Corporate Eye

CSR Doesn’t Pay — A Response

This post is a response to David Vogel’s article “CSR Doesn’t Pay” , published on forbes.com on 16th October 2008.

Before writing it I checked out who David Vogel is. He holds the Solomon P. Lee Distinguished Professorship in Business Ethics at UC Berkeley Haas School of Business.

Wow, not someone who I’d readily cross swords with. However, he has his views and I have mine. We disagree. And here is why…..

What Is CSR?

Corporate Social Responsibility (CSR) is all about ensuring businesses do not forget the social cost of their pursuit of financial profits.

A horrendous, but thankfully rare example would be that of Chevron in the Amazon Rainforest where the company extracted oil for the massive North American petrol market.

They left behind them a poisoned ecosystem, drenched with chemicals and thoroughly unusable. Their methods would not have been tolerated in their target market but the company’s primary concern was, it appears, the cost of the operation not the health of those involved or the legacy it left behind.

CSR is about taking responsibility for your actions. Instead of recognising the need to clear up this mess and take action Chevron has consistently ducked the issue and tried to get others to shoulder the burden.

The core of the CSR agenda is to get companies to understand the ramifications of their actions and plan for them ahead of time, not try and ignore them or sweep them into dusty corners when things go wrong.

What CSR Is Not

There are three very important things that CSR is not.

It is not about philanthropy. The general giving of wealth to help needy, social or community programmes should be applauded to the rafters. However, it has nothing to do with responsibility.

Neither is it about the export of values. For example, the western garment industry relies in part on the nimble fingers of children to do the most delicate works of stitching and embroidery. Theirs is a different cultural, social and economic situation to the West’s; the two should not be homogenised.

Finally, CSR is not and never has been about making money. It is about treating the people who work for a company and the community within which it operates with respect.

Money only comes into it because businesses have, by definition, to be able to cover their costs. So CSR should not, without good cause, result in a company making a loss. That is different to CSR making a profit.

What Did Professor Vogel Say?

The Market For Virtue Frontcover

Professor Vogel starts the Forbes article brightly, stating that there’s a lot of buzz about CSR and how it will make a company more profitable. This, he wishes to say, is hogwash and most of the rest of the CSR community will agree with him.

However his rationale for wishing to destroy this myth is jaw dropping:

There is a “‘market for virtue,” but it is a very limited one. Nor is it growing.

I was so taken aback I had to read this several times just to make sure I had read it correctly. Still unconvinced that I’d understood the argument correctly, I went and leafed through a list of his publications.

Included in these from 2006, is “The Market for Virtue: The Potential and Limits of Corporate Social Responsibility”. An extract from this book states:

There are important limits to the market for virtue. The main constraint on the market’s ability to increase the supply of corporate virtue is the market itself … There is a place in the market economy for responsible firms. But there is also a large place for their less responsible competitors.

So no, I hadn’t misunderstood. Professor Vogel considers CSR to be a commodity, something to be valued and traded. Having taken this in and fully digested it, I wasn’t too surprised to find the Forbes article continued:

Part of the reason why CSR does not necessarily pay is that only a handful or consumers know or care about the environmental or social records of more than a handful of firms. “Ethical” products are a niche market: Virtually all goods and services continue to be purchased on the basis of price, convenience and quality.

What’s Wrong With This?

For starters, I’m rather shocked that Professor Vogel has chosen to make CSR synonymous with “virtue”, a word loaded with overtones of morality and righteousness.

No one is suggesting that businesses should replace spiritual organisations as the ultimate paragons of virtue. To say that they are, when the only purpose is to knock the suggestions down, seems self serving and base.

Then there’s the market. Professor Vogel states in the article:

The market has many virtues, but reconciling corporate goals and public purposes is unfortunately not among them.

Good. In that case let’s be clear. CSR is not a “niche market” … it’s not about making profits or being financially valued. In fact, it’s the very antithesis of this.

It is a public purpose. It is something which is necessary for the greater good of all mankind. It’s about ensuring the pursuit of financial value doesn’t get put before caring for our fellow humans and our environment.

The Future Of CSR

Responsibility

In the quote above Professor Vogel states that consumers don’t know or care about the intricacies of CSR. They don’t know or care about the intricacies of financial reporting either, but that doesn’t stop it being important.

The truth is that this commoditisation of CSR has come about because businessmen are desperate to try and stave off regulation in this area. They’re trying to fit something into the market which doesn’t belong there.

If Professor Vogel is a leading CSR academic then he needs to be listened to. If the market cannot take on board CSR then the only option is far reaching and robust legislation.

Professor Vogel’s alternative, to allow some companies to be more irresponsible than others, is like saying we can have some politicians who are more corrupt or some businessmen who are more fraudulent. This is unthinkable.

At the bottom line there is no room in the advancement of human decency and respect for any talk of money. On the other hand, to suggest there should be a market in selling human misery sounds awfully like an argument which leads to slavery to me.

Picture Credit: “Haas Business School” by toolfan.hess from Flickr under Creative Commons Attribution License.

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A former CTO, Chris has a broad and varied background. He’s been involved with blue chips, consultancies & SMEs across a wide variety of sectors and has worked in Europe, the Middle East and Australia. In 2007 he decided to combine his knowledge of business and IT with his passion for all things sustainable and has been busy writing ever since. However, his greatest ambition remains to brew the perfect cup of coffee.
 
Comments

As a former student of Professor Vogel, I believe that he supports CSR and thinks it’s a very good thing. In fact, last month, Vogel took the “pro” position against former Secretary of Labor Robert Reich in a CSR debate held at the Haas School of Business. You can watch the debate at the following link:
http://hk.youtube.com/watch?feature=user&v=OreAJnDuVzk

The two of them joke that in the past they have taken different positions on the issue, but rather than being inconsistent, I think the Forbes article is addressing a different question. Rather than “CSR, Good or Bad?” the Forbes article responds to the question of “CSR: Vitally strategic or not?”

I think Vogel is trying to be realistic about how important CSR actually is today in determining the performance of companies.

Also, his use of the word virtue should not be overanalyzed. He basically just means companies “doing the right thing” which is in line with your notion of “taking responsibility for your actions.”

I think that after you watch the video (or even five minutes of it) you’ll see that Vogel is a very smart guy (also a very funny guy) who simply wants to better understand the limits of CSR and how it can be improved.

One of Vogel’s lines is that just because CSR is becoming more important doesn’t mean that it’s the most important aspect of running a business, or that there aren’t other things that are becoming even more important that could actually erode CSR gains.

So while it’s perfectly honorable to defend CSR and extol its virtues, to ignore its limits is to lose the ability to properly place it in the balance of business and society.

Chris Martin’s response to David Vogel’s article “CSR Doesn’t Pay” is disappointing and full of ideology and dogma. I was hoping to see facts that prove Vogel wrong. I was hoping that since it cannot indeed be proved that CSR is profitable to the business, it is at least beneficial to specific communities. Instead, Martin says, it does not pay because it is not supposed to – the kind of argument I always lose against my eight year old daughter. It takes us nowhere. He says “no one is suggesting that businesses should replace spiritual organisations as the ultimate paragons of virtue”. Yet, the gist of his response is exactly that.

@Luke: thank you very much for your response, and for pointing me toward the YouTube video — a thoroughly enjoyable watch!

@Andile: I’m sorry that you didn’t find the facts you were looking for in my article, but you raise an interesting subject.

Many examples of how companies’ CSR activities have been beneficial for the communities within which they operate are published as case studies on their websites. This, along with demonstrating overall ROI on websites, is a subject Corporate Eye is very interested in. We’d like to hear the views of any of our readers on this topic – please feel free to comment below. Thank you to Andile for bringing this up.

To be clear: my suggestion is that if CSR is defined as being “a public good” then it should be a matter of regulation, not treated as a marketable commodity, to be valued, bought and sold. This is irrespective of the profitability, or otherwise, of CSR.

I’m never for legislation, but I think we must mandate CSR or destroy our ability to live on an uninhabitable planet. It’s a tough concept, and everyday we get closer to an inevitable shutdown of a catastrophic scale.

Hmm. That sounds so doomsdayish….but CSR, if I understand the original Corporation concepts, was something we, as simple citizens, could insist upon by shutting down Corporations who violated social trust and responsibility. I don’t suppose it’s as easy as it was suggested it should be. But I like the original concept (if it was really like that).

Also…it would be responsible to have life-terms for Corporations just like we have for all living things. That could help manage responsibility.

Thanks for posting the article. It’s intriguing.

@Steven Lifetimes for corporations .. now that’s something I’d never entertained before. That is intriguing.

The UK has recently passed legislation (Companies Act 2006) which, in theory, could see any shareholder taking the board to court for not performing their duties, when previously only another board member could do that.

The fear is that companies could get infiltrated by activists as shareholders who could cause merry havoc.

But from the more reasonable point of view this could be dangerously close to what you suggest.

What do other people think? Is it possible to entwine CSR and corporate activity together, or should they be kept separate (ie. CSR becoming regulated)?

According the latest McKinsey Quarterly Survey on business and society, Socio-political issues are less feared today in executive suites around the globe than they were a year ago.

Compared with a year ago, when executives saw environmental issues and human rights standards more as risks than opportunities they now see these two issues and many others primarily as opportunities.

According to the same survey, 70% of NGO representatives describe corporate contribution to the public good as positive. Business executives on the other hand are significantly more critical of their own contribution, with 52% of business leaders viewing their contribution as mostly or somewhat positive.

How did we get into this antagonistic relationship? We got here because corporate social responsibility started as a response to various interest groups’ criticism of business externalities. We got here because corporate social responsibility got placed in marketing or public affairs departments, not in the office of the CEO. In the course of these non-core operations people defending often the indefensible, they dug themselves deep in the trenches and failed to notice that the war is over. The same applies to self-righteous NGOs and individuals who are bent on maintaining the status quo for their own financial interest as opposed to society or the environment.

The challenges of our time call for less ideology, less threats or blame games, but a renewed pragmatism of hope, collaboration and cooperation. The reality is that 51 of the 100 largest economies in the world today are corporations. We need to find a different way of dealing with our current realities, than perhaps our parents did in the 60s. More regulation is not likely to be one of the succeful ones. The recent demise of corporations in America & Europe prove that they, like the rest of us fellow mortal, have a life term!

@Andile Thank you for your reply and for continuing the discussion.

I’m interested in whether you, or anyone else, feels there is any room for regulation in the realm of certification for CSR or the wider sustainability agenda.

Here I’m envisaging the implementation of tweaks to financial reporting regulations or moves to underpin basic standards and so provide a framework for inter-corporation comparability.

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