“Corporate Social Responsibility” is a fundamentally flawed concept

Corporate Social Responsibility
Image by Tom Raftery via Flickr

The vast majority of business practitioners that I have met and worked with throughout my career are caring, honest people who one would generally regard as striving to be morally and ethically responsible. They don’t particularly want to run companies that have to put the squeeze on employees and lay them off during tough times; they don’t like being viewed as massive polluters or plunderers of the planet’s resources, and they are very concerned about any issues with their products that are deemed to be “faulty” in any manner. These same business practitioners spend a great deal of their time and energy trying to understand and manage these issues within the scope of running effective and profitable businesses.

Here in lays the heart of the problem: whatever actions they do take on any of these issues has to be looked at through the filter of “how does it impact the immediate and ongoing profitability of my business?” And unfortunately when viewed through that filter, any real and meaningful change to “detoxify” the nature of the business’s relationship in actuality goes “against the grain” of how the business operates. So even the most concerned business manager can – in reality – only make small, incremental reductions in the overall toxicity count of any business.

Consider the following hypothetical – but very typical – example of how this plays out in the daily life of every company, big and small:

Manager 1: We’ve been getting some local complaints again about the factory emissions. It seems some of the kids in the nearby school playground have complained about sore eyes and raw throats. It was a big discussion point at their recent PTA meeting, and we got a pretty rough ride with a bunch of the parents – we found out from a couple of our employees who have kids in that school.

Manager 2: Are we within our legal discharge levels? Has anything changed in terms of our setup or general compliance levels?

Manager 1: No, nothing has changed on our end, and we’re still within all legal levels. It seems it happened over the past couple of weeks under some fairly specific wind conditions, and coincided with the start of little league baseball practice.

Manager 2: Oh, OK. Is there anything we can do that would help out? What kind of alternatives have you looked at?

Manager 1: Well, there are some new pollution abatement technologies that we have been reviewing for quite a while, that look like they would make a significant difference. We’ve tentatively put it into the capital budget for next year; it’ll be a $500,000 hit once it’s up and running.

Manager 2: I can’t see the company going for that. Current projections are that this plant will be mothballed within 5 years, once the new place in Spruce Valley is fully commissioned. We won’t see a lot of investment here. Got any other ideas?

Manager 1: Well, we could re-jig the work schedules so that the factory only ran at night – but that would be pretty disruptive for all the employees. Other than that, there’s not much we can really do about this.

Manager 2: Yeah, I agree. I certainly wouldn’t want to do anything further to upset the employees, not after last month’s layoffs. There is still a lot of pain and hate in the air over having to lay off so many employees.

Manager 1: Not like we had a choice – we’re way off our numbers and barely profitable even after the layoffs. The shame is that so many “lifers” had to be let go. There aren’t a lot of other companies that paid as well in this town, and it’s going to be really tough on those guys to find another job.

Manager 2: Man, some of those guys worked here since they first opened the plant in the 50’s. I really feel for them – it’s going to take a long time for people around here to put this behind them.

Manager 1: By the way, we got one other new development that looks troubling. Looks like one of our suppliers scrimped on some packaging, and we got half way through the production run before some eagle-eye on the line noticed a cracked component. Once we checked it out it turned out most of the components were defective. We’ve had to stop the line while we work through what to do.

Manager 2: Oh, man. This could be painful… All the suppliers to this plant have been approved as preferred vendors, so we don’t do any incoming inspection. What is the Quality department saying about this?

Manager 1: It looks like the supplier’s supplier of packaging made some changes recently to meet some cost demands placed on him by our supplier. Our supplier tells us he needed the reduction in his costs so he could meet his cost targets laid out in our new contract. Apparently there was a review and sign-off of the packaging changes by our supplier, but this type of packaging has never been used in our transportation configuration – so it didn’t quite work out as planned. They’re going back to the initial packaging for now but that’s only a short term fix.

Manager 2: Well, that’s a nice cock-up. What about our production run? How bad is the product? Can we salvage it, or do we need to rework it? That could be expensive…

Manager 1: Actually, it looks like the cracks are surface fractures only, so we think the gas container shouldn’t leak. In normal operation, the product should work just fine. Just to be safe, we’re having Legal look over the situation and make sure we’re covered, liability wise.

Manager 2: Well, that’s a relief. We sure don’t want to have to rework that product if we don’t have to. Once the customer accepts it formally, it’s no longer our concern. Just to be on the safe side, though, we should probably tighten up our inspection of these components until this all gets sorted out.

Manager 1: Yeah, I talked to Production about that already. Unfortunately when we were initially awarded our ISO compliance we downsized the QC department, and we took out a few more of our remaining inspectors in the latest layoff. Quality tells me that’s why they haven’t been able to keep up with the supplier audit schedule that they committed to, so we’ve definitely got some problems here. If we don’t address it soon, we may loose our ISO certification when we have to re-certify.

Manager 2: Well, I’ll leave it with you to sort through this one. Keep me posted if anything changes. In the meantime, I’ll talk with Joe about going over to the school and making a peace offering around the emission levels. Maybe we can sponsor a field trip or donate to their library program again. It’s important that we keep good community relations.

And so it goes. I don’t know of any experienced business person who wouldn’t resonate with the business logic and pragmatism of the above scenario. In fact, at a personal level the managers have significant concern and sympathy for the various stakeholders facing these problems – the community, employees, customers — problems that they spend time and energy trying to determine what they might actually be able to do, and how significant the issues really are.

Fundamentally, the logic of the corporation drive its’ managers to do everything with regard to a perspective and imperative of maximizing profits and thus the baseline behavior we get as “standard operating procedure” from today’s company is very similar to the hypothetical conversation above. And unfortunately, all the “good will” and mantras about “corporate social responsibility” and “being a good corporate citizen” just can’t change the “hardwired” ways of the modern corporation.

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6 thoughts on ““Corporate Social Responsibility” is a fundamentally flawed concept

  1. I am a GM for a corporation and have my own businesses and I can certainly relate. The viability of the company is at the heart of every decision. The example you gave provides the perspective of the ‘better businessmen”, if you will. The conversation is balanced, looking at several variables and realistically weighing them all albeit behind closed doors-the public would not necessarily know that this went on however that honest conversation is what “Corporate Social Responsibility” is. Any further expectations would be naive. On the other hand the conversation that begins and ends with how much money we stand to lose clearly without regard for any other variable is the beginning of the slide down the slippery slope where everyone stands to loose.

    1. I like your statement that the actual conversation is “what CSR actually is”… My real concern about CSR and other such concepts — like triple bottom line reporting — is that we have no agreed, objective, quantifiable measures for these things and very limited tools for approximating them. In all of our real-life management challenges, managers will always be strongly motivated to “put money first” since we are comparing something we can measure (cost, impact on profit) and are typically personally compensated against against some “intangible” subjective measure.

  2. Hi, Tim.

    It was Milton Friedman that argued the only social responsibility a corporation has is to turn a profit and maximize shareholder wealth. That extreme is not sustainable. Nevertheless, social responsibility and ethics are the new business watch words, even if we don’t have an exact definition for either.

    Tony
    http://tonylamb.wordpress.com

    1. Hi James,
      I absolutely agree that the current extreme is not sustainable, however I don’t believe we will get very far bolting on subjective, fuzzy concepts like CSR to what is in fact a hard, precise economic translation machine (business). If we do that we won’t get much more than “green wash” and maybe some small improvements around the edges. Thus my argument is to leverage the very precision of the corporation to drive the “social/environmental” performance we require — we can do this in a straightforward manner by putting prices on externalities. If there is anything that businesses are very good at it is reading pricing signals, adjusting business plans, and responding accordingly.

  3. This is such a good example of the challenges that managers face. Often they come in to deal with problems that have been created by managers before them. The world is changing though, so hopefully the new crop of managers would have the foresight to not build a plant near a school, and to consider the prevailing winds in the design. Hopefully the regulatory bodies would have the teeth to also ensure that air quality is considered before giving the go ahead to build the plant in the first place. As for the people, hopefully they were given meaningful employment while it was possible, and were let go with dignity and respect. Cutting corners on quality by putting the squeeze on suppliers – that is a hard one. Perhaps the suppliers should have been more realistic in what they could provide for what price.

    I would like to believe that corporate social responsibility is the responsibility of every corporate employee, the company itself is nothing if but a collection of people, all making various decisions that have various impacts on society and the environment in which we live. If everyone strives towards being a good human being to the best of their ability first, how can we not bring about change?

    Although I totally I agree that pricing in the externalities is probably the only answer. It is the only true language that business will respond to (although it is nice to dream about the good human theory as well 🙂 ).

    1. Hi Sherry,
      Thanks for your comment. I applaud many of your “hopefully” statements, however the picture is constantly evolving and the landscape (and context) changing. For instance, a dump is approved on a plot of land on the outskirts of town, the town grows, land get rezoned, developers build and sell homes on the rezoned land, and presto — we get complaints about the dump from the new residents. Unfortunately it happens all the time and will continue happening…. our expectations of business performance are constantly growing and often out-pacing business’s ability (willingness?) to respond.

      At a moralistic level, CSR may be the responsibility of every corporate employee however if as an employee if you feel under pressure to make certain types of decisions (“if it was my company, I’d sure do things differently, however I can’t rock the boat here because things are pretty bleak in this economy and I can’t afford to lose my job…”) then it is pretty straightforward to rationalize those decisions.

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