way, and means that a company conducts legitimate business in an ethical manner while carrying out its fiduciary duty to its owners, namely to maximize their long-term financial interests.

CSR expects more. Its advocates suspect - and sometimes say outright - that capitalism is intrinsically bad and that it thus must do something in addition to providing goods and services at a fair price in order to call itself socially responsible.

As Crook points out, this is an extremely odd view for the heads of major companies to hold.

But hold it they do, at least to the point of making noises in their annual reports, and hiring busloads of consultants to tell them how to do it right, "and how to let it be known that they are doing it." CSR, he says, is now "an industry in its own right."

If what happened to corporate America when "diversity" became an industry in its own right, that's not at all a good thing.

Crook agrees with many CSR advocates that many companies' efforts are merely cosmetic - "The human face that CSR applies to capitalism goes on each morning, gets increasingly smeared by day and washes off at night."

But he argues that's just as well. "Capitalism does not need the fundamental reform that many CSR advocates wish for," he says. "If CSR really were altering the bones behind the face of capitalism - sawing its jaws, removing its teeth and reducing its bite - that would be bad," not just for shareholders but for society at large.

It's important, therefore, to resist the almost-universal success of the CSR idea, because it's built on a misunderstanding of how the economy works. "To improve capitalism, you first need to understand it. The thinking behind CSR does not meet that test."

The author also notes that an emphasis on loosely defined goals such as social responsibility may distract businesses from problems of business ethics that urgently need to be addressed.

Any act of supposedly enlightened corporate citizenship should be evaluated in two ways. "Does it improve the company's long-term profitability? And does it advance the broader public good?"

Most executives, Crook thinks, would answer yes to both questions about whatever it is their company does. And sometimes they're right. Establishing a well-deserved reputation for honesty and fair dealing with all the stakeholders in the company is worthwhile, although you might just as well call it "good management" as CSR.

But what about a practice that raises social welfare but reduces profits?

Cash donations for charity fall into this category, which he calls "borrowed virtue." There may be good business reasons for doing it, and I'm certainly not going to argue that it should never be done, since the Rocky Mountain News is active in charitable giving and in fund-raising.

Still, it's a fair point that corporate philanthropy is "charity with other people's money."

He calls the category of CSR in which companies raise their own profits but reduce the general welfare "pernicious CSR." He doesn't mean the sort of things that are obviously wrong - fraud, say, or illegal pollution. He means actions undertaken with the best of intentions, for instance, demanding the same environmental and labor standards in poor countries that companies practice in rich countries.

The problem is that complying with these demands may make investing in such countries impractical, holding back development and thus keeping in poverty the very people who would be eager to take jobs better than the ones they have now.

Crook calls his final category "delusional CSR," which makes both companies and society worse off. Most CSR, he suggests, may be delusional, even if all it does is go through the motions while accomplishing little or nothing.

That's a net cost.

Another example is recycling - not in cases where it makes financial sense, which is usually a pretty good indication that it's worth doing - but recycling "as a kind of moral standard of responsible behavior." Consider city or state policies that mandate recycling materials that are eventually sent to landfills anyway because there is no market for them, but at higher cost than if they'd never been collected separately or sorted. Whatever that costs, it means less money is available for other programs.

For a corporation or its executives to oppose something dedicated to social responsibility is perilous. But adopting it uncritically can be damaging as well. Crook has offered a useful framework for thinking critically.



Contact Linda Seebach of the Rocky Mountain News

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