The commercial case for corporate social responsibility

Bardhyl Salihu

Corporate social responsibility (CSR) is the rather loose notion that companies have some sort of obligations towards society, beyond pursuing profits, upholding the law, or respecting agreements.

The adoption of CSR by companies as a concept has seen a surge in recent years. 72 percent of S&P 500 companies had reported on it in 2014. This number may seem unimpressive, but only fewer than 20 percent had done so three years before. The proportion on a global scale is even higher: of the world’s largest 250 companies, a staggering 93 percent publish annual reports.

The popularity of CSR is to be expected because it has permeated quickly in the academic world. Most discussions today revolve around how rather than if a company should adopt it. NGOs have also ratcheted up the pressure, shaming companies which fail to prove commitment to it and awarding those which do.

Most political theories incorporate a form of CSR but libertarianism is one of the exceptions. The libertarian position on CSR is this: companies shouldn’t be expected, much less required by law, to do anything they don’t want to. Libertarians reject the notion that stakeholders—employees, customers, the government, the environment, or the society as a whole—have any positive rights or claims on companies. The basis for this belief is property ownership. Since companies legitimately own their assets, and these stakeholders don’t, only the companies have the right to decide how to use them.

An answer to a common claim that companies are obligated to engage in CSR in order to “give back to community” what they “took” (rule of law, infrastructure, labor, etc.) may be to point out that companies already pay taxes and wages, and in this sense have internalized and settled these “debts” to society.

Perhaps a more well-known version of the opposing view is Milton Friedman’s 1970 essay, which is often treated as the official libertarian take on CSR. Friedman famously wrote that “the social responsibility of business is to increase its profits.”

However, as philosopher Roderick T. Long perceptively noted, Friedman’s was simply a technical opposition to CSR. According to Long, what Friedman really meant was: “when corporate managers allow considerations of social responsibility to influence their decisions, they violate their fiduciary obligations to the corporation’s owners, the shareholders.”

So Friedman wasn’t necessarily opposed to adopting CSR; only that managers do so with shareholder consent. In this proper understanding, Friedman’s objection doesn’t address the question whether shareholders, then, are duty-bound to promote a socially worthy cause. Rather than constitute a sturdy objection to CSR, it only pushes the question one step back.

In my own view, there is a more trenchant critique that can be directed at CSR: to point out the failure of CSR proponents to recognize the fact that companies already contribute to society by simply going about their own business. In their very mundane tasks, companies create goods and services, jobs, and incomes. To ask them to engage in CSR is to overlook the fact that they already display at least some sense of responsibility towards society.

A CSR proponent may counteract this argument with the objection that companies benefit from these types of actions and therefore can’t be praised for engaging in them, lest they do so philanthropically. But this objection would commit the Aristotelian fallacy of treating the market as a zero-sum game, wherein the company’s benefit must necessarily involve someone else’s loss.

In truth, however, a company benefiting from these actions does not preclude the society from enjoying them as well. After all, the enormous quantities of goods and services which make up our standard of living have all been produced by companies. Claiming that they haven’t conferred a benefit on us simply because they have benefited themselves is flippant at best.

Furthermore, there is the case that business as usual has a greater capacity to contribute to society, for example by reducing poverty, than philanthropy. Using an illustrative analogy, philanthropy contributes to society by giving people fish, whereas companies do so by teaching people fishing.

Given the shaky foundation on which CSR rests, then, what is the commercial argument in its favor? In my view, CSR should be adopted not because there is a legitimate case for it on principle, but simply because it is the norm.

The task of a company in pursuing profits is not to make value judgments, but to accept the demands of its customers. Its approach to PR should be no different: a company must portray the image that the society expects from it, otherwise it risks alienating stakeholders and drawing harmful press.

In this sense, then, CSR should simply become part of the marketing budget, not as window dressing, but as a genuine and visible effort to make philanthropic contributions to society. Failing to do so will set the company aside as a black sheep and will be directly harmful to its main legitimate commercial interest: pursuing profits.

It appears that both companies and authors have already caught up with this understanding of CSR. “Increasingly, corporations are trading not on products or services but on their reputations, brand value, ‘goodwill’, and ‘intellectual capital’”, reports Corporate Watch. It remains to be seen whether the crowd cheering for CSR will accept this motive, or whether it will decry it as moral.