Corporate Social Responsibility - Burden, Sham or Golden Opportunity?

Corporate social responsibility (CSR) is an up- surging trend that has taken corporate boardrooms by storm. Government regulation in some countries along with pressure from myriad interest groups around the world is driving an increase in social responsibility initiatives and reporting. According to Professor Michael Porter of the Harvard Business School, in 2005, 360 different CSR-related shareholder resolutions were filed on issues ranging from labor conditions to global warming. And 64% of the 250 largest multi-national corporations published CSR reports, either within their annual report or in separate sustainability reports.

Is CSR a good or bad thing? Does it represent an opportunity to recognize the many ways that business and society are interdependent and to help make the world better while creating economic growth? Or does it place unfair and unrealistic obligations on corporations? Or is it a façade that businesses can hide behind to protect themselves while continuing to engage in activities that harm the environments and societies in which they operate?

These are important questions and some eloquent voices have emerged to debate them. Here we examine the key arguments of three distinct schools of thought about CSR.

Killing the Goose That Laid the Golden Egg

Advocates of the minimalist view of corporate social responsibility argue that capitalism does enough for society by generating economic growth and creating jobs. They subscribe to the belief espoused by Nobel economist Milton Friedman that beyond playing by the legal and ethical rules of society, a business only needs to pursue and deliver profit to be a positive contributor to society. In their view, it is the role of government to make and implement social policy, not corporations.

Clive Crook, writing in The Economist Survey of Corporate Social Responsibility, provocatively states that most permutations of CSR are not worth the cost. He berates corporate philanthropy as "borrowed virtue" because managers are giving away shareholder's money. He asserts that most CSR is "probably delusional" - in that its private costs likely exceed the public benefits produced.

The main beef of the minimalist camp with CSR is that it seems to intimate that capitalism is fundamentally flawed. Crook nails this when he states: "the basic set of attitudes that it (CSR) represents undermines support for capitalism and enterprise and the prospects for further economic advance". He argues that profit serves the public good and demonizing it only jeopardizes the benefits it delivers to society. Nor he says is it smart to use CSR to "privatize public policy". Governments should be making and carrying out public policy using regulation and taxes, not corporations. He states, "public policy is the proper role of government, accountable to citizens through the ballot box, not of company bosses accountable to nobody but their shareholders and too often not even to them." Thus, CSR can unleash loose and dangerously uncoordinated cannons that will often do more harm than good.

A Wolf in Sheep's Clothing

Proponents of this view argue that CSR is nothing more than public relations and warn all not to trust any CSR initiative, because in the end, all it represents is a ploy to distract attention away from otherwise rapacious behavior that is detrimental to society. Joel Bakan, a legal expert and author of the book, "The Corporation: The Pathological Pursuit of Profit and Power" asserts that businesses are legally required to do everything in their power to make money, and that more often than not, their financial interests will conflict with the broader interests of society, and they will always act in their own self- interest.

As a result, no one should be fooled by CSR, and deluded into thinking that business can be trusted to do what's right for society of its own accord. They won't, unless governments force them to. In this view, government has a substantial role to play in constraining and channeling the actions of the entity that it creates, namely the corporation, and holding it accountable. As environmentalist and writer Bill McKibben colorfully puts it, "Corporations are the infants of our society-they know very little except how to grow (though they're very good at that), and they howl when you set limits. Socializing them is the work of politics."

A Diamond in the Rough

In his Harvard Business Review article, "Strat egy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility", Professor Michael Porter casts CSR as "an inescapable priority for business leaders in every country". That's an attention-grabbing statement, to say the least, considering that Porter is the man who literally wrote the book on competitive strategy.

He tells businesses that rather than avoid, fight or pay lip service to CSR, they should instead "analyze their prospects for social responsibility using the same frameworks that guide their core business choices. They will discover that CSR can be much more than a cost, a constraint, a charitable deed - it can be a source of opportunity, innovation and competitive advantage."

Porter asserts that a healthy society ultimately creates expanding demand for business, as more human needs are met and aspirations grow. Any business that pursues its own ends at the expense of the society in which it operates will find its success to be illusory and ultimately temporary. He argues that the mutual dependence of business and society implies that both business decisions and social policies must follow the principle of shared value - that is, that the choices made must benefit both sides. If either a business or a society pursues policies that benefit its interests at the expense of the other, it will find itself on a dangerous path.

For CSR to really work in Porter's view, it must be viewed from a strategic standpoint and rooted in a broader understanding of the inter-relationship between a corporation and society, while at the same time anchoring it in the strategies and activities of specific companies. The article presents an analytical framework for identifying what Porter calls the 'points of intersection' between business and societal interests. Two main categories are identified - inside- out linkages and outside-in linkages. Inside-out linkages involve how the company affects the society in which it operates through its operations in the normal course of business. Outside-in linkages involve the ways in which external social conditions influence corporations for better or for worse.

In the typical business, each of these categories can provide numerous opportunities for socially- responsible actions. The challenge for businesses is to choose which social issues to address, and Porter advocates that they select the issues that intersect with their own particular business. "The essential test that should guide CSR is not whether a cause is worthy but whether it presents an opportunity to create shared value - that is, a meaningful benefit to society that is also valuable to the business."

Sparking Change in Corporate Values and Culture

While all three schools of thought about CSR make valid points, I ultimately come down in Porter's camp. His 'enlightened interdependence' view of CSR recognises that business and society have a huge amount of shared interest that managers with foresight will recognize can be developed in a long- term and mutually beneficial way.

CSR represents a set of societal values that companies ignore at their peril. Society has a right to set expectations of businesses but these don't necessarily have to kill economic growth and jobs. There is no reason why business can't be socially responsible and commercially successful. Just go into any Whole Foods Market to experience this concept in action.

But few organizations have embedded CSR so deeply into their cultures - in most instances, it's merely an initiative to be run on the side of the business, or bolted on to it at best. Truly integrating social responsibility into the business will likely demand a radical transformation of the culture, values and operating systems of most large corporations. This level of change doesn't happen overnight and will require that all stakeholders, including employees, push for open dialogue on what CSR means and should be in their organization.

A practical step forward lies with Porter's framework for focusing on the interdependencies between business and society. It is a tool that can help companies redefine and more completely understand value - a concept at the heart of free market capitalism - by identifying opportunities to provide more valuable (with value defined by their customers) products and services. As a result, they will profit and so will society overall - because the greater good is not being compromised and may in fact be enhanced. With some work, society and corporations can live together in harmony - they don't have to be at odds or engaged in self-defeating behavior.