In Search of Ignorance
Monday, March 22, 2004
HBS Working Knowledge: null: An Opposing View on Corporate Social Responsibility: "In a day that celebrated social responsibility and corporate virtue, one speaker offered a counter view by calling such programs 'a complete fig leaf' and saying they can do more harm than good.
Matthew Bishop, business editor of The Economist, said company social responsibility initiatives could diminish shareholder returns, distract business leaders from their focus, and often allow companies to continue bad behavior in the shadows. "
"Are companies actually socially irresponsible? I think the overwhelming message is that they are not," said Bishop at the 5th Annual Social Enterprise Conference, held March 6 at Harvard Business School. "It has been the process of people seeking to make profit, and the expansion of an economic system where that pursuit of profit has been possible, that has made the world fantastically more wealthy than anyone thought possible, even thirty or forty years ago."
In the end, pressure put on businesses by non-governmental organizations and other advocates to create social as well as financial benefit may have the opposite effect of what is intended. Because of media attention, Bishop said, many companies are beginning to feel it is better to pull their factories out of countries where there is desperate poverty, rather than risk being seen operating at standards below what you might expect in, say, Massachusetts.
"It is troubling to see companies accused of treachery for trying to be economically efficient," he told the audience, which largely appeared to disagree with his comments.
Recalling his recent experience at the World Economic Forum in Davos, Switzerland, in February, Bishop said that CSR proponents have terrified the CEOs of the world. Nestlé CEO Peter Brabeck-Letmathe was the only chief executive willing to say for the record that the primary role of the company is long- or medium-term profit maximization to benefit shareholders. "All of the other chief executives with whom I spoke said they thought he was completely mad to get up and say that in a public forum," Bishop said. But privately they agreed with him.
On the defensive
Companies are funding CSR initiatives not because they are in the best interest of the company or shareholders but to get NGOs off their backs, Bishop said. "Bad press has put everyone on the defensive."
In addition, there is no guarantee that cooperating with NGOs buys a company any long-term reputation protection, he said. Both Nestlé and Nike have spent millions to improve social conditions in their factories, yet get little credit in the press because they work outside of the CSR movement, Bishop said.
It is troubling to see companies accused of treachery for trying to be economically efficient.
— Matthew Bishop, The Economist
Bishop criticized the media for contributing to the problem. Media companies are out to make a profit, and many have cut back on foreign coverage. "You've got a group of people who are not well paid, who are not in the same mindset as people who work in companies, and who haven't really been exposed to the realities of what corporate life is like."
NGOs often feed journalists stories of supposed corporate malfeasance, which the reporters are happy to print without much on-the-scene checking. "They are desperate to get noticed because your main professional reward as a journalist… is to get your name in lights by saying something interesting. So there is a tremendous appetite for powerful stories."
Another worrying issue, he said, is that the climate for open debate about free trade and the business pursuit of profit is being destroyed.
As a remedy, Bishop said the media and the public should start putting pressure back on governments to improve labor and social issues. In effect, we are letting government and politicians off the hook by pressuring the companies we work for and invest in to take on additional financial and social burdens.
Bishop compared using company money to further socially responsible causes with a CEO deciding to buy a corporate jet. The executives shouldn't be spending shareholder money on things that aren't directly related to the bottom line, Bishop said.
In a world where governments/NGO's and business can each take responsiblity for their role in the world, Bishop makes a good case. However, in the US, where business sets the government agenda, there will potentially be no one who says "social responsibility is OUR role."
