Response to “The Case Against Corporate Social Responsibility”

By now, you have probably read – or at least heard about – the Wall Street Journal article “The Case Against Corporate Social Responsibility” by Dr. Aneel Karnani which was published on August 23, 2010. The article looked at CSR from one particularly limited view point, while we at BrownFlynn look at CSR more holistically.

This is the latest in a series of anti-CSR articles by Dr. Karnani, which includes titles such as “Romanticizing the Poor,” “The Mirage of Marketing to the Bottom of the Pyramid,” “Microfinance Misses its Mark,” and “Help, Don’t Romanticize, the Poor.” Karnani shows deep concern for the plight of people at the “base of the pyramid” and a justifiable skepticism of businesses claiming to solve their problems, but his argument is, and has been, that CSR activities can confuse, delay or prevent finding legitimate solutions to the world’s problems.

His approach, however, is to throw out the baby with the bath water and, at least this time, most would say he stretched his argument too far. A summation of his argument is as follows:

1. The responsibility of a business is to maximize shareholder value. [This assumption is unstated, but it is required for #2.]
2. “Where private profits and public interests are aligned, the idea of social responsibility is irrelevant. …In circumstances in which profits and social welfare are in direct opposition, an appeal to corporate social responsibility will almost always be ineffective, because executives are unlikely to act voluntarily in the public interest and against shareholder interests.”
3. “In most cases, doing what’s best for society means sacrificing profits.”
4. “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.”
5. “The ultimate solution is government regulation. …Governments are a far more effective protector of the public good than any campaign for corporate social responsibility.”
6. “In the end, social responsibility is a financial calculation for executives, just like any other aspect of their business. …corporate social responsibility will be truly embraced by those executives who are smart enough to see that doing the right thing is a byproduct of their pursuit of profit.”

Dr. Karnani essentially takes a world of responsible businesses and civic-minded business leaders and reduces them to a profit motive. This does not include us – and we are pretty sure it does not include you – but it is a sticky argument and one that does not paint a pretty picture of what we are trying to do every day.

Our rebuttal is that profits are essential to business and people pursue value in every aspect of their lives, from managing a business to buying toothpaste. Maximizing value is right and good, however limits must be placed on how exactly we can go about maximizing value. We place ethical and legal restrictions on disruptive behavior, such as bribery and theft and these restrictions may lead to a reduction in the maximum achievable value. We all want to maximize value, but few of us are willing to do absolutely anything to get it.

Our view is that while government can, does, and always will provide strong legal boundaries on the acceptable value maximizing behaviors, the social boundaries are always out in front. The law formalizes and recognizes the social boundaries already in place. Every business has a responsibility to be looking beyond compliance at the horizon of social acceptability.

This is only half of the CSR equation. The government can dictate the limitations on behaviors, but it can never install a civic-minded duty to the community. We are reminded of Wal-Mart following Hurricane Katrina. While the federal and state governments and agencies battled for power and control, Wal-Mart applied its logistics experience and vast inventory to supplying relief aid.

“As New Orleans filled with water, Wal-Mart chief executive H. Lee Scott, Jr. called an emergency meeting of his top lieutenants and warned them he did not want a “measured response” to the hurricane.

“I want us to respond in a way appropriate to our size and the impact we can have,” he said, according to an executive who attended the meeting. At the time, Wal-Mart had pledged $2 million to the relief efforts. “Should it be $10 million?” Scott asked.

Over the next few days, Wal-Mart’s response to Katrina — an unrivaled $20 million in cash donations, 1,500 truckloads of free merchandise, food for 100,000 meals and the promise of a job for every one of its displaced workers — has turned the chain into an unexpected lifeline for much of the Southeast.”[i]

Could the government “require” this generosity and proactive response? Is this not the essence of corporate social responsibility? The CEO of Wal-Mart said he wanted a response “appropriate to our size and the impact we can have.” He did not ask for a response that met the limits of the law. Wal-Mart is a giant and H. Lee Scott thought that meant they had a responsibility to the impacted communities to deliver a giant-sized response.

Do not be deterred by Dr. Karnani. Was what Wal-Mart did after Katrina good for business? Sure. But if we take Dr. Karnani at his word, we have to assume that the payoff from their efforts was worth more than the sacrifices. Wal-Mart saw a need that it could uniquely meet, but it would mean sacrificing cash and inventory for the benefit of the community. That might cause a diminished financial return for shareholders, but they were probably never more proud of owning stock and never had more confidence in H. Lee Scott as a leader than they had that day. Do confidence and pride have “value” to the shareholders? You better believe it.

The (triple) bottom line: businesses have a giant-sized opportunity and responsibility – not simply a legal requirement – to be safe employers, to be good neighbors and to be strong stewards of natural and financial resources.
For detailed rebuttals, read more.