Paul Holmes 14 Mar 2013 // 7:38PM GMT
The second interesting CSR survey of recent days (my thoughts on the first one are here and, in a slightly different form, here), claims to have found evidence that calls into question the business case for corporate responsibility (which is to say that responsible companies are, over time, more profitable—in part because of improved reputation and stakeholder relations. I’m not entirely convinced. The study, called “Pinpointing the Value in CSR,” comes from Thomas Lys, James Naughton and Clare Wang of the Kellogg School at Management at Northwestern University, and concludes that “CSR expenditures generate insufficient returns and hence reduce shareholder value,” which would be discouraging, if true. The study concludes that any correlation between CSR investment and corporate success comes about not because the former causes that latter, but because “investors interpret excess CSR expenditures as a precursor to positive future financial performance. To put it simply, CSR is what ‘rich’ companies do!” But I’m not sure that what the academics involved have studied is CSR. There’s a definitional problem here, and the first red flag is waved pretty early in the article. In describing their study, the authors suggest that “the truest form of CSR is when a company makes a direct monetary contribution.” This seems to me to be not only mistaken, but almost the opposite of the truth. Corporate philanthropy is not the truest form of CSR; it is, at best, the more cynical cousin of true responsibility; at worst, it’s a self-imposed “fine” that companies pay for failing to act responsibly. A truly responsible company, it seems to me, finds a way to extract natural resources from the earth without disrupting indigenous lives or despoiling the local environment; a less responsible company disrupts and despoils, and then makes a contribution to community programs or green charities as a way of “giving back”—the latter term acknowledges that ongoing business operations have stolen something from society. But more broadly, I worry that the study treats corporate responsibility—as many companies to, to be fair—as a series of donations, programs, and investments. But CSR is a business philosophy, an attitude that calls on the company to inflict as little damage as possible on the society and the environment in which it operates, by ensuing that decisions are made with stakeholder interests—and not just short-term financial considerations—in mind. So I’m concerned that the Kellogg study fails to take into account the true cost of some social responsibility decisions: I don’t know if or how it measures the cost of a bank’s decision not to lend to an environmentally unfriendly project, for example. I’m concerned that by focusing on “investment,” it fails to take into account social responsibility activities that cost nothing: some health and safety measures, for example, might pay for themselves; employee volunteerism can often have a benefit without necessarily costing millions of dollars. And I’m concerned that it over-emphasizes philanthropic donations, which may in fact be something that rich companies do, but may not in reality be an accurate reflection of how committed a company is to CSR. So the study is an interesting conversation piece, but I'm not convinced it tells us anything definitive about CSR.
Article tagsCorporate Responsibility