The Case against the Case against Corporate Social Responsibility

I would be remiss in not finishing out this month with a response to The Case against Corporate Social Responsibility, the WSJ piece by University of Michigan professor Aneel Karnani.  For anybody who has not read it, you should, if no other reason than to revisit the usual arguments against CSR.  These are not new, nor are they particularly novel or interesting, but the amount of attention garnered by Professor Karnani’s article merits comment.

To dissect the author’s argument, imagine a Venn diagram where one circle represents things a company can do to make a profit and the other represents things a company can do that are good for society.  It makes sense that a company would do the things that fall at the intersection of the two circles since there is no reason not to offer products and services that benefit society and the bottom line simultaneously.  The problem emerges, however, when companies begin to take on activities that benefit society at the expense of the bottom line.  A movement to this effect within a single company robs shareholders, and a societal shift towards companies doing things that are good for society but not the bottom line may give regulators the impression that they can step back and let companies do their own thing, and more generally cause society as a whole to overlook more effective solutions than companies can offer.

Karnani’s criticism treats corporate social responsibility as the part of the Venn diagram circle representing things benefiting society but not augmenting the bottom line and there are is a fundamental problem with this way of looking at the subject.  But by focusing on this aspect of CSR, he ignores the mirror image of the diagram, which includes activities that benefit the corporation at the expense of society.  While it is true that many CSR initiatives fail because unprofitable programs are likely to be eliminated as quickly as they are started, one bigger point is that CSR can also include the scaling back of activities that profit the corporation while hurting the company.  While Karnani may concede this point subtly in passing, decisions NOT to do things that hurt society are arguably the most important part of CSR.

Professor Karnani’s piece has been compared in various blogs to Milton Friedman’s famous 1970 NYT piece, The Social Responsibility of Business is to Increase its Profits.  When I read Friedman’s piece in business school, I objected to what I perceived to be an antiquated view of CSR which could be indulged because it was written before a significant amount had been written about CSR.  But by 2010, shouldn’t a professor at Michigan be able to offer a more well-rounded argument?

Photo credit: Korean Resource Center