Tuesday, August 24, 2010
The Case Against Corporate Social Responsibility
Wall Street Journal
August 23, 2010
Can companies do well by doing good? Yes—sometimes.
But the idea that companies have a responsibility to act in the public interest and will profit from doing so is fundamentally flawed.
Large companies now routinely claim that they aren't in business just for the profits, that they're also intent on serving some larger social purpose. They trumpet their efforts to produce healthier foods or more fuel-efficient vehicles, conserve energy and other resources in their operations, or otherwise make the world a better place. Influential institutions like the Academy of Management and the United Nations, among many others, encourage companies to pursue such strategies.
It's not surprising that this idea has won over so many people—it's a very appealing proposition. You can have your cake and eat it too!
But it's an illusion, and a potentially dangerous one.
Very simply, in cases where private profits and public interests are aligned, the idea of corporate social responsibility is irrelevant: Companies that simply do everything they can to boost profits will end up increasing social welfare. In circumstances in which profits and social welfare are in direct opposition, an appeal to corporate social responsibility will almost always be ineffective, because executives are unlikely to act voluntarily in the public interest and against shareholder interests.
Irrelevant or ineffective, take your pick. But it's worse than that. The danger is that a focus on social responsibility will delay or discourage more-effective measures to enhance social welfare in those cases where profits and the public good are at odds. As society looks to companies to address these problems, the real solutions may be ignored.
Posted by Yulie Foka at 2:58 PM