Opinionista Jacques Rousseau 19 May 2010

Potholes or profits – the modern dilemma of corporate social responsibility

Is it fair to demand that companies ride the rough, unready road of social responsibility and take on the load of government’s grunt work when they exist to power the economy – and empower people - through the making of profits?

KFC’s recent advertising campaign, based around their stated concern to rid Johannesburg streets of potholes, brought to mind Milton Friedman’s claim that “the business of business is business”. Although there is some dispute whether the phrase should be attributed to him, the idea that private companies are there only to make money (within the bounds of the law) has never met with universal agreement. Critics assert that the power which companies wield obliges them to demonstrate social commitment, for example via financial contributions towards pothole-repair. These purported obligations are backed up by policy and legislation, such as triple bottom-line reporting and the three King reports.

But we should always be wary of letting convention, as well as law, dictate our perceptions of what words such as hypocrisy, right and wrong, moral and immoral mean. The fact that we may prefer the world to look a certain way, and for companies and individuals to act in accordance with those preferences, does not mean that they are obliged to do so – or that they are morally negligent when they don’t.

There is a large set of expected standards, both for individuals and corporate entities. Sometimes, these are prescribed by law, and sometimes by social conventions such as culture and religion. Conforming to these (minimum) standards means that you are not doing wrong – leaving aside the question of whether those standards are, or ever were the right ones.

Then, we sometimes perform actions that go beyond these minimum expectations. Moral philosophy calls these actions “supererogatory”, and they are actions that go above and beyond the call of duty. For many thinkers, actions that fall beneath these minimum standards are blameworthy. The same symmetry does not hold for doing what is expected by those standards, as these actions are morally neutral. Only doing more that what the minimal standards require would be morally praiseworthy.

The question then is: Is it right for us to expect companies to contribute to society beyond the contributions they already make via taxes, the provision of goods and services and employment? The conventions of corporate social responsibility say yes, but that does not oblige us to agree with those expectations. So let us briefly reconsider the matter, disregarding existing conventions and standards that may perhaps be ill-conceived.

At one extreme, some would like to argue that organisations cannot be moral agents. On this view, only individuals can serve as moral agents and, therefore, only individuals can be praised or blamed for their actions. But given that corporate entities do have legal powers in their own right – and also that they are able to contribute to both the harm and benefit of other legal entities (persons, companies and states) – it seems plausible to suggest that organisations can be moral agents.

If so, does being socially responsible mean that the corporation’s actions must not harm other moral agents, or does it mean that the corporation’s actions should benefit them? The important underlying question here is this: Regardless of our answer to the benefit-versus-harm-avoidance issue, should we hold corporations to different standards than we do the average citizen?

I would say no, we should not. Corporations should certainly act in a way consistent with established laws and policy, and be punished when they don’t. That punishment can take the form of legal censure, or it can take the form of reputational damage and the loss of income that may accrue. And analogously to individual citizens, they deserve praise for truly supererogatory actions.

Here, of course, lies another tricky issue. Most corporate social investment may well just be a smug form of PR, in that, because society now expects corporations to be “good”, making efforts to appear so have to form part of your corporate strategy. Corporations who are good may attract better workers, a larger market share and, in some cases, even regulatory advantage. But corporations might not – and may never have – actually cared. And here we can respond by saying “So what?” We still gain advantage from their “good” deeds, regardless of the fact that their underlying motivation might have been completely amoral (and that anyone who expected otherwise might be considered a trifle naïve).

So, whether we like it or not, a company has to appear socially responsible to compete, in that the moral climate now demands CSI. This is in spite of the fact that champions of CSR don’t necessarily do better financially as a result (Marks & Spencer and Starbucks are good examples of this), and also in spite of the unclear causal connection between CSI and improved financial performance. In other words, in cases where CSI correlates with increased profitability, we don’t yet know whether increased profits lead to more CSI, or whether increased CSI leads to more profits.

Regardless of this, we can – and should – ask whether we’re requiring the right people to do the job of building schools, providing bursaries or fixing potholes. Also, whether we’re blaming the right people when these things fail to happen – or when corporate efforts to make them happen are stymied. This is because the core business of companies already provides significant contributions to public welfare.

At a fundamental level, they provide employment and contribute to (sometimes theoretical) social upliftment through how government spends tax revenue. They may provide educational opportunities for their staff, which though self-serving, still benefit those individuals. Most importantly, they compete to provide us with goods and services at an attractive enough price that we are inclined to buy them (monopolies and the like notwithstanding).

But they are not experts in social engineering, or more generally in the details of where interventions to public welfare would be most efficient and helpful. In fact, asking corporations to take on these roles creates a significant inefficiency, in that they already have a job, at which they are skilled and tend to do well – making profit. We make that job more difficult by asking them to perform functions at which they are not skilled.

Then, we can tax that profit – even perhaps more than we already do – and use that revenue for public good. Those best suited to contributing to that public good are those with the broadest knowledge of where interventions are required, namely government.

And this, then, is the key moral issue we tend to forget when talking about CSI: It is the government’s job to look after public welfare. We are letting them evade that responsibility by shifting part of the burden onto corporations, who are to a large extent already doing their part simply via chasing profit.

Of course, companies can choose to trade potential profits for expenditure towards social benefits, but they are under no obligation to do so. Customers can then choose whether they want to support companies that do this, or not. But to insist that all companies share your value system, and should be punished via negative sentiment when they simply go about their core business – or when their attempts at CSI are revealed as inefficient or insincere – is too arrogant for my tastes.

If companies did all that the chattering classes demanded of them – building schools, donating to charities, paying inflated wages and the like – they would certainly fail to be profitable. And then, they would cease to exist. So unless those who demand CSI can offer us a principled, rank-ordered list of priorities that corporations should contribute to, we must assume that they should be free to contribute to none of them, or to whichever they choose.

Traditionally, they have chosen to increase their profits while operating within the bounds of law. Most of us (at least, those who are reading this) have jobs as a result. Those of us who do not have jobs should blame government or simple moral luck – but it makes no sense to blame employers, who might even be able to hire more people if they weren’t spending their money on fixing potholes, simply because we have a misguided desire for them to do so.

While a bad reputation has never been so expensive, we should recall that reputational damage can be caused by both malfeasance, as well as by the expectations of a sensationalist moral myopia that teaches people to expect more than what is reasonable from corporations.


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