Corporate Social Responsibility at the Crossroads

Guest post by Professor Dirk Matten

Nearly a decade ago, The Economist ran a special report on corporate social responsibility (CSR) which opened with the line: ‘CSR has won the battle of ideas’. What was true back then in 2005 is certainly a truism today. Hardly any major company does not tell you on their website, their reports or other communications what they are doing with regard to CSR (or whichever other label they choose for this).

Of course, this did not come about without controversy. The above quote from The Economist itself ends with the acrimonious statement ‘…and this is a pity’. Ever since Milton Friedman trashed CSR in the New York Times in 1970, critics have argued that corporations simply do not have the ability to cater for societal needs beyond producing goods and services at a profit to shareholders. Those critics have always accompanied the rise of CSR.

Looking at today’s business community and the general enthusiasm around CSR, however, does not really prove those critics wrong. If we look more closely, most of what companies do in the area of CSR has never transcended the clear cut profit motive of the firm. If companies engage in offering organic, fair trade, certified-this-or-that food, for instance, they do so to cater to a fast growing market brimming with affluent urban consumers. Electric or hybrid cars are a new cool product niche, where companies from Toyota to Tesla are reaping healthy profits. And yes, Walmart has reduced its ecological footprint massively – but not without cutting costs in the region of half a billion dollars. Or, for many mining companies, dealing a little more respectfully with aboriginal or other local residents around their mining sites has proven to be a formidable tool of risk management.

If Milton Friedman were to visit the current world of CSR he would in fact be very pleased. Most CSR activities take place with the espoused aim of creating value for the business. Harvard professor Michael Porter has nailed this by suggesting that rather than talking about CSR, companies should embrace his concept of ‘creating shared value’. In this latest iteration, businesses should address social needs, such as environmental problems, as areas where they can simultaneous create social value for society and business value for the firm.

The crucial turning point we are facing today is that the wider public, the people behind the ‘S’ in ‘CSR’, are no longer buying it. We are in the middle of a financial crisis which was triggered by banks and financial service organisations which all had widespread commitments to CSR. Even the notorious Enron, more than a decade ago, was famous for its code of ethics. Many of the brands and retailers who sourced from the Rana Plaza factory in Bangladesh were active members in the church of CSR – but this did not prevent them from having their products assembled in an abysmal sweatshop, whose collapse last year ultimately killed more than 1100 people.

The simple reality is that CSR, the way it has been adopted by most companies, has done little or nothing to convince the general public that corporations are actually contributing positively to society. We see new social movements emerging – symbolized by the 2011 spread of the Occupy movement – which are testimony to a wide ranging skepticism and distrust of business. The most frightened voices, conspicuously, come out of the business community itself. McKinsey CEO Dominic Barton recently wrote about the urgent necessity to fix the current model of capitalism: “Business leaders today face a choice”, he argues. “We can reform capitalism, or we can let capitalism be reformed for us, through political measures and the pressures of an angry public.”

The questions with which this – admittedly rather enlightened – small group of business leaders and thinkers are wrestling are fundamental. These are questions concerning the core purpose of the private business firm. Rather than trying to engage in some add-on CSR activities, these questions focus on the core purpose and the core role of the private business firm in society.

Solutions though are hard to come by as yet. Much of the debate in the business community is focusing on technocratic fixes, such as changing investor goals, improving governance or addressing stakeholder demands more actively. The debate regarding what socially responsible corporations might look like today is no longer focusing on self congratulatory CSR activities on the side. The strife for a socially responsible form of business is ultimately a debate about the current global system of capitalism. Most fundamentally, substantial change can only come when we radically change the model and core purpose of corporations. This debate – as much as it is still in its infancy – is currently one of the most fascinating and open debates among management professionals, academics and in fact the wider public.

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Professor Dirk Matten is Hewlett Packard Chair of Corporate Social Responsibility at the Schulich School of Business, University of York, Toronto. He is a visiting scholar at the University of Sydney Business School and will be presenting a Sydney Ideas public lecture on Tuesday 18th February on ‘The Enigma of the “Responsible” Corporation’.

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