The Argument(s) Against CSR

Contemporary CSR is a relatively new economic and sociological philosophy, still evolving and creating much debate. Institutional change and a move away from traditional shareholder orientated management frameworks is required for CSR to integrate into corporate structure. There has been much development in CSR literature and there is evidence showing it to be increasingly influential in corporate decision making. Utting (2005, p.376) notes that ‘the history of progressive institutional change under capitalism suggests that new policies, norms, and regulations often reflect changes in the balance of social forces, activist pressures, and regulatory threats, as well as occasional crisis conditions’. However, many question the relevance of what is perceived to be CSR with criticism emanating from all ends of the corporate spectrum, den Hond

et al. (2007, p.442) highlight examples from both ‘neo-liberals - if CSR is not hypocrisy, it is at best

nothing more than a reconfirmation of the benefits of self regulation in a free market context, and anti capitalists - if CSR is not hypocrisy, it is at worst nothing more than an empty promise of the illusionary benefits of self regulation in a free market context’ whilst Fauset (2006, pII) states ‘ultimately, CSR is not a step towards a more fundamental reform of the corporate structure but a distraction from it. Exposing and rejecting CSR is a step towards addressing corporate power’.

The most famous opponent of CSR is perceived to be the economist Milton Friedman whose now infamous claim that ‘the social responsibility of business is to increase profits’ is still the basis of modern day opposition. However, Freeman (2007) questions whether Friedman would still possess such views today given the changes in the modern business environment. That said the

‘miltonian argument’ (Baker, 2010) is still being used, most notably by Karnarni (2010) who argued in the Wall Street Journal that the ‘idea that companies have a responsibility to act in the public interest and will profit from doing so is fundamentally flawed’. Karnarni (2010) argues that a director’s single duty is to maximise returns for shareholders and this duty is still relevant even when the interests of company and society were opposed and that it was the job of the government, not business to worry about society.

2.14.1 CSR Results in the Misallocation of Shareholders Funds

An argument for shareholder primacy and against CSR can be to claim that CSR initiatives divert money from its rightful owner, the shareholder, leading critics to refer to CSR as a ‘tax’ (Karnarni, 2010). Atkins (2006) claims ‘the notion that the corporation should apply its assets for social purposes, rather than for the profit of its owners, the shareholders, is irresponsible’ and refers to BP’s Alternative Energy marketing campaign as an example, claiming it makes consumers feel good about purchasing BP products, however if the return on their environmental investments was nil the investing public would move their investment to a competitor for profit.

2.14.2 Self Regulation is Not Sufficient

The widely held view of CSR is that it comprises of voluntary non binding regulation that companies adhere to show their commitment to ethical corporate behaviour and to portray themselves as a good corporate citizen. There are a variety of codes that companies can use as guidelines, examples of which include the ISO 26000 Guidance on Social Responsibility, the UN Global Compact and the Bench Marks Principles for Global Corporate Responsibility. The International Chamber of Commerce (ICC) is a major proponent of self regulation and claims that ‘good corporate practice is usually spread most effectively by strong corporate principles and example, rather than by codes of conduct’ and that ‘voluntary business principles have the advantage of bridging cultural diversity within enterprises and offering the flexibility to tailor solutions to particular conditions. Voluntary approaches minimize competitive distortions, transaction costs associated with regulatory compliance, and inspire many companies to go beyond the regulatory baseline, thus often eliminating the need for further legislation’.

Critics of self regulation (Balkan, 2004, Fauset, 2006, Karnarni, 2010) argue that CSR is being used by business to thwart the establishment of international regulation on corporate activity. The worry for business is that increased regulation may have a negative impact on the balance sheet as ‘regulations are designed to force corporations to internalize i.e., pay for costs that they would otherwise externalize onto society and the environment’ (Balkan, 2004, p149). The strength of the opposition to regulation was realised at the 1992 Earth Summit in Rio de Janeiro, when UN

sponsored recommendations on regulation were rejected in favour of voluntary self-regulation as prescribed by the World Business Council for Sustainable Development (WBCSD). Christian Aid (2004) has referred to this event as ‘the birth of modern CSR’. This ‘victory’ was repeated at the 2002 Earth Summit in Johannesburg when the Business Action for Sustainable Development (BASD), a joint initiative by the ICC and the WBCSD successfully argued for the promotion of voluntary mechanisms over binding international regulation.

The continuation of self regulation seems all the more astounding when Balkan (2010, p.110) provides the comparison between the regulation of the corporate person to that of a natural person by stating ‘no one would seriously suggest that individuals should regulate themselves, that laws against murder, assault and theft are unnecessary because people are socially responsible. Yet oddly, we are asked to believe that corporate persons, institutional psychopaths who lack any sense of moral conviction and who have the power and motivation to cause harm and devastation ... should be left free to govern themselves’. Karnarni (2010) proposes government regulation as the ultimate solution and argues that for all their faults, ‘governments are a far more effective protector of the public good than any campaign for corporate social responsibility’.

2.14.3 CSR for the Wrong Reasons

As more consumers become concerned about the impact of business on society it has become increasing necessary for businesses to impress their approach to CSR on the public through the marketing of their products. CSR appeals to public conscience and can help create a wider customer base and create brand loyalty. It is for this reason that CSR is recognised as a valuable tool when developing marketing strategy. A browse through CSR related jobs advertised on websites such as ‘Ethical Corporation’ reveals that the majority of them are marketing or communications related. This reveals where CSR sits in the corporate structure and gives rise to the argument that CSR is predominantly a marketing based initiative. This argument is further justified when companies fail to live up to their publicly stated CSR standards.

‘Greenwashing’ is perhaps the most infamous CSR related marketing term. It is defined by the Oxford English Dictionary as ‘disinformation disseminated by an organisation so as to present an environmentally responsible public image’. The use of greenwash distorts the ability of consumers to make informed decisions and when it is uncovered can create cynicism amongst stakeholders (Matten et al., 2010, p.215) and damage corporate reputation thus negatively affecting shareholder returns.

The corporate structure in its purest form has been described as ‘pathological’ in its pursuit of profit (Balkan, 2004) but if we look beyond the corporate veil we see directors who can be influenced by

moral obligation and business ethics and it is on these characteristics that CSR depends. Issues such as auditing, compliance, transparency, monitoring and government participation need to be addressed if there CSR is to continue evolve. The argument that CSR policy is only superficially influenced by its stakeholders may sound cynical to those who believe that companies should act for the benefit of society, but they can take heart in the fact that it is stakeholder influence that has brought the CSR agenda to the forefront of business. It is also worthy of note that as external stakeholders can be regarded as amongst the toughest critics of a company, their expectations and influence can lend to the robustness in the development of CSR programs (Bhattacharya, 2009).