In his recent WSJ article, Aneel Karnani makes a controversial argument against Corporate Social Responsibility (CSR). He defines CSR as the increasingly popular idea “that companies have a responsibility to act in the public interest and that they will profit by doing so.” His basic argument against this idea is two-fold. First, he argues that if profits
and public interests are aligned, CSR is irrelevant. In the associated podcast he gives the example of Walmart using LED lights in their refrigerated cases. By using LED lights that are more environmentally friendly, Walmart also saves money, energy, and the labor cost of replacing bulbs. “But we don’t need to praise Walmart for being socially-responsible,” he says “they’re doing what is in their own self-interest.”
On the contrary, I suggest that CSR is not irrelevant. The fact that making a profit can coincide with making a positive contribution to society does not make that public good irrelevant. Walmart should be praised on both accounts: they are cutting costs and being socially-responsible. Through such publicity, other retailers will follow suit and Walmart’s public good will reverberate through the industry and LED may become the norm for refrigerated units. In this manner, CSR fosters the sharing and transferring of ideas that benefit people, the planet, and profits and brings those ideas to the fore to create positive social change. CSR aligns with Adam Smith’s recognition that self-interested pursuit can give rise to broader social benefits such as wealth creation. Those associated with the work of CSR focus on the potential for broader benefits and seek creative ways to contribute to the public good while increasing profits.
Second, Karnani argues that if profits and public interests are not aligned, CSR is ineffective and other methods of coercion should be employed to protect the public interest: government regulation, NGO watch-dogs and advocates, and self-regulation. Karnani makes a good point in this argument when he says that CSR may delay effective regulative measures by “greenwashing” or disguising destructive practices under the guise of social responsibility. For this reason, I agree with Karnani that the public good needs continual protection through laws and independent watchdogs. Yet this does not mean that CSR is completely ineffective as a means of coercion. The work of CSR can help to reframe the debate within a corporation. It raises broader questions of public perception, productivity, and employee satisfaction—all of which impact profit. Companies like REI and Starbucks, who attempt to create corporate environments that creatively integrate CSR into their corporate values have provided such a reframing, demonstrating that profits and public interests can be aligned in areas previously perceived as conflictual. For example, Starbucks has chosen to pay higher costs for their products than the market rate in order to build their brand on fair trade practices and quality goods. Promoting social responsibility has built loyalty within their markets and personnel and it has reframed the supply-side conflict between profits and public interests while demonstrating that CSR can effectively shape an organization from within. Certainly, the interests of the public cannot be upheld solely by corporations and, as in the case of Starbucks, watchdogs and consumer advocacy groups prove valuable tools in pressuring protecting the public and punishing unacceptable behaviors. Yet corporations who take seriously their responsibility to the public can contribute to society in a manner that is relevant, effective, and profitable.