Arguments against corporate social responsibility - redoubled
26 October 2008
It shouldn't be a great surprise that the financial crisis should prompt a bunch of the standard anti-CSR arguments to be rolled out with renewed vigour and determination. We are told that this will be the event that proves that CSR is 'just a fad'. But the arguments are flawed.
The common factor between them all the critics comes down to how you can rewrite the definition of CSR as one that makes it easiest for you to dismiss it. So, for instance, some people argue that an approach to corporate social responsibility that achieves business benefits is nothing of that sort - THAT's just good business. So CSR must be only those things that are of no direct benefit to the business - ie. philanthropy. Cue the arguments about how CEOs should not be giving shareholders money away on their personal causes and projects.
This is just dumb. Nobody says that marketing is not marketing if it benefits the business, or HR is not 'pure' HR if its priorities align with the company's strategic objectives. CSR is about managing changing expectations by society on the business - it is not philanthropy.
On that basis, the whole suggestion that CEOs are giving away investors' money is no more meaningful than to say that, given that we know that only half of our company's advertising works (although we don't know which half) means that the marketing director is irresponsibly giving investors money away.
Whether they like it or not investors rely on the senior management to manage the business - the whole of the business. They aim to see the real value of the business increase, and the long term value of the shares to reflect this. Those shareholders are owners - but they have never sought to micromanage the business on other aspects. Generally they understand that the management of the business are closer to the realities of the business than they are, and they should be allowed to manage and measured on the results. You don't like it, you don't have to own the shares.
Note, the speculators do not count here. If you temporarily own shares and treat them like gambling chips then you are not an owner, particularly when there are devices you may use to make money when the value of a business goes down, not up. Gamble well, but we do not care what you think.
Then there are the arguments on the other side - David Vogel is the most intellectually robust and eloquent of these and was on the attack this week on Forbes.com. This view accepts that CSR has a business case, but redefines it at the other end as something that can only be measured as successful if it results in the superior performance of individual companies in comparison to their peers.
Vogel says that when analysed, you will see that adherence to CSR seems neither to improve or hold back financial performance. Therefore, he concludes, companies should only bother with CSR if it is essential to their business model - ie. you sell to an ethical market niche.
What Vogel is effectively arguing against are the simplistic cases made in favour of CSR that suggest that CSR is one thing, you only have to do it - skill in execution is irrelevant, and it always works to the benefit of competitive advantage. If that is the central tenet of the CSR movement (and you will always find someone has said it somewhere) then Vogel has the movement bang to rights. On the other hand, he may be doing just the same thing - redefining the movement to fit a stereotype he can then knock down.
In particular, his implication that CSR advocates would argue that good CSR will make for good performance, regardless of product quality, marketing skill, operational quality etc - this is something I don't think I've seen argued anywhere.
Corporate social responsibility is not one thing. It is about how the company decides to do the right thing by society, its customers and other direct stakeholders when faced with dilemmas and choices. I find it extraordinary that Vogel's conclusion when he suggests that CSR adherence makes no difference to the bottom line is that, therefore, you shouldn't do it unless you have to, rather than this means that you should do it, unless you're one of the few whose performance might be negatively impacted. His line is 'don't bother to do the right thing because there's no benefit to it' as opposed to 'do the right thing, because there is no disbenefit to your business in doing it'.
I'm sure people on both sides of the debate would love evidence to show that businesses that follow their favoured routes do better in the marketplace.
You can often test propositions by substituting other mainstream business concepts to see whether they sound ridiculous. Supposing Vogel was to say that there are plenty of examples of companies that use marketing who do badly, even though some who use marketing do well. Therefore, companies should consider that any company should avoid marketing, unless it is essential to the concept of their business model - ie. they sell to marketers. You would think somebody who wrote such a thing was an idiot.
Because everybody knows that in marketing, it is judgement and skill in execution that is key to success. Why would anyone imagine that it would be different in CSR? So you get companies committed to CSR that do badly. It would have to be magic stuff indeed to survive poor judgement or bad execution.
Vogel's arguments are just as poor. He says that Starbucks is highly rated on CSR, but has done less well in 2008 because of its overexpansion and growing customer reluctance to pay so much for a cup of coffee. He says that General Electric's Ecomagination programme hasn't helped GE to match the results it enjoyed under Jack Welch's rather less eco-management.
So which was the idiot who argued that being committed to CSR would insulate you from having the wrong expansion policy and the wrong pricing policy? Who said that CSR abolishes the laws of gravity?
So let's be clear.
Corporate social responsibility has become an important aspect of managing a business in the 21st century. It is about effectively managing the relationships that can affect the business, and taking responsibility for the consequences that running the business has on society.
There are different business case arguments for different things that you might do under that broad umbrella. Any businesses will establish its priorities in the light of its own business model.
CSR will do best under good leadership and with a commitment to quality. Stated allegiance to it will not be enough to ensure the business survives poor leadership or a bad business model.
Not everyone committed to CSR uses the language of CSR. Not everyone that uses the language of CSR is committed to the principle of it.
There are areas where companies have to do the right thing. The business case for action on climate change is not that you will necessarily get competitive advantage for so doing (although you might if you are clever) but because your business model is fundamentally screwed if we don't have a planet, and every business, every law-maker and every individual citizen has a part to play in that.
CSR so understood does not lose its relevance in hard times. If anything, it becomes more important because the stakes in the eyes of the rest of society have become higher.
There is a real challenge here - to sharpen thinking and abolish floppy rhetoric. Let's see an end to case studies that celebrate the bare minimum action with questionable benefits, for sure. Let's be more critical about the tools, the indices, the frameworks, that may promise to identify good performance but are questionable in their success in doing so. Let's try to be more specific when we use labels such as CSR what aspects we're discussing and don't treat it as a single thing.
But nevertheless, the various people who will use the recession to argue for a selfish approach to business that is careless of the consequences are plain wrong.