The Case for Corporate Social Responsability
On Monday, the Wall Street Journal ran an editorial by Dr. Aneel Karnani called The Case Against Corporate Social Responsibility which posits the idea that corporate responsibility is irrelevant because “companies that simply to everything they can to boost profits will end up increasing social welfare”.
On the one hand, I want to thank Dr. Karnani because nothing makes me happier than more discussion about this important topic – especially in a globally important business publication like the Wall Street Journal. On the other hand, Dr. Karnani’s point of view is too simplistic and feels like Milton Freidman redux. I recommend reading the piece and also having a look at some of the more than 240 comments that readers have posted so far – most of which are opposed to Dr. Karnani’s position. Here’s what came to my mind when I read the editorial:
First, I believe that corporations fall into three categories with respect to corporate social responsibility:
1. Corporations that directly benefit society while acting in their own interests. Dr. Karnani provides examples such as auto makers that profit by making more fuel efficient vehicles and fast-food outlets that have improved their menus to be more nutritious. For me this really is a sweet-spot where the business goals and social outcomes are in sync and everybody wins.
2. Corporations that harm society while acting in their own interests. Here’s where Karanai’s argument just doesn’t hold up. There are all too many examples of businesses who directly and indirectly are actually having a negative social impact for the sole purpose of making a profit for their shareholders. Do tobacco companies benefit society by acting in their own interests. This is also an area where the government needs to play a stronger role.
3. Corporations that indirectly benefit society while acting in their own interests. The majority of corporations fall into this category. Their products and services don’t address social issues (e.g. homelessness, the environment, etc.) but do provide solutions to essential human needs such as communication, power, food, and so on. These are companies that have a social purpose and who should be operating in as responsible and sustainable a way as is appropriate for their type of business.
For most companies, acting in their own interests and being socially responsible aren’t mutually exclusive, they have become synergistic. Today, in terms of making a financial calculation of whether or not to be socially responsible, it’s risk to reputation and profitability of not doing the right thing that’s driving decision making among executives.