A new article by Aaron Chatterji, a professor at Duke’s Fuqua School of Business, and UC-Berkeley grad student Siona Listokin makes a convincing argument that the progressive focus on corporate social responsibility is at least partially misdirected (free registration required):
A generation of activists has been raised on the idea of corporate social responsibility (CSR)–that large corporations can be cajoled into paying employees better, being more environmentally responsible, improving labor conditions in developing countries, retaining more American workers, embracing diversity, and donating money to fix inner-city schools. Where firms cannot be enticed, the strategy goes, they can be bullied. In the late 1970s, Nestl learned this first-hand when a massive boycott was launched to protest its overly aggressive marketing of infant formula. In 1999, a series of protests convinced Home Depot to sell more lumber from sustainable logging operations. More recently, campaigns against the fast-food industry have included a full barrage of boycotts, lawsuits, movies, and books to pressure companies like McDonald’s and Wendy’s to stop advertising to children and to serve healthier food.
In pursuit of similar success, enormous resources have been directed away from lobbying for regulatory regimes and toward recruiting powerful corporations into voluntary battle against a variety of injustices. Yet CSR campaigns have had limited success in actually changing corporate behavior in a meaningful way. More often than not, CSR crusades result in companies allocating a relatively small portion of their profits for public affairs advertising, community donations, and token changes–from signing on to “industry codes” to hiring CSR-focused senior executives or consultants. At the root of the problem is an inconvenient but implacable fact: Corporations care about profits. Corporations will not–and their shareholders do not expect them to–engage in behaviors that do not maximize profit. Indeed, shareholders would punish them if they did. In concept and in practice, therefore, CSR is at best a partial solution to solving social injustices and correcting for market externalities. After years of relative futility and millions of dollars spent, progressives who are concerned about market failures and their impact on the common good need to do the responsible thing and end their fixation on corporate social responsibility. It is time to recognize that most market failures can only be solved by governments and multilateral agreements, and progressives need to redirect activist pressure appropriately.
As the authors argue, CSR usually fails to change corporate behavior when activists are asking corporations to directly forego profits (for instance, asking Wal-Mart to pay its workers more). And in other cases, I believe that the demands of CSR activists are misguided or counterproductive (for example, the savings Wal-Mart provides to low-income Americans vastly outweigh the negative effects of the chain’s operations).
However, Chatterji and Listokin seem to give short shrift to two indirect effects of the CSR movement that seem like powerful motivators of good corporate behavior:
Encouraging win-win solutions: It seems that there are potentially many more win-win instances of CSR — so-called “strategic CSR” — than the authors acknowledge. See, for instance, the recent New Yorker profile of the Rocky Mountain Institute’s Amory Lovins, who argues that businesses are neglecting a range of profit-maximizing environmental practices. At any given moment, the business model and corporate practices of most large firms are stuck in organizational inertia. The opportunities — and threats — created by CSR provide incentives for firms to break out of those equilibria and adopt the kind of win-win approaches that Lovins describes. A recent example is Wal-Mart’s massive new effort to sell 100 million fluorescent light bulbs, which could appreciably reduce the carbon footprint of the US and make money at the same time. It is hard to imagine Wal-Mart making such a commitment if it wasn’t under fire from the left.
Raising the costs of scandal: The norms promoted by the CSR movement have raised the costs of being caught in a devastating corporate incident or norm-violating scandal (think of Exxon Valdez or Enron). CSR therefore provides further motivation for profit-maximizing corporations to preemptively prevent public relations disasters that have negative social consequences.
What do you think?
[Disclosure: I met Chatterji this past fall after he joined Duke’s faculty.]