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CORPORATE SOCIAL RESPONSIBILITY: Doing Good or Wasting Shareholders’ Money?
July 2013
by
Baruch Lev
New York University
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For and against CSR
What exactly is CSR?
My approach to CSR: What should, and shouldn’t be
done
Finally, a lesson for you
At a Glance
Two Opposing Views 3
“There is one, and only one social responsibility of
business—to use its resources and engage in
activities designed to increase its profits.” (Milton
Friedman, Nobel Laureate economist.)
“In a survey by the Economist Intelligence Unity, only
4% of respondents thought that CSR was ‘a waste of
time and money.’ Clearly, CSR has arrived.” (The
Economist, January 19, 2008).
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Are the following cases CSR?
Is Toyota’s highly successful Prius hybrid car a business
response to GHG emissions (Global Warming), or a clever
business innovation creating huge profits?
Is Whole Foods, a very successful and profitable organic
food chain, good business for shareholders, or a social
initiative improving people’s health and the environment?
Walmart, the world’s larges retailer, announced that it will
eliminate 5% of its packaging material by 2013, saving
trees and energy (and lots of money). Is this CSR?
5 Is KPMG, a Big-4 accounting firm, policy allowing its U.K.
employees to spend half-a-day a month on community
work, a valuable CSR, or a smart strategy to attract
high-quality employees?
Is U.S. corporations’ $15 Billion a year philanthropic
contributions to civic, health and education purposes CSR,
or, as my research shows, a smart advertising creating
sales and profit growth? Finally,
Is Chevron, a major oil company, spending large amounts
of money on health improvement in Africa (where they
don’t have oil operations) CSR, or a business insurance
against public outrage for oil spills and damage in other
parts of the world?
So, What is CSR? 6
The former is a no-brainer,
but should companies do the latter?
Is it primarily a good business idea, a la Milton Friedman, which also has some social
benefits on the side?
A socially beneficial corporate activity that does not create profits,
perhaps even decreases them, while benefitting communities,
health, or the environment?
Let’s Look Closely at Friedman’s Argument
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Other people’s money. Corporate resources don’t belong to
managers. They are shareholders’ money. If shareholders
want to do good, they can spend the dividends they receive
on any purpose they wish. Managers shouldn’t spend
shareholders’ money on social purposes.
No expertise. Corporate managers have no training or
expertise in ranking social targets. How can they rationally
choose among fighting diseases, enhancing education,
improving the environment, serving communities, etc.? Aren’t
managers mainly interested in enhancing their own prestige
and political influence through CSR?
Hard to Argue with Friedman’s Logic,
So My Approach to CSR is: 8
If CSR activities enhance sales and earnings (Prius,
Whoel Foods, etc. “cause-related philanthropy”)—just
do it.
Money donations unrelated to the business (AT&T’s $100
million to decrease high school dropout, or Freddie
Mac’s—a failed government sponsored mortgage
company—donations to strengthen families) should
better be left to shareholders.
The really beneficial CSR: Using the company’s
specialized resources to serve society and the
environment. This cannot be done by shareholders.
Examples of CSR Using
Corporate Specialized Capabilities 9
Cisco systems, the world’s largest internet equipment producer, initiated in 1997 the Networking Academy project.
Web-based, distance learning free program to train and certify students world-wide in networking administration
About a million students a year in more than 160 countries are trained by this program, creating high-paying, highly demanded jobs.
Cisco’s shareholders could not develop and administer such a program.
Continued… 10
Home Depot, a large retail chain of construction material and houseware, partnered with KaBOOM!, a nonprofit outfit that builds playgrounds in inner cities.
Home Depot contributes funds, products and employee volunteers, as well as the assistance of the firm’s accounting and legal staff.
KaBOOM! provides expertise in community relations, and identifying locations for playgrounds.
Finally, Flying under the Radar:
CSR as Insurance 11
The business upside (potential gain) from CSR is modest at
best. The reputational downside from damage to
communities (Union Carbide in Bhupal, India, 1984) or the
environment (BP in the U.S., 2010) can be huge.
Smart CSR can provide protection—insurance—against
such damages.
Companies that routinely engage in CSR generally consider the
social and environmental impact of their activities more carefully
than other companies.
CSR activities create social capital—trusted relationships with
governments and NGOs—that mitigate the reputational damage
from mishaps.
Lessons for You Dear Students 12
The claims of the benefits of CSR by its highly-paid advocates (consultants, NGOs) are so exaggerated (“CSR is the best investment you ever made”) and often unfounded (“high correlation between CSR and profits”), that most executives view CSR with great suspicion.
So, when you enter the business world, don’t run around advocating CSR to everyone. Focus on your job first, if you do it well, you benefit society.
In your spare time, think very carefully about opportunities to leverage the specialized capabilities of your company to enhance very specific social or environmental goals at low costs.
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Once you identify such an opportunity, build a
comprehensive case—like a business plan—quantifying
the costs and benefits of your proposal.
Share the plan first with your direct boss. If he/she
approves, send it to the CEO. Be prepared that if they
like it, they may ask you to do it.
But before you set out to “correct the world,” make sure
that you positively contribute to your own small “world”
(family, friends). Charity starts at home.
Lessons for You Dear Students
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“If you save one person you save the world.”
- The Jewish Talmud
