Corporate Social Responsibility: why we should drop the concept

Corporate Social Responsibility (CSR) is a concept that has permeated the language of business as a taken-for-granted, feel-good synonym for ‘ethical.’ Despite the term’s vagueness, it’s often evoked as an important goal of business, to restrain the profit motive—which is viewed, if not as outright unethical, at least potentially harmful. But to adopt and use concepts such as CSR without an exact understanding of their meaning is hazardous.

I was reminded of this recently when I gave a short talk as a part of a panel on CSR in the context of natural resource industries to a group of lawyers. The other three panelists – all lawyers – presented interesting case studies on companies dealing with local populations in different cultures when either establishing or exiting operations. Adhering to moral principles, such as rationality, honesty, and justice (without identifying them as such)—which is in a company’s self-interest–was presented as CSR.

Companies and their lawyers may think that they should use the CSR concept to label their rational, self-interested—profit-seeking—actions to present a good public image and gain approval of their constituencies (shareholders, employees, customers, consumers) and potential critics. However, giving up conceptual clarity for such appeasement is a bad trade-off, because achieving long-term profitability is challenging and not possible without clear thinking.

So what does CSR mean and why is it an invalid concept? According to Business Dictionary, CSR is “a company’s sense of responsibility towards the community and environment (both ecological and social) in which it operates. Companies express this citizenship 1) through their waste and pollution reduction processes, 2) by contributing to educational and social programs, and 3) by earning adequate returns on the employed resources.” Wikipedia tells us that CSR approaches vary by country, from providing secure employment, making safe, high-quality products, and philanthropy, to contributing to health care and education.

CSR is an invalid concept because it is what Ayn Rand called “a package-deal:” it packages together “disparate, incongruous, contradictory elements taken out of any logical conceptual order or context.” Mixing of contradictory elements makes a concept such as CSR hazardous to thinking. While including elements that enhance human flourishing, such as respecting others’ individual rights (not polluting their property), efficiency (waste reduction), and profit making, CSR also sneaks in the ideal of altruism, the duty to serve others “to further some social good, beyond the interests of the firm.”

The CSR package-deal diverts corporate executives’ focus from the proper role of business: producing and trading material values—on which our lives, well-being, and prosperity depend. If the executives accept CSR as an ideal, they will be always questioning the morality of the profit motive, earning unearned guilt from pursuing profits, and making attempts to divert the corporation’s (the shareholders’) resources to “social” and “environmental” causes.

Companies cannot have “social” responsibility, which means duty to society as a whole. Society as a whole means all the individual members of society, a duty to whom doesn’t have any practical meaning. Corporations are organizations based on voluntary co-operation of its constituents (shareholders, employees, customers, suppliers, creditors), and owe a fiduciary duty to their shareholders and contractual duties to their other constituents.

The only other responsibility corporations have to anyone is the respect of individual rights (to life, liberty, property, and the pursuit of happiness)—which alleviates or prevents potential problems, such as pollution or other harm caused to individuals.

As Milton Friedman convincingly argued more than 40 years ago, corporations have no other social responsibility but to maximize their profits, while adhering to the law and to ethical norms. I agree, with the clarification that the ruling principle is the individual rights (which should, properly, be protected by the law). The corporations’ money belongs to their shareholders, so it is not up to the executives to spend it on their favorite social (or environmental) causes.

It is always in companies’ self-interest to act according to valid moral principles identified by Ayn Rand: rationality, productiveness, justice, honesty, independence, integrity, and pride. As I show in my book, long-term profitability can only be achieved by adhering to these principles. This means seeking win-win solutions with all those with whom a company trades: the company creates value for its customers and therefore for its shareholders, while employees, suppliers, and everyone affected by such trading, benefit.

But such conduct is ethical business, not Corporate Social Responsibility. We should keep that distinction clear in our minds—if long-term profitability of companies, and human flourishing, is what we want.

Originally posted 20 November 2016

Photo by Yasyr Eryilmaz on Unsplash

Corporate Social Responsibility: why we should drop the concept