Corporate social responsibility is bad for society

One of the most trendy topics in management research is corporate social responsibility. Trendy topics attract a lot of muddled thinking and muddled thinking can be dangerous. I think the focus on corporate social responsibility is outright bad.


Here is what Milton Friedman wrote on social responsibility in 1962:

There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. (Capitalism and Society, 1962)

Here is a current definition of corporate social responsibility (CSR):

CSR policy functions as a built-in, self-regulating mechanism whereby a business monitors and ensures its active compliance within the spirit of the law, ethical standards, and international norms

Recently, a lot of researchers have argued that there is a positive relationship between corporate social responsibility and profitability. Some studies find support for this statement, other studies find no support. If there is a positive causal relationship between certain features of corporate social responsibility and profitability, it is good management practice to implement such policies. It is often a good policy to treat the employees of a company well. This is not at all about social responsibility.

It is very nice to find such win-win situations, but, alas, conflicts of interest exist. Bribes will win the order, but will also corrupt the legal system. Production costs are lower if waste is just dumped in a river. A company hiring a hard-working better educated worker in China, and firing a less productive worker in the US. Corporate social responsibility must involve the sacrifice of profits in the social interest to have any intellectual meaning. These are the situations that should be really interesting both for researchers and policy makers.

The main approach to deal with these conflicts of interests must be through the political and legal systems. If we do not want bribes, then we outlaw bribes and make sure the law is enforced. Pollution cannot be outlawed without the whole economy grinding to a halt. A combination of outlawing the more dangerous pollutants and accepting limited quantities of the less dangerous pollutants is the solution. Economists tell us that an efficient way to deal with the latter is to have markets in pollution right. How to deal with unskilled jobs lost in the west is a more difficult question. What will be a main challenge for governments in the coming decades is how to internalise negative externalities associated with globalisation and environmental degradation and how to deal with moral dilemmas associated with dividing the value added in the economy.

Multinational companies are already very powerful. Nothing is gained by giving them responsibility for managing these conflicts, because the politicians have abdicated their responsibilities. We need politicians and civil servants that are totally independent from the multinational companies as well as other special interest organisations.

The management of Citigroup and General Motors ran their companies into the ground and were bailed out by the US government.  Here it what they have to say about corporate social responsibility in 2013. First Citibank (here):

Globally, Citi supports the economic empowerment and financial inclusion of low-to moderate-income people in communities where Citi operates. We work collaboratively with a range of partners to design and test financial inclusion innovations with potential to achieve scale. We also seek to support leadership and knowledge building activities. We put the strength of our business, resources, products and people to work to help improve communities. We describe this as a "More-than-Philanthropy approach", which includes support for collaborative problem solving, program development and skill-based volunteering

And General Motors in 2013 (here):

At GM, corporate responsibility starts with out Core Values, especially the values of integrity and individual Respect and Responsibility. All corporate activities are measured against these values.

We need to get away from the view that companies are masters of the universe. Citigroup and General Motors should create value by offering good quality banking services and cars, as well as pay taxes. This is complicated enough for them. Society is not served by these companies gaining respectability by engaging in corporate social responsibility. We need companies to produce products and services. We need elected politicians to decide on questions related to social responsibility. We need civil servants to enforce regulation. We need the legal systems to enforce laws.  We need individuals that would like to devote themselves to social entrepreneurship by starting their own companies. We need researchers that focus on why politicians have abdicated responsibility.

We do not need corporate social responsibility, which accomplishes nothing except corporate window dressing and, what is much more important, muddles the division of responsibility between different stakeholders in society.

[Update] I give the final word to short-seller Jim Chanos:

One of the more interesting observations in the world of fraud is that some of the most egregious frauds were some of the most philanthropic companies in their communities. (Salon)