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Yes, Virginia, there is a Corporate Social Responsibility

By William C. Frederick | January 18, 2007

CREDIT: Newseum.

Corporate social responsibility (CSR) has taken some hard knocks lately—from friends as well as foes. Henry Manne, a perennial op-ed favorite of The Wall Street Journal, took the occasion of Milton Friedman's passing to declaim that the free market master had been correct all along in condemning CSR as the road to socialism.

Then, two progressive-minded academics, Aaron Chatterji and Siona Listokin, somewhat surprisingly repeated Friedman's anti-CSR arguments and drew a similar conclusion. Try pressuring government if you want social change, they said, because CSR campaigns take a lot of effort, impose big costs on both sides, and produce only marginal results. This was Friedman's tacit advice to CSR advocates.

Chatterji and Listokin were mirroring David Vogel's recent claims that "the market for virtue"—read CSR—pays only limited social dividends and misleads the CSR crowd into believing that today's corporations are becoming socially responsible in big ways. Columbia University's Neil Chamberlain made the same case in the early 1970s.

Another pair of academics, legal scholars John Conley and Cynthia Williams, point to a virtual takeover of CSR stakeholder negotiations by well-known NGOs who are co-opted by too much chumminess with the targeted companies. Add it all up and it sounds as if Manne and Friedman may have been right after all—CSR isn't, can't, and shouldn't be the concern of business.

Sorry, guys, but you're wrong. The nub of the issue is what CSR is. It isn't socialism in disguise. It isn't a costly failed campaign. It isn't that virtue doesn't sell. It's not a public relations charade played by NGOs and cynical companies.

There is a touch of truth in what each one says. Henry Manne grasps the difference between public and civil regulation, though he detests the former and suspects the latter. Chatterji and Listokin are right to warn against expecting too much from private regulation. Vogel amasses heaps of solid evidence that CSR doesn't "pay." Conley and Williams point to the twin dangers of CSR being co-opted and preempting stronger regulatory measures.

What are they missing? The forest for the trees, in my view. Or they are seeing only means, where ends are all-important. Part of the problem may stem from the kinds of professional backgrounds they represent—law, political science, management—where form and process, not substance, tend to shape approaches to issues such as CSR. But let's leave that matter to the side.

Corporate social responsibility is and always has been about values, value awareness, value change, and value creation. The debate is about the kinds of values that nourish and sustain human and community life—and what business can contribute. Friedmanites are right to insist that business values drive corporations relentlessly to produce the material sustenance that makes life possible and fruitful. But six decades on from CSR's beginnings in the 1950s, we are seeing that business values aren't and shouldn't be the whole story.

The list of social values is long. Minority rights in the workplace (Martin Luther King, Jr.). Consumer protection (Ralph Nader). Gender equality (Betty Friedan). Environmental care (Rachel Carson). On-the-job health and safety (labor union activists). Shareholder rights (pension funds such as CALPERS). Philanthropic gifts (Ford, Carnegie, Rockefeller, Gates, and Buffet).

These social movements encapsulate a range of social values as vital to the sustenance of human life as the equally important business values. The goal of CSR is to integrate these values and the ethical principles underlying them into corporate organization, operations, decisions, strategy, and policy. Can anyone doubt the lasting legacy imprinted on the American business system by the social values of King, Nader, Friedan, and Carson? Of course corporate social awareness has been raised: The CSR message sits squarely in the center of the boardroom table.

Has it not made a difference in our lives? Cars are safer. Consumers more secure. The air and waters cleaner. Workers less at risk of job injury. Women and minorities part of the workforce. Gays granted job benefits. Supply-chain sweatshops monitored. Corporate pyramids flattened and made more participatory. Social values are indeed making a difference at the very center of business life. Harvard Business School's Michael Porter, building on the legacy of his 1960s predecessor Kenneth Andrews, is showing the way for a more effective approach of injecting social values into corporate strategy.

Without doubt, the CSR agenda has a long way to go. But it has traveled far, has injected a new awareness into business decisions, operations, policy, and strategy, and has opened executive minds to the persistent demands of the carriers of social values. Transparency and public accountability, not even on the horizon in the 1950s, open the corporation to an examination of its practices in light of these new social values.

Corporate conduct codes, matched with board-level ethics compliance officers, curb anti-social business behavior. A similar effect comes from regional and international compacts to slow global warming, secure ocean stocks, police slavery, spotlight supply-chain sweatshop practices, forbid child labor, grant fair prices to poor farmers, and establish workers' rights—all of these public commitments to honor a wide range of social values testify to a shift in the way business is done today. Grant all of the CSR naysayers' points—voluntary commitments, uneven compliance, market limits on virtue, stakeholder co-optation, weak government oversight—and you can still discern significant CSR progress.

The purpose of CSR advocacy is being achieved. The failure, if any, may be in the means being employed. Can CSR be advanced faster by linking civil and government regulation? Perhaps so, albeit one then flirts with corporate domination of public policy and government regulation.

But Europe offers a ray of hope not seen in the United States. There, where many CSR goals have long been embedded in government policy, the future prospects of embedding CSR practices in the private sector seem somewhat brighter. Some political regimes are searching for help in carrying those costly burdens, and other governments are actually welcoming a CSR takeover by private corporations. Expect similar trends in other nations where global corporations do business.

The CSR forest is in plain view. But the critics are right—we need more forest rangers to keep it growing.

CSR friend or foe, write to the author at billfred@katz.pitt.edu. He is Professor Emeritus of Business Administration, Katz Graduate School of Business, University of Pittsburgh. His most recent book is Corporation, Be Good! The Story of Corporate Social Responsibility (Indianapolis, IN: Dog Ear Publishing, 2006).

Further Reading

Yes, Virginia, there is a Santa Claus, the most reprinted English language newspaper editorial in history.

"Was Milton Friedman Right?" by Henry Manne, The Wall Street Journal, November 24, 2006, page A12.

"Do Corporations Have an Inherent Social Responsibility?" by William C. Frederick (Letter in response to Manne), The Wall Street Journal, December 1, 2006, page A13.

The views of John Conley (University of North Carolina School of Law) and Cynthia Williams (University of Illinois School of Law) appear in "Using CR Language to Shape and Control" in Corporate Responsibility: A United State? published by Context, a UK consultancy firm.

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