NEW YORK – Increasingly, corporations are under pressure, often from activist non-governmental organizations, to take on specific “corporate social responsibility” (CSR) obligations. But the fact that CSR is being demanded, and occasionally conceded, does not ensure clarity about either its rationale or the ways in which it should be undertaken.
NEW YORK – Increasingly, corporations are under pressure, often from activist non-governmental organizations, to take on specific "corporate social responsibility” (CSR) obligations. But the fact that CSR is being demanded, and occasionally conceded, does not ensure clarity about either its rationale or the ways in which it should be undertaken.
CSR can be divided into two categories: what corporations should do (say, contribute to a women’s rights NGO or build a village school) and what they should not do (say, dump mercury into rivers or bury hazardous materials in landfills). The latter is wholly conventional and subject to regulation (and recently to questions about how corporations should behave when there are no host-country regulations).
But are CSR obligations really good practice? Milton Friedman and other critics often asked if it was the business of businesses to practice corporate altruism. Prior to the rise of the corporation, there were mainly family firms, such as the Rothschilds. When they made money, it accrued principally to the family itself.
Altruism, where it existed, also was undertaken by the family, which decided how and on what to spend its money. Whether the firm or its shareholders and other stakeholders spent the money was beside the point.
With the rise of the business corporation, large family firms have generally disappeared. But that does not mean that a corporation is the right entity to engage in altruism – though its various stakeholders obviously can spend any portion of the income they earn from the corporation and other sources in altruistic ways. Instead of CSR, we should have PSR (personal social responsibility).
One can also argue for PSR on the grounds that asking for CSR becomes a way of "passing the buck” – evading personal responsibility for doing good. This is the flip side of blaming corporations for everything from obesity to scalding from spilled coffee – both the subject of lawsuits in recent years.
There is also an added advantage in replacing CSR with PSR: there is virtue in diversity of approaches to altruism. Chairman Mao wanted a hundred flowers to bloom, but only so that he could cut them all off at their roots. But PSR is more like President George H.W. Bush’s metaphor of a "thousand points of light.”
Moreover, it is hard to see how a corporation’s stakeholders can always arrive democratically at a common position on how the corporation should engage in social responsibility on their behalf. Each will consider his or her CSR view the best.
But there are strong arguments in favor of CSR as well. First, the political reality is that society treats corporations as if they were persons, which is often also a legal reality for many purposes. Society increasingly demands that these "corporate citizens” be altruistic, just as people are.
Given this reality, corporations want to give simply because it is expected of them. Such CSR builds the firm’s image as a "good” corporation, just as giving by Bill Gates and Warren Buffet builds their image as "good” billionaires.
Second, many corporations view CSR as an effective defensive strategy against powerful activist NGOs (such as Greenpeace) that have taken to using online agitation, boycotts, and other means to "blackmail” targeted corporations into acceding to the activists’ demands. The more CSR a company can point to, the less such efforts will succeed – or even be mounted.
Consider the contrasting experiences of Coke and Pepsi. Coke has been targeted by NGOs for alleged lapses in labor and environmental standards. By contrast, Pepsi, which once teamed up with AT&T and the CIA to oust President Salvador Allende in Chile, smells like a rose nowadays, because it has distributed CSR largesse to several causes that influential NGOs embrace.
That is a lesson that Wal-Mart has since learned. In 2005, the Service Employees’ International Union (SEIU) created Wal-Mart Watch, with an annual budget of $5 million. The purpose was to make Wal-Mart a "better employer, neighbor, and corporate citizen,” and Wal-Mart eventually capitulated on some of the SEIU’s specific demands as well.
Finally, CSR can be simply a matter of advertising. In this case, the choice of CSR spending is focused directly on generating added revenue, much like advertising, and is aimed at sales much the way advertising is. A benign example is Adidas’s sponsorship of tennis tournaments. A malign example is Philip Morris’s donation of money to museums, symphony orchestras, and opera houses, cynically aimed at buying off artists who might otherwise work to ban cigarettes.
All these rationales for CSR suggest that it should be left to each corporation to determine, just as PSR leaves altruism to each individual’s conscience and sense of what needs supporting. The attempt by some NGOs and activists to impose a straitjacket on CSR, reflecting their priorities, is misguided and must be rejected.
Jagdish Bhagwati, Professor of Economics and Law at Columbia University and Senior Fellow in International Economics at the Council on Foreign Relations, is the author of Termites in the Trading System: How Preferential Trade Agreements Undermine Free Trade.