Social Responsibility and “Pubic” Embarrassment

Professor Karnani’s essay in today’s Wall Street Journal perfectly illustrates the fuzzy thinking on both sides of the debate about corporate social responsibility.  He clearly doesn’t like CSR but the reader searches without much success for the reason why.

 The rise of the term “stakeholder” has indeed deluded some people into believing that there is an abstract ethical obligation on corporations to balance profits and the public good, but Dr. Karnani has erected a convenient straw man here. The main stream view is that no-one expects for profit corporations to take actions adverse to the long term interests of shareholders.  Social responsibility is and should be, as he says, a financial calculation for executives just like any other, designed to protect their companies’ license to operate.  Companies that correctly identify the consumer appetite for sustainably produced and transported goods will also make money by marketing that commitment to social responsibility. Companies that fail to keep up with changing consumer opinion in this area will expose themselves to the Journal’s orthographically apt “pubic embarrassment.”

So, other than attacking the fringe that believes that companies should sub-optimize their profitability without any balancing benefit, what exactly is Dr. Karnani’s problem with CSR?  In one paragraph (and a sidebar), he asserts that “a focus on social responsibility will delay or discourage more effective measures to enhance social welfare in those cases where profits and the public good are at odds.”  He adduces no evidence, even anecdotal, for this argument.  Presumably, he would not have the audacity to argue that “Beyond Petroleum” rather than lax regulatory enforcement led to the Gulf oil spill.  In fact, there is at least as much evidence that commitments to social responsibility goals by large corporations are likely to increase the eventual public good and assure their  continued license to operate, surely a shareholder benefit.

 There may indeed be an argument that the relationship between corporate behavior, regulation and self-regulation is currently off balance, but that requires a different discussion.  That is a discussion about finding the equilibrium between public goods such as jobs, growth and innovation and other public goods such as pollution control and the management of natural resources.

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