Response to the Case Against CSR

I suppose a response on this blog is preaching to the converted, but I still couldn't let pass the professorial post from Dr. Aneel Karnani, associate professor of strategy at the University of Michigan's Stephen M. Ross School of Business.. Dr. Karnani explains why CSR is flawed in his article of 23rd August 2010: The Business Case Against CSR.  The flavour of his piece, which at the time of posting already generated 52 responses, some for, some against, can be seen in the following excerpts:

"Can companies do well by doing good? Yes—sometimes. But the idea that companies have a responsibility to act in the public interest and will profit from doing so is fundamentally flawed. Large companies now routinely claim that they aren't in business just for the profits, that they're also intent on serving some larger social purpose."

"Irrelevant or ineffective, take your pick. But it's worse than that. The danger is that a focus on social responsibility will delay or discourage more-effective measures to enhance social welfare in those cases where profits and the public good are at odds. As society looks to companies to address these problems, the real solutions may be ignored."

"Still, the fact is that while companies sometimes can do well by doing good, more often they can't. Because in most cases, doing what's best for society means sacrificing profits."

"Executives are hired to maximize profits; that is their responsibility to their company's shareholders. Even if executives wanted to forgo some profit to benefit society, they could expect to lose their jobs if they tried—and be replaced by managers who would restore profit as the top priority."

"In the end, social responsibility is a financial calculation for executives, just like any other aspect of their business. The only sure way to influence corporate decision making is to impose an unacceptable cost—regulatory mandates, taxes, punitive fines, pubic embarrassment—on socially unacceptable behavior."

So, ok, stop, think. It amazes me actually how many business people actually think like this, that money is the sole thing that interests shareholders. It frightens me that a Michigan professor thinks like this. I doubt that any amount of rational retorts will change the mind of this CSR-dissenter, and I guess he is entitled to his opinion and I guess the Wall Street Journal is entitled to print it. For the record, the Wall Street journal is owned by the Dow Jones Company, who has both a Code of Conduct and a Corporate Environment and Safety section on its website, which includes voluntary contributions. Not a wholehearted leap into CSR practices and transparency, but a toe in the water.

The fact that regulation, taxes and fines will not comprehensively change corporate behaviour and never have done, should be clear enough to a Professor of Strategy, I would have thought. The fact that CSR is a financial calculation, just like any other aspect of the business, is not really in dispute - CSR should support delivery of stronger financial returns over time, and data shows this to be the case. The key flaw in this prof's argument is the trade-offs between short and long term. Many generally believe that shareholders want to maximinse SHORT-TERM profit at almost any expense (though there is a growing body of evidence that this is not the case) whilst CSR is by definition focused longer term. Yes, there is an element of sacrifcing short term profit for greater long term profit, which continues to be in shareholder real interests. Talk to Ray Anderson of Interface, Stuart Rose of Marks and Spencer, Jeff Immelt of GE and many others, and they confirm that CSR-type activities repay themselves many times over. How can a professor of STRATEGY be so hooked in the short-term vision box? Perhaps he is a professor of monthly strategy ?

The other core flaw in Dr Karnani's writing relates to the fact that the adoption of business of social policies will delay governments doing it themselves. Excuse me ? Is not the response by business to social and environment global issues required precisely because governments have not resolved these issues, and almost certainly never will. The essence of this argument pits businesses against governments and civil society, ie that each has a role and each should stay in their own corner, ne'er the twain shall meet. What we are seeing today as the concept of CSR matures, is the convergence of these roles, the fuzzying of these boundaries and the coming together of the complex interplay and multiple influences in which law influences business, business influence law, and both are influenced by effective NGO activism. In fact, I have just read an outstanding book (my review to be published soon on www.CSRwire.com)  called The New Corporate Accountability - Corporate Responsibility and the Law in which these issues are discussed intelligently and cohesively. I recommend this book to Dr. Karnani. The more we try to keep business in splendid isolation to make as much money as possible, governments in splendid impotence to prescribe social and environmental regulations and NGO's in splendid righteousness, accusing and condemning, our planet will not be sustainable. CSR is much more than a business strategy, it is a convergence strategy of partnership within and across sectors, and across narrow-minded artificial boundaries.

The good news is that the arguments of short-termists are good only as long as their thinking lasts. Fortunately for us, and the world, in the case of Dr Karnani, this is about a month. Then we can get back to doing the business in a way which benefits people and environment, in other words, we can revert to the case for CSR.

elaine cohen, CSR consultant, Sustainabilty Reporter, HR Professional, Ice Cream Addict. Contact me via www.twitter.com/elainecohen  on Twitter or via my business website www.b-yond.biz/en  (BeyondBusiness, an inspired CSR consulting and Sustainability Reporting firm)