Why CSR is socially irresponsible

In the concluding part of an exclusive two-part essay for spiked, Phil Mullan explains how CSR is actually inhibiting the very real contributions, in terms of both innovation and economic progress, that businesses ought to be making to society. Read part one here.

CSR is bad for business

Business leaders’ acquiescence, and sometimes attachment, to their CSR obligations is getting in the way of business success. In fact, if CSR was only a campaign driven by a few anti-business, anti-growth groups, then the damage to business and society would be limited. Also, if CSR were just a PR gloss on the part of business – or ‘greenwash’, as some environmentalists deride it – then it would be relatively harmless. It would be hypocritical, perhaps, but not that damaging to business results. But it is precisely because businesses themselves have adopted the CSR agenda that it has dangerous ramifications. CSR is detrimental to business for two related reasons: it distracts from what businesses should be focused on; and it undermines proper business accountability.

A business’s ability to attain and then retain sufficient profitability to sustain itself and move forward is not easy. One in two businesses fail in their first five years, and after 10 years, less than one in three survive. There is no perfect recipe for certain and durable business success, but a focus on the business basics is a necessary foundation. Focus, first, on developing a product or service for a market of customers; second, focus on producing this good or delivering that service in a way that allows it to be sold for a price that generates an adequate return; and third, focus on converting the revenues into real cash, and not spending that cash wastefully on the wrong things. No business survives for long if it has the wrong products or services, produces them with below-average efficiency, and fails to generate and maintain sufficient cashflow from its operations.

And because the market system is inherently dynamic or, to put it another way, disordered and not running to a coherent plan, success one year does not guarantee success the next. Business change – as all the business consultants preach – is a constant, but that’s not a new thing and has nothing to do specifically with contemporary circumstances, be it globalisation or the internet or anything else peculiar to our times.

Businesses operating under capitalism have always been under this pressure to evolve and innovate in what they do. A business focus on the basics, therefore, has to be neverending. Businesses can remain lucky and benefit from a niche advantage for a time, but not forever. Very few businesses that were around a century ago, at the outset of the First World War, are still in existence. Even huge monopolies can’t rest on their laurels for too long. Look at Microsoft, the largest software company in the world; it is being forced to run very hard to catch up with the shift from desktop to mobile technologies.

What all these essential truths about doing business in market economies mean is that anything that distracts or get in the way from this business focus will eventually be detrimental to the prospects for success and survival. CSR is just such a distraction, imposing goals other than commercial success on a business. A business that takes on responsibilities other than sustainable profitability dilutes the prime focus on its commercial responsibilities and goals, and therefore detracts from achieving its primary business objective of durable success. CSR advocates are very keen to talk about ‘purpose-driven’ business, but their efforts are actually undermining the very purpose – making particular goods and services profitably – that a business needs to be successful.

Business has already become unenthusiastic about the sort of things that used to be normal for business: experimentation, risk-taking, change and organic growth through long-term investment. The trend for firms to assimilate the idea that business-as-usual – or, rather, business-as-it-used-to-be – is harmful is encouraging this negativity about ambitious business development.

CSR also encourages and invites the more extensive and intrusive regulation of business – whether in the form of voluntary self-regulation codes of conduct or statutory rules – and we already have too many of both inhibiting business focus. Through ideas and moral pressures and codes of conduct, CSR is reinforcing the existing barriers getting in the way of business progress and survival.

CSR’s polite form of business-bashing expresses a deep scepticism about business motives. This is undermining businesses’ primary role, and is getting in the way of effective business performance. The CSR agenda also makes it more difficult to focus on and address these deficiencies because it waters down and undermines a business’s proper direction of accountability, which is to its owners. When firms attempt to be accountable to the entire world, thanks to CSR, they end up being accountable to no one.

The problem with adding extra social responsibilities, and resulting accountabilities, for business becomes more explicit with the notions of ‘stakeholder capitalism’ and of the ‘triple bottom line’. Both add to the fuzziness of what a business is supposed to be doing, and detract not only from a business’s focus, but also from it even being aware that it may have lost its proper focus. Stakeholder capitalism argues that businesses have shared responsibilities to people other than their owners or investors. As well as this group – its shareholders – businesses are supposed to have responsibilities to many other groups and interests, including employees, customers, suppliers, local community, local environment, and, in some versions, to the ‘global community’ and planet Earth.

As well as the intangibility of some of this – whom should business speak to that is truly representative of the ‘local environment’, never mind ‘planet Earth’ – the more serious problem is that such shared responsibility either obscures where a business’s real responsibility should lie – to its shareholders – or becomes a pretext for failing, if not flouting this responsibility: ‘Sorry shareholders: we didn’t meet the financial returns we promised you because we were too busy responding to and investing in (ie, spending your money on) our other stakeholders.’ Either way, being responsible to several stakeholders effectively means being accountable to none. It avoids real accountability to the group that matters for a business’s organisational rationale.

The recent travails of the Co-operative Group gives an inkling of what tends to happen when you try to marry institutionally two objectives: improved profitability with an explicit mission to do social good. ‘Ungovernable’ was the verdict of the Co-op’s resigning chief executive, Euan Sutherland.

The fashionable idea of a triple bottom line – measuring and reporting to an environmental, a social, as well as to a financial bottom line – is similarly inherently flawed. How can this aspiration be a helpful guide when there is always the potential for conflict between the interests of the environment, of society and of its shareholders? Which take precedence? Over what timescale does the triple bottom line apply?

Take the instance of a power company launching a large-scale, long-term project to construct a dam to generate energy. It is easy to draw up environmental arguments against the project – the land mass destroyed and the wildlife disturbed, for instance. It is also possible to identify social arguments against the project – some people having to be relocated from where they live and work, for example – but there are also significant social arguments for the project in providing cheaper electricity to people. Meanwhile the financial / commercial / shareholder arguments – whether the risk-weighted return on capital is sufficient to justify all the costs of the project – may be equivocal because of the innate uncertainties of the future, and especially of future energy prices.

These types of business decisions are difficult enough to take by commercial criteria alone. By broadening responsibility and accountability to meeting goals in what are likely to be conflicting areas, a focus on the prime commercial objectives is lost and real accountability for meeting them is undermined. Coming to an unequivocal and undisputed ‘right’ answer to all that is embodied in a comprehensive triple bottom line is well beyond the powers of even the most astute modern day Solomon, never mind those of the ordinary well-meaning company boss.

CSR therefore contributes to the sense of paralysis and procrastination that seems to be afflicting Western business leaders, not least when it comes to big investment. Certainly, it does nothing to offset the short termism that is today expressed in the weakness of productive investment and innovation – a weakness that is holding back businesses’ potential contribution to economic and social progress.

CSR is a black-and-white issue

These downsides to CSR can’t be limited by only adopting a partial approach. It is in the nature of CSR that it is insufficient to be a little bit, or moderately, socially responsible as a business, because acting and spending more for ‘society’ is always feasible, at least this side of bankruptcy. This means that becoming fully socially responsible, however well-intentioned the business claims to be, is a goal that is bound to be elusive.

For example, is it really responsible from a business perspective to promote the key CSR injunction ‘do no harm’? Is it possible to be in business and never do ‘harm’? Building a physical workplace ‘damages’ the local environment in some way for some people, even if only by disturbing the view. Or how can one pursue the need for business change if a defining principle is not to harm anyone or anything? How can redundancies be legitimate? Losing one’s job unfortunately causes people harm. How can a firm shrink activity at a particular location, or even close it down, without causing harm to that local community?

‘Doing no harm’, if followed consistently, would limit the forces of creative destruction. But we already see how this discomfort with the destructive aspects of market dynamics undermines any creative potential it still retains. Propping up zombie companies and economies is diverting resources away from creating new, more dynamic sectors. CSR maxims discourage creative change to the detriment of durable business prosperity.

Finally, the idea of a specific business case for CSR, that ‘Good Business’ is good for business and consistent with profitability, is a cop-out. Such defensiveness is not an adequate defence against the encroachments of the CSR doctrine. The core premise of CSR is that business has wider social responsibilities that transcend the primacy of profitability. CSR establishes the wellbeing of society, rather than the interests of its owners and profitability, as the primary concern of a business. It’s no answer to argue that there is no conflict, because in too many cases there obviously is.

What ethically is the appropriate level of wages to pay? How much do you need to spend on cleaning up the environment where you operate? What about tobacco firms? Their products can cause health issues. Can they therefore ever have a legitimate ‘licence to operate’ and to make profit, or is packing up the only ethical and responsible thing for them to do? Where does one draw the line in these and other instances between profitability and ‘doing good’ for society?

Appeasement to CSR is not an answer, since appeasement to damaging ideas is itself dangerous as it invites even more intrusive and destructive ones. One can follow all the CSR principles, carry out the CSR audits, produce the transparent CSR reports, and then, when something goes wrong, or an accident happens, and you cause some unintentional social or environmental damage, not only do you face the same social opprobrium as if you’d never bothered with it all, but it becomes reinforced by the extra charge of duplicity.

Take the example of oil company BP following the Macondo blowout and the Gulf of Mexico oil spill in 2010. BP had built up a strong reputation for CSR during the 2000s, but this only seemed to make the attacks on the supposedly irresponsible behaviour that produced the blowout all the more vitriolic and extreme. As the Ethical Corporation lobby group commented at the time: ‘the company earned awards and top placements on CSR and ethical indices and rankings right up to 2009 and into 2010. BP was named No 1 on Fortune and AccountAbility’s annual rankings of the world’s most responsible companies in 2007… And even as recently as May 2010, determined long before the [Deepwater Horizon] exploded, BP was named as a runner-up for the “Openness and Honesty” reporting category at the Corporate Register’s 2010 CR Reporting Awards.’

So you can spend huge amounts of resources and money on CSR, but you can never do enough to prevent forever the possibility of the charge of social irresponsibility. The Ethical Corporation’s conclusion shows that the logical end of CSR is an end of business itself. For the Ethical Corporation, there is simply no way that oil companies can ever behave ethically: ‘it’s critical to remember that being “best in class” when your industry’s core products and services are fundamentally unsustainable, is a total misnomer. There is no such thing as an “eco-friendly” oil company.’ By some ethical standards then, you can never justify your existence in certain sectors. CSR is not just damaging to business. It challenges the existence of business itself.

CSR is bad for society

Since business is the prime source of the social wealth that can finance society today, and be invested in its future, what is bad for business must also be bad for society. To the extent that ‘doing the right thing’ prevents business from pursuing its own business affairs, the social benefits that derive from business are also curtailed. The indirect social consequences of innovation, technological disruption and social progress are most at risk.

Even if a CSR advocate can show that adopting CSR principles is necessary for individual businesses to protect their reputation and avoid public pillorying, and is therefore ‘good’ for profits – and is much better for individual profits than the alternative of being castigated as a ‘bad’ business – society does not benefit when this comes at the expense of innovation and economic progress, when businesses are as a consequence more cautious and risk-averse in how they operate.

When companies hold back from investing, innovating and expanding, society suffers as well as the individual companies. What is bad for business is therefore bad for society as a whole. Two hundred and fifty years ago, Adam Smith explained there was a link under capitalism between the pursuit of business self-interest and social benefit, with his infamous quotation about looking to the self-interest rather than the benevolence of ‘the butcher, the brewer and the baker’ for one’s dinner. Since the CSR mindset expresses the contemporary perception of self-interest as ‘greed’, and discourages the wholehearted pursuit of business’s own objectives, the result is that business and society both suffer.

While this is bad enough, CSR is hurting society in the sphere of debate and intellectual inquiry, too. Of course, CSR is not the initial cause of the productivity slowdown that has afflicted Western economies and is damaging society, even if it’s making a bad situation worse. However, addressing this slowdown directly should be the primary economic goal for anyone interested in social improvement. Without a return to productive investment, and the productivity gains that can follow, we won’t see a return to durable prosperity. But the CSR framework is itself getting in the way of finding answers to what’s really gone wrong economically.

CSR expresses the idea that our business challenges, and even major economic crashes like the financial crisis, are located much more in the areas of morals, ethics and behaviours than they are in any structural, systemic failings. This both ignores assessing the reasons behind a long-term lack of business investment, and also adds to the intellectual befuddlement by questioning whether such traditional business motives and objectives are that important anymore.

The wider economic problems in the Western world that arise from structural decay are evaded when they get attributed to failings in business conduct. The CSR perspective helps transform the problem of production decay to a problem of trust and of individuals’ psychology and attitudes.

A relevant finding from the 2013 Edelman Trust Barometer was the apparently growing trust gap between institutions and their leaders – globally, trust in business is 32 points higher than trust in business leaders.

These days, it is people’s motives, not institutions, that are most questioned and doubted. Trust in people is a casualty of a society that has lost its way. The loss of meaning and purpose manifests itself in questioning people’s behaviour and motives.

Dilution of a business’s sense of its commercial purpose and meaning detracts from its original social role and makes it less effective for society. The CSR agenda ignores and distracts from the real limitations of business activity today, and is exacerbating the problem by making decision-making more fraught than it needs to be. Moreover, it is contributing to this problem in a deeper way, too, by expressing the same values that underpin the slowdown: a social antipathy to ambition, experimentation, expansion and risk taking. A world where the irresponsibility of ‘traditional’ business is taken for granted is not a world conducive to the sort of bold actions by businesses that are needed to take society forward.

Conclusion

Many businesses have willingly and genuinely adopted the maxims of CSR over recent years. The acceptance of CSR is not a pose or a PR exercise. Nevertheless, this willing acceptance of CSR obligations does not make this a good thing for society. Company boards, senior business managers and shareholding investors can acquiesce to, or positively endorse, the ‘doing the right thing’ doctrine, but that doesn’t make it right, in the same way that if most people acquiesce to, or endorse, restrictions on civil liberties, that doesn’t make those restrictions right either. Majority opinion on CSR, or anything else, can happen to be misguided and wrong, so people who disagree have a responsibility to speak out and try to change opinions.

The only effective business answer to the dangers from this agenda is for more businesses openly to refuse to play the CSR game, and explain publicly and transparently why to do otherwise is damaging. Businesses should ‘stick to their knitting’ in producing their chosen area of goods and services, and should resist adopting a moral agenda on behalf of society. Of course, firms can take moral stances that go beyond their legal and regulatory obligations, but that is something they are accountable for to their boards and shareholders, not to ‘society’.

The services businesses offer on the market can, of course, be social ones, like childcare, or nursing homes for the elderly, or helping people get back into employment, or cleaning up the environment. If there is a social demand, it’s up to a business if it wants to have a go at providing such products or services profitably and durably.

But whether they are producing cigarettes or wind farms, businesses should not take responsibility for society’s stance regarding the acceptability or otherwise of their outputs – that is to usurp and undermine the role of elected and accountable politicians. It’s not up to business to set the standards for where to smoke or at what age, or if there should be any restrictions at all. It’s not up to business to decide if wind farms are good or bad for the environment. Those decisions are for democratic discussion and for the politicians of the day to debate and decide. And if we don’t like what they decide, then we can argue otherwise with them, and, ultimately, we can seek to throw them out and replace them with others. That’s the way democratic politics works. We have no such rights or powers to throw out business leaders. They are not accountable to us.

Our root economic problem is not that businesses are being socially irresponsible, or that business leaders are being unethical. A much bigger and more real problem is a culture which assumes businesses are behaving immorally or irresponsibly, and the moralising compulsion that ensures that all businesses need to conform to an ‘ethically based’ CSR agenda.

Giving moral authority to businesses to adopt values-based agendas for society is anti-democratic, it distracts businesses from what businesses were set up to do, and it thereby risks undermining the positive social impact business can have in making social and economic advances for society. It also panders to the populist business-bashing that is distorting and hampering much-needed analysis and debate about what are the real roots of today’s economic malaise across the Western world.

Read part one of this essay here.

Phil Mullan is the author of The Imaginary Time Bomb: Why an Ageing Population Is Not a Social Problem, IB Tauris, 2000. (Buy this book from Amazon (UK) or Amazon (USA).).