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An editorial in The Wall Street Journal yesterday attacks advocates of corporate social responsibility, calling the belief that “businesses have a responsibility to act in the public interest and will profit from doing so” ineffective and flawed.
Aneel Karnani, an associate professor of strategy with University of Michigan’s Stephen M. Ross School of Business—ironically the venue for the 2011 Net Impact Conference, where I am headed in October as a speaker on Diversity as a Strategic Advantage–brings up several issues in his op-ed, some that rankle, and others that well underline today’s complex market.
To get some perspective on how Karnani’s claims have been received, I reached out to many of my contacts in the CSR community, largely through social media. Everyone who responded has a stake in Karnani’s article: they are professionals committed to furthering corporate responsibility, and while they view the debate from a variety of standpoints, there is unanimous agreement that business strategies must evoke sustainable practices for continued growth—whether we call it CSR or not.
Corporate Profits Benefit Society As Well
Karnani’s basic argument is that the appeal for CSR is moot because “[c]ompanies 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.”
At a very rudimentary level, that argument holds substance: Companies likePepsiCo who do well tend to share more and give back more to their community.
However, Fabian Pattberg, founder of SustaianbilityForum.com and a well-respected, U.K.-based thought leader on CSR suggests that Karnani’s argument is both unrealistic and dated: “[The idea that] profits will benefit the overall society as an argument is old school Milton Friedman thinking. History and our present dire situation, economically (bank crisis, unethical trading, etc.) and ethically (values and purpose of employees in companies in general) has shown that this is NOT the case. Otherwise there would not be an outcry and need for more responsible business practice. CSR is the real world view.”
According to Pattberg, Karnani’s argument might have been astute in a different time. “For me, the author’s points are unrealistic and [speak of] open market economy business talk from at least 30 years ago!”
The Role of a CEO: Profits or Sustainable Growth?
Maximizing profits, says Karnani, is a chief executive’s “responsibility to the company’s shareholders. Even if executives wanted to forgo some profit to benefit society, they could expect to lose their jobs if they tried—and be replaced by managers who would restore profit as the top priority.”
Besides reeking of short-termism—a recent point of discussion withBRANDfog CEO Ann Charles—this also gave me pause about the perceived role of shareholders.
source: forbes.com
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