Corporate Social Responsibility (CSR) is something I’d like to do some more work in. I haven’t because I’ve not been able to get a consulting gig for Lateral Economics on the subject (hint, hint, if you know anyone who wants some consultant to go boldly where no consultant has ever gone, I’ll tell them you sent me.) Anyway, I’ve offered a few posts bearing on some of the issues.
Right now from what I have read, CSR is in a pretty parlous intellectual state. One the one hand you have the Milton Freedman view which is that the business of business is business. This has the advantage of intellectual coherence and in that regard it’s way ahead of what I’ve seen of the CSR movement which seems to be a kind of rhetorical arm waving. It’s rare that there’s much rigour about what it is or why firms should worry about it.
However CSR is a serious thing. I think it should focus on the interface between business as the kind of ethically anorectic profit maximising entity one finds in neoclassical economic models and the three dimensional ethical beings that populate the workforce, firms and polity. One of the main drivers of existing CSR initiatives is the desire to attract and hang onto employees who want to think of themselves and their job as ‘making a difference’ for the better in the world.¹
Often CSR is pretty arbitrary, and involves a firm committing to (for instance) reducing its carbon footprint, or raising some money for a local charity. And the reason for doing so is that CSR helps give the firm a ‘licence to operate’ from the community it serves.
Well that’s all fine, I guess. But it seems to me that there are two powerful ideas that can be brought to the table, but which rarely are:
- The firm seeks profits in a specific domain in which it has possibly unique and certainly valuable knowhow, and there may be things that it can do that it has a very specific knowledge about which mean that it can make a unique contribution. Many things that firms do in their normal course of action are highly beneficial in more than just economic terms. Thus an insurance company might have campaigns or link its insurance to incentives in various ways to improve safe driving or reduce house fires. But the (neoclassically motivated) firm will generally do this only up to the point where the effort continues to make a commercial return. Making it CSR would take it beyond this point. In fact one of the findings when firms do this out of the goodness of their hearts, is that many such things start out looking like they might lose money but end up serving the company’s commercial interests in various ways – engaging employees more deeply, involving the community, PR etc etc.
- These ideas take on a new power within the context of the new information architecture of the world – the internet. With global public goods just a click away, firms will be able to do great good at minimal cost to themselves just by releasing data and otherwise asking themselves how they might build information goods of general social value. If they can build them they may be creating spectacular value, and the more that do it the more each may be able to contribute to the incremental value of these collective goods.
All this is has been written by way of an introduction to what was intended to be a brief post which was about this. Aa workshop in DEEWR where I am – don’t laugh – thinker in residence – we were talking about indigenous employment and the involvement of firms that are or might become employers of aborigines. I proposed a concept that shows how my stuff about public goods built privately can be useful in thinking about practical things.
Discussion turned to the various firms seeking to employ indigenous people. Now they’ll be doing this as part of CSR, and if they’re doing it in the traditional way as a ‘licence to operate’ then chances are that what they’re doing is building what I’d call an ‘altruistic private goods’. That’s to say that the cost minimising option might be to fly non-indigenous people in to work in the mines or whatever they’re working in. But the company decides in the goodness of its heart that it wants to develop these jobs for aborigines. But it also does this for its value as a potential future competitive advantage.
On the other hand, given the progeny of the idea, and these firms’ motivations, they might not be thinking this way, or if they are, they may be persuaded to think of this endeavour of theirs as having a public good component. If so, then the process of learning to manage indigenous employees – which, it is said, is a difficult one – may be able to take place more efficiently because firms can pool their (knowledge) resources and learn more easily from each other.
So the idea would be to get out there and find out what firms might be prepared to consider their skill building in employing aborigines as a public good and see how they could encourage and support it, not just within their own workforces, but within each others’ workforces. Thus a firm which was mainly focusing on building private goods, would understand itself to also be building some public goods. And this idea of the coexistence of public and private goods is one that the science commons movement focuses on. It is inherent, or was inherent in the philosophy of intellectual property until the IP maximalists tried – pretty successfully so far (and very unfortunately) – to tilt the intellectual playing field towards focusing virtually exclusively on the analogies between intellectual and real property.
¹ See eg, this link (pdf), p. 23.
what you describe above really sounds like window dressing and wishful thinking.
The enlightenment thinkers saw a far bigger and visible role for private entreprises in the moral life of our societies, born directly from their material self-interest. Most importantly, business has something to gain from stable governments that do not punish people ex-post from getting rich. The monarchs who robbed the coffers of their successful subjects when in need of money went directly against business interests. Businesses are hence a strong line of defense in favour of a political system that is stable and where the level of appropriation is within bounds. They are upholders of a democracy, precisely because they know unelected rulers are just like themselves and cant be trusted. Their morality follows their purse, which in this case is a good thing.
Other moral influences of business also come directly from their own self-interest: they want obedient employees who can be on time, dont make trouble with clients and co-workers, are flexible in terms of tasks, etc. They want clients who behave, public goods that help their businesses, and a stable international order. Businesses enforce these desires both within their firms, indirectly via role models, and indirectly in terms of what they tell other actors to do. In many ways, corporations are a pacifying force in this world for no other reason than that they can make more money from peaceful interaction.
By the same token, some businesses thrive on causing disruption. Illegal arms traders do not thrive on peace and pharmaceuticals cannot sell to healthy populations. Their interests are hence often to cause disruption and fear, whatever their ‘Corporate Social Responsibility’ mission statements might say.
Sure, morality can be a business opportunity and, sure, individual entrepreneurs are also humans with their own moral agendas. But the moral effect of these are but snow flakes compared to the ice-berg of effects borne from sheer self-interest.
Paul
Much of Nicholas’s thinking revolves around exploring technological and other methods for tweaking or optimising the workings of governments and enterprises (e.g. “opt-out” defaults to maximise the making of socially desirable choices).
Thus it may well be that promoting self-conscious altruism by whatever means is just generating snowflakes alongside the beneficent invisible icy hand of brute self-interest. But snow is a much more congenial surface to ski on than bare ice, and the aggregation of snow over time is what makes the ice.
Moreover, this sounds a little like some of those extreme libertarian rants of people like Rothbard and Nozick (or Gordon Gekko). Those people typically assume that private enterprise arises and sustains itself spontaneously through rugged self-interested individualism, ignoring the the fact that modern society is a complex organism which has arisen in significant part by deliberate design (e.g. the modern legal system, the limited liability corporation with anti-trust and other laws to restrain its excesses). The rugged individualists are fooling themselves if they imagine that they could exist and thrive without those evolved design features. What’s wrong with musing about developing new design features that would more directly encourage increased altruism/social responsibility?
– the HUB
Paul,
The kinds of things I’m talking about are much more subtle than you’re allowing for. You run a department – or have. You know that there’s a lot more to people than their ‘self interest’ narrowly conceived. You know that Adam Smith appealed to self-interest – but did so broadly conceived if you read the Theory of Moral Sentiments.
Bifurcations between interests is good for good crisp thinking about lots of economic questions, and it’s pretty misleading about lots of others where there are subtle mixes of self interest and the maintenance of public goods (like the maintenance of a ‘culture’ whether it be the culture of a school, a firm, a football team or a society.) Coherent, rational activity between human beings whether economic or in some other social domain is always and everywhere a dialectic between self and ‘other’ interest, self and collective good.
You can bluster all you like but organisations and a huge number of important interactions between people are governed by subtle constellations of interests – narrow self interest, broader more ‘enlightened’ self interest, altruism, desire for belonging and so on. Our conversation here is an example of that.
And that stuff is important, and I’d argue increasingly so.
I would argue that it’s almost a complete red herring to think of CSR with some strong bifurcation between altruism and self interest. Obviously a company will impoverish itself and render itself irrelevant to the world if it splurges its profits on altruism that doesn’t pay. But equally obviously some kinds of altruism, some kinds of other regard are unlikely to cost the company much and may generate large social gains – and sufficient of that surplus may then come back to the company as profits (though this is not necessary to justify the original action.)
The thing is that the way us humangoes got wired up on the African savannah other regarding acts can redound to the benefit of the other regarder in lots of ways – many of which are hard to anticipate! Other regard is kind of how we cut our teeth and learned to fend off the leopards, bring up baby and pass on our selfish, other regarding genes.
MikeM,
The kind of rhetoric on the site you’ve linked to strikes me as soft headed poppycock.
Climate change is not the result of ‘[ir]responsible business practice’. It’s a pity it’s so easy to say. Means not only that lots of people believe it, but also that they think the solution to those problems is ‘responsible business’. It’s not. It’s pricing carbon.
Was business more ‘irresponsible’ in the 1920s? Is that why the global financial crisis of the 1930s was worse? Hardly.
There’s a lot of talk about CSR, in part because most business people want to be able to both believe and represent that their business actions are morally right. But I have some sympathy for Paul when he talks of “window dressing and wishful thinking”.
Nick is surely right that there are times when a company’s “social responsibility actions” have positive spin-offs for their public image. The classic example is the indigenous initiatives of many mining companies, undertaken largely as part of an embrace-your-enemies industry strategy to make the mining companies more acceptable to the groups that would otherwise cause them PR and policy trouble and constrain their profits.
Nick’s also surely right that CSR can tangibly help to raise companies’ status in the eyes of their employees. Indeed, “employee engagement” now seems the most popular justification for CSR initiatives.
The case is weaker, however, that CSR is something that the state needs to encourage.
Nick’s probably right that firms can sometimes make important contributions to public debate because of their expertise. But I’ve been surprised to find over the years that these cases are extremely rare.
The reality is that mostly companies involved in public debate end up talking their own book. And even when they’re probably not, you can’t help wondering whether they are.
On top of that, I have never seen much evidence that companies are very good at making judgements about what is socially or environmentally good. It’s not their special subject. (I have heard this point powerfully made by John Roskam, which surprised and impressed me.)
From a policy point of view I end up at this view: Let governments set the rules and companies operate inside them.
And when individuals within companies find the rules are creating anti-social or environmentally damaging results? There are plenty of ways to blow the whistle. (Try a blog post, for starters.)
The interesting case is the one where a company’s officers feel they have an opportunity to lastingly profit by doing something that is anti-social or environmentally damaging, but not illegal. Corporate law suggests they have a duty to do it. Good conscience suggests they have a duty not to. CSR would be more impressive if it addressed this case, but it rarely does; instead it tends to stress those untroubling cases where profit and good deeds go hand-in-hand.
Paul, as I read you, you are raising some other issues: why businesses might support democracy and the rule of law; how law supports business; the cases where certain businesses might benefit from disorder; and particularly, the role of business in creating a good and moral society.
I’d argue this last is actually far more important than the CSR debate. Paul Seabright is right to argue that business is a vast social co-operation system, nothing less than a remarkably powerful way to organise joint activity between strangers without the normal familial or tribal ties to each other.
This is what Friedman omitted when he said that the “the social responsibility of business is to increase its profits”. He made it sound morally empty, when it is not. Business is a remarkably morally powerful activity in that it encourages people to work together. But business is not thoroughly moral; there are great benefits to imposing certain types of rules upon it – from outside.
I’m not feeling remotely understood here I must say.
I don’t think I’ve said anything about Governments and CSR. Well I’ve mentioned the idea of a government agency partnering with companies, but that’s not really an expression of ‘govt policy’ in any heavy handed sense. Government agencies – and other participants in some particular agenda whether it’s social inclusion or retraining or improving information flows or whatever – will collaborate together or try to to mutually advance common interests.
In this context an initiative was proposed for a unit within Government that is thinking about how to engage firms to employ aborigines. But that’s just agencies collaborating. It’s hardly news that the world has turned out a lot more complicated than might have been presumed – say in the 1960s – when we thought a short sharp ‘war on poverty’ and expansion of the welfare state might do the trick.
CSR won’t solve the problems, but it might be able to unleash some resources (I don’t mean large amounts of dollars ripped from company budgets. Resources here are things like ‘knowhow’ ‘goodwill’ ’employee and community engagement’. I used the example of firms learning to employ aborigines as if that capability were to be treated as a public good. So there were negligible – well no additional resources being used, just the thought that under the rubric of CSR they might be used more efficiently.
In the aftermath of Hurricane Katrina WalMart instructed all its stores in the region to do whatever they could to help people – however they figured was right including treating all the stock in the stores as common property. It was very valuable at the time and a drop in the ocean for WalMart, and here I am now talking about it which means that it’s probably been a good ‘investment’ for WalMart. But that wasn’t really why they did it.
Human beings being the way they are, there are many such opportunities. We don’t have to ideologise it all, insist on the dichotomies between self and others’ interests as the Friedman camp does, or carry on as if it will save the world. It won’t but it might help – it might create something from nothing.
DW writes
I think that’s exactly the kind of deus ex machina that people are expecting from CSR and that IMHO it can’t possibly deliver. The situation you’ve outlined is an ethical dilemma and we have tools for dealing with them – though people continue to disagree about how to solve them, and where to draw lines and all the rest of it.
The thing that attracts me about CSR is that I see a free lunch there. There are things that appeal to people’s ethics that can also work out for their self interest. I think of CSR as of a piece with the breakthrough of Toyota’s production system. In the 1970s the Swedes were saying that you can treat your workers better, but all that autonomy on the shop floor, banishing boredom, or reducing it with multi-skilling will cost you, (If you recall they were experimenting with a team of workers going through the factory and building the whole car). The Germans were saying, you can build better quality cars, but that means more inspectors and that will cost you, and the Americans were saying ‘we can lower the cost of cars by reducing their quality. And Toyota showed that there was a system that tapped into the way people actually were and behaved in teams when managed in a certain way that delivered better workplace satisfaction, higher quality and lower costs.
The suggestion as to how an agency tasked with improving aboriginal employment outcomes might catalyse action where firms might commit to build their knowhow collectively as a public rather than as a rivalrous capability is offered as an illustration of the kind of thing I’m talking about. Whether it is something that itself would work is a very open question, but I’m not talking about firms saving the world from the invidious aspects of their own self interest.
CSR has often become as much about marketing a firm as it is about about genuine actions out of altruism. I accept that philanthropy is a real concept and companies (as well as individuals) can also be philanthropic but there are often whole sections of a PR machine devoted to making a firm look more ‘warm and fuzzy’. In some ways it is chicken and egg with say battery egg farming, has it nearly ceased to exist due to consumer pressure or is it more due to large supermarkets acting through CSR principles that have made such products less available to the market. Probably both things at work.
The benefits of CSR (and there must be some for the bottom line) seem to be in producing a better brand identity and also encouraging (perhaps) a more dedicated workforce. It is certainly the case that employers in times of high labour demand are more willing to place contractual handcuffs on staff through paying for an MBA or a Masters say. This is not to say that the funding of this study is not a genuine CSR act but there is a complex set of parameters promoting such altruism.
It is like reading about a platypus without having ever really seen it, when you see it it is obviously the platypus but it is still remarkable it exists at all.
Ken,
I have no problem with the idea of using technology to make another buck for business or society (depending on who funds your lunch), and I of course agree with you that businesses arise in a social environment. My point remains that the CRS industry pretends to be driven by higher moral values than self-interest. Whilst I understand the absolute importance of this fib to get mileage out of it, its a fib.
Nick,
all the examples you drag up just underscore my point. Toyota treating its employees differently to make better cars more cheaply? Well-mart doing something for the common good though not letting it cost more than a ‘drop in the ocean’ (your words)? Trying to engage aboriginal communities in a way something productive can be gotten out of them? Hello? This is not higher morality costing the world. This is by and large either well-understood self-interest or else ‘altruism that doesnt cost too much’.
DW,
you and I seem in agreement about all this. Business is indeed a vast social-cooperation system and as such has a far stronger effect on morality than the small-fry made up by CSR plans, and yes, it wouldnt work as a self-contained system and thus works only in conjunction with other structures.
Nick, I’ll plead guilty to reacting more to the comments on the CSR concept than to the last third of your original post.
For what it’s worth, the big firms are now doing a lot of information-sharing on indigenous employment. And it’s driven by a genuine concern amongst senior executives to help improve the lot of indigenous Australians. But I think the circumstances are pretty unusual. It’s interesting, but not easily generalisable to a wider range of circumstances.
Paul,
We seem to be talking past one another.
what you describe above really sounds like window dressing and wishful thinking.
The enlightenment thinkers saw a far bigger and visible role for private entreprises in the moral life of our societies, born directly from their material self-interest. Most importantly, business has something to gain from stable governments that do not punish people ex-post from getting rich. The monarchs who robbed the coffers of their successful subjects when in need of money went directly against business interests. Businesses are hence a strong line of defense in favour of a political system that is stable and where the level of appropriation is within bounds. They are upholders of a democracy, precisely because they know unelected rulers are just like themselves and cant be trusted. Their morality follows their purse, which in this case is a good thing.
Other moral influences of business also come directly from their own self-interest: they want obedient employees who can be on time, dont make trouble with clients and co-workers, are flexible in terms of tasks, etc. They want clients who behave, public goods that help their businesses, and a stable international order. Businesses enforce these desires both within their firms, indirectly via role models, and indirectly in terms of what they tell other actors to do. In many ways, corporations are a pacifying force in this world for no other reason than that they can make more money from peaceful interaction.
By the same token, some businesses thrive on causing disruption. Illegal arms traders do not thrive on peace and pharmaceuticals cannot sell to healthy populations. Their interests are hence often to cause disruption and fear, whatever their ‘Corporate Social Responsibility’ mission statements might say.
Sure, morality can be a business opportunity and, sure, individual entrepreneurs are also humans with their own moral agendas. But the moral effect of these are but snow flakes compared to the ice-berg of effects borne from sheer self-interest.