CSR: What are the reasons of so much skepticism?

Consumers are suspicious of business ethics – especially corporate social responsibility (CSR) programs.  What are the counter-arguments and managerial solutions to address this skepticism?

Arguments Against CSR

First up, the hidden agenda behind business ethics and CSR programs is often called into question. A recent survey by the Center for Business in Society shows over 80% of those interviewed (around 500) believe at least 70% of CSR initiatives are purely cosmetic programs to support corporate reputation.

Offsetting this perception is hindered by most of these programs being run by marketing and communication departments.

Secondly, too many CSR programs are designed at the consumers’ expenses. In other words, firms get the good reputation, consumers get the full cost. An example is the “keep the bed linen” program. Hotels ask us to consider whether we really want to have our beds changed every day. Officially the program is aimed at reducing environmental damage. But, we know very well the underlying objective is cost reduction at the expenses of a lower quality service for consumers.

Nobel laureate Milton Friedman’s article The Social Responsibility of Business is to Create its Profit, published in The New York Times Magazine, September 13, 1970, pointed out three important issues:

• Managers’ responsibility lies in the interests of shareholders. In other words, managers are hired and paid to maximize the profits of each stakeholder. They are not entitled to spend corporate profits on CSR or charitable initiatives.
• Social issues are the government’s responsibility – not lower level institutions such as firms. That’s why we pay taxes. Isn’t it?
• Moral responsibilities belong to the individual. Pinning responsibility on organizations makes no sense.

Finally, Albert Z. Carr likened economic transactions to poker back in 1968 in his Harvard Business Review article “Is Business Bluffing Ethical?”. You cannot expect other players to tell you the truth. Bluffing is an intrinsic part of this game. Truth and ethics are not. This way, business ethics can be viewed as just another trick cooked up by smart managers ready to steal even more money from your pocket.

Arguments in Favor

Let’s start by looking at it from a legal perspective. Since the start of the 21^st century, lawyers and policy makers have agreed that laws should favor business when business favors the community and society. It’s not about profits. It’s about people and serving the community.

There is no service without attention to ethics and social responsibility!

Utilitarian though it may seem, business ethics and CSR are essential for maintaining a minimum level of trust in consumer–firm relationships. No trust, no business. Even street markets in areas plagued by mafias and organized crime guarantee some minimal level of trust (such as product quality).  So, there is no way to escape from business ethics and CSR.

Recent empirical studies show our global society’s expectations of corporate practices is on the up. Our grandmothers’ expectations of firms’ production procedures, carbon emission, labor conditions, etc. were much lower. Business ethics and CSR address stakeholders’ ethical expectations. They can also be leveraged to develop a sustainable competitive advantage.

Strategic or operational strategies based on irresponsible or even immoral assumptions are unsustainable. Immoral or illegal acts are always bring with risk, i.e. the risk of legal action, consumer boycotts, strikes, etc. Don’t underestimate the power of responsible consumers!

Several multinational companies, such as Nike and Nestlé have paid enormous reputational, operational and financial costs for this error. Remember: the more ethically problematic practices a firm pursues, the higher the probability of stakeholders reacting. Also, we know very well that managers should stay away from any immoral or unethical temptation . Whenever someone in an organization starts playing dirty, the snowball effect is almost unstoppable!

Finally, recent studies prove a firm’s business ethics and CSR performance directly affects employees’ happiness. And happiness is in turn a main driver of creativity, innovation capabilities and the individual willingness to improve corporate efficiency. So, business ethics and CSR have a positive mid to long term impact on corporate performance.

Some Pointers for Managers and Policy Makers

The discussion above provides some important indications for managers and policy makers:

1. Be authentic! CSR initiatives should aim at making a real impact on society. Employees, consumers and other stakeholders expect your company to be fully and authentically committed to making a better society. Several studies show if your CSR effort is genuine, consumers and employees are more willing to support your initiative.
2. Design win-win programs. If you ask consumers to keep the bedlinen, you have to give something back. For example, the money saved going to an environmental NGO.
3. Be transparent about your mission and commitment towards social issues. Shareholders have the right to know how you plan to use corporate profits. And which percentage will be used to achieve socially-oriented objectives.
4. Remember that “our” people must always be the center of business: consumers, employees and the community where we operate.

“The business of business is the human person,” the rest is irrelevant.

Prof. Lloyd Sandelands