Corporate social responsibility: The rebirth of capitalism

Ever since we entered into a new millennium, business ethics has become a difficult global challenge. Previous decade has been big for CSR; The Enron scandal, BP oil spill, India’s 2G licence scandal and the list goes on. Afterwards, businesses have increasingly being pressured from legal impositions and stricter governance.

With the ongoing and threatening recession, it is happening again. However, this time ‘sustainability’ is reinstated as shared value. This is a new doctrine promoted by Porter and Kramer’s article ‘Creating shared value’ in Harvard Business Review. This comes with a semblance of ‘constructive capitalism’ and proposes that the old approach to CSR should be reconsidered in a dynamic society. But this does not eradicate greediness. Fixing capitalism is still capitalism. At the extreme they put forward that social aim with net benefits is more of a superior form of capitalism.

How CSR is ‘good’ capitalism

Financial obligations still continue to remain a crucial bottom line. Advocates widely agree that a vigorous society needs thriving businesses which account for much of the accumulation of wealth, employment and living standards. Also ethical consumerism keeps corporations off the hook.

The very influential American economist M. Friedman (1912-2006) claimed that CSR is not a legitimate role of managers. They are rather supposed to act as agents with the duty to preserve the principle interest of shareholders. From historical and legal point of view, this is correct. Whatsoever, most managers today decline the pure classical paradigm of Friedman. But does it really justify a difference to how firms behave? Probably not, because a range of contemporary studies suggest that businesses defend their existence by embarking on the socio-economic concept of CSR.

Companies change their internal structure; integrate CSR into their value chain (which can be very effective) and employ CSR people who believe they can change the world. Hiring someone who understands sustainability challenges come forward as a catalogued tool to increase competitiveness. The doctrine of sustainability attracts opportunitism. Investors will always make most of their investment decisions based on financial performance and volatility.

 Lack of strategic understanding of CSR

The modern view of CSR (as I would call ideal CSR) values truthful and engaging stakeholder approach and transformation of CSR into assets. However, what is more unsettling to me is how companies perceive CSR. At the pragmatic level, it is used as a mechanism to realise organisational goals and as a manipulative short-term tactic to keep stakeholders dormant. In other words CSR may rather work as a form of safety net for CEOs who hope that societal values will co-exist with their egoism. Nevertheless, this fails to address poor social performance and managers’ understanding of the vast issues they claim to be concerned about. Rhetorical CSR will simply not work. No wonder firms are accused of ‘green washing’.

However, CSR which genuinely adds value to the business does in turn generate value for the society if it is implemented correctly. Otherwise, like Porter argued; compromising between social and economic values is a constant trade-off and a pitfall. Respective firms endeavour to balance competing interests, costs and value without deriving any tangible or intangible benefits from CSR. Those firms tend to incur CSR costs of irrelevant efforts. You must often take staff outside working hours for voluntary work, use additional resources and employee productivity to fulfil socially responsible activities. Others have resisted adopting CSR in fear of contradicting principal business goals.

The performance of a company or product should rather be judged in a holistic way by not separating business from ethical interests, as well as knowledge of how a firm’s operational units touch upon the society in which they operate. Now that requires a completely different way of thinking in business!

Please share if you found this informative. We very much welcome your thoughts about this article!

Tugba Gunn Sen is an experienced and an aspiring business professional and holds a Master of Science degree in International Management and Accounting from Henley Business School, UK. With particular interest in strategy, CSR and international business, she now offers her critical thoughts on the international businessworld in her blog ‘Taking Business Forward’ exclusively at Rewiring Business. She can be reached via t.sen@rewiringbusiness.com.

Enter your email address to subscribe to Rewiring Business and receive notifications of new posts by email. It’s Free!