Cerebral Shangrila

Tuesday, August 16, 2005

Corporate Social Responsibility (CSR) -- What is right ?

I am currently doing a subject titled " Corporate & Business Strategy" in my MBA and we have an active online discussion board . I shall post in this blog some of my writings there .

I have been a big believer in CSR. I believe that companies owe something back to the community and the people they operate in/with . I was the Chairman of our CSR team in my earlier workplace and we did a lot of community service targetted towards the needy and poor.

However,I happened to read an interesting article on CSR by Milton Friedman ( Nobel Prize winning economist and a man I admire a lot ) . Being a free marketian, his thoughts are definitely provocative and radical.

Corporate Social responsibility (CSR) has remained a topic of considerable debate.Do firms have social responsibility ?

Nobel laureate Milton Friedman ( Acknowledged as one of the most prominent economists of the 20th century) wrote in 1970 that the only social responsibility of business is to increase profits . Under Friedman's analysis, corporations have no social conscience and should not be concerned with being good "corporate citizens".In his view its wrong for a corporation to spend corporate profits on social or charitable concerns since the practice of social responsibility applies only to individuals and not to corporations.It is the prerogative of the individual stockholder to voluntarily spend his share of the corporate profits on behalf of social ends.From an ethical perspective,corporations need conform only to the moral minimum (Laws of society).( Here is the URL containing the full text of the article which appeared in New York Times magazine in 1970 )

I am sure this must shock quite a few because it questions the accepted conventional wisdom.Afterall business is a cooperative venture and thus has an obligation to be accountable to all its stakeholders ( employees,customers, suppliers,community organizations,local neighborhoods, investors, shareholders and the environment).Proponents of CSR beleive that companies do not pay the full costs of their impact and if left unchecked would exploit people,society and the environment unscrupulously.

Then there are firms like P&G,Body Shop which use their reputation for ethical behavior as a competitive advantage.

Though I felt very strongly about CSR before, I see the merit in Friedman's analysis. Perhaps its better to take a middle ground by saying " whatever creates long-term value for the firm should be ok (meaning if CSR results in increased willingness to pay by consumers or in better employee retention or in less social costs , the firms should follow it )" .

What do you say ?


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    By Blogger Dinesh, at 2:23 PM  

  • Looks like Friedman has strong words for the middle road you are suggesting too.

    In the present climate of opinion, with its wide spread aversion to "capitalism," "profits," the "soulless corporation" and so on, this is one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest.

    It would be inconsistent of me to call on corporate executives to refrain from this hyp­ocritical window-dressing because it harms the foundations of a free society. That would be to call on them to exercise a "social re­sponsibility"! If our institutions, and the atti­tudes of the public make it in their self-inter­est to cloak their actions in this way, I cannot summon much indignation to denounce them. At the same time, I can express admiration for those individual proprietors or owners of closely held corporations or stockholders of more broadly held corporations who disdain such tactics as approaching fraud.

    I agree with Friedman's "Mind your own business"!

    By Blogger Dinesh, at 2:24 PM  

  • Middle Ground

    By Blogger Srihari SN, at 7:52 PM  

  • I am an ordinary man...what I hear from you is...

    1) A corporate -- A business entity with a given target to make profit.

    2) Social Responsibility -- A responsibility of an individual to pay back to the society which nurtured him.

    An individual as a small entity can only contribute peanuts towards the "social responsibility", whereas it is the corporates who should volunteer towards the benefit of society.

    After all, it is adviced teach how to catch a fish, than to give fish to a hungry person.

    So, I feel that the corporates can nurture the habit of "Microfinance", "education" and other avenues by which they become "corporate citizens"
    as well they satisfy their "social responsibility".


    By Blogger Tisai, at 9:25 AM  

  • Dinesh, yes, MF is hard-core adam-smithian.

    Siva, the issue is a battle between economics and emotions. we are all stuck between the two !

    By Blogger Cogito, at 8:56 PM  

  • CSR is a good concept, but as they a corporate responsibility or for that matter even an individual's responsibility is not in realising but in doing it. I know a case of a European Bank refusing to fund a project of a large Indian corporate only because the new project would cause a (possible) damage to the eco-system and lost an opportunity to make a few million dollar besides having a large developing economy client... but the CSR prevailed ( or euphumistically called Sustainable Development). Is it also a dichotamy of sorts that you cannot have the same taker from a developed economy??

    By Anonymous Anonymous, at 4:26 PM  

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