University of Michigan business professor Aneel Karnani stirred up a controversy last week when he penned an essay for The Wall Street Journal titled "The Case Against Corporate Social Responsibility."
The Journal, admitting "it takes a lot of nerve" to hold that position, included an editor's note inviting responses. At last count more than 260 people have commented on the Journal website, and another 100 or so media stories and blogs have reacted to the essay.
Since this topic comes up often (see my critique of a Heritage Foundation report last year), it's worth highlighting what Karnani said - and failed to say - in his article.
Much of Karnani's essay focuses on how to strike a balance between corporate profits and the public good. Regulation, Karnani argues, is the best strategy because it is binding and doesn't depend on anyone's good intentions. Other approaches just don't measure up. Watchdog groups can't really control bad corporate behavior because they often lack clout. Voluntary standards, while "useful" because they promote smart practices and require lower compliance costs, must be policed by government regulators with potential sanctions.
Corporate responsibility programs, which are also voluntary, create a quandary for executives. When business goals are at odds with the public good, firms are unlikely to invest in programs that hinder those goals, he writes. If they do sacrifice profit for the common good, Karnani says, they are "in effect imposing a tax on their shareholders and arbitrarily deciding how that money should be spent."
If we assume CEOs have no interest in helping society, a company's responsibility programs are destined to be useless, he argues. Worse, they might create the illusion that the whole corporate world is "doing well by doing good." Ergo, responsibility programs are dangerous because they may delay or discourage more effective ways to solve problems.
What's really interesting about Karnani's argument is that it combines the free-market Puritanism of Milton Friedman with the regulatory mindset of Ralph Nader. In his view, spending shareholder money on CSR is like trying to rob a bank with a squirt gun; it's both irresponsible and stupid.
As you might expect, both Karnani and The Wall Street Journal have plenty of critics. Some point to the hundreds of successful CSR programs and their impact on corporate reputation, employee loyalty and investor preference. Others, referencing his Friedmanesque argument, welcome Karnani to the 21st century, where government is largely incapable of solving big problems and the public has increasingly high expectations for corporations.
One of the best counter arguments comes from author Dave Douglas, who explains the complex role of the CSR executive at a major corporation (he ran that department at Sun Microsystems for five years). Many CSR activities are grounded in risk management, he writes. "Skilled CSR professionals bring careful analysis of a new set of risks into the corporate decision process. In many cases the CSR input may not change a decision, but in some cases it does." These managers are internal advocates for win-win projects, and they keep an eye on competitors who've discovered how to address public concerns and still be profitable.
But the most important role for CSR comes when a company faces two choices that have similar costs, but vastly different social impacts, Douglas writes. If a firm is considering two vendors, and one has better employment practices, consumes less energy or produces less waste, these factors might not influence a company's purchasing decision without a strong CSR function. But because the company has made a commitment to responsibility, the public interest is served and the firm reaps the benefits of being a good corporate citizen.
This nuanced analysis is far from the simplistic approach taken in Karnani's article.
It's also interesting to note the Journal's efforts to trumpet the essay, which was the cover story in a section of the newspaper. "The idea that companies have a duty to address social ills is not just flawed, argues Aneel Karnani," says the tagline to the story. "It also makes it more likely that we'll ignore the real solutions to these problems." In the editor's note, the Journal encourages readers to scrutinize the conventional wisdom about CSR.
Does News Corp., the parent company of the Journal, share the same skepticism about CSR? Apparently not, though it may have a ways to go in developing win-win partnerships. Last year, the company bragged in a press release that FOX-TV's hit series "24" would "educate and inspire its millions of viewers around the world to personally engage in the fight against global warming." According to FOX, "24"was the first TV production ever to achieve carbon neutrality.
It turns out that Jack Bauer was not only trying to save the country from terrorists; he was also trying to save the planet. And he was spending News Corp. money in the process.
Who knew?
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