An important new report on Corporate Social Responsibility (CSR)

Just a quick glance through the Economist’s recent survey of Corporate Social Responsibility throws up some fascinating facts and issues for discussion.

Should firms be working for the good of their shareholders, or a fuzzier group of ‘stakeholders’ – a wider community of people? The answer is not clear cut.

The traditional answer from free-marketeers such as Milton Friedman was that “The social responsibility of business is to increase its profits,” (as quoted in the New York Times Magazine in 1970).

More clearly stated, opposition to CSR is based on the argument that the public good is best served by the government; that CSR is a public relations stunt; and that it involves playing with other people’s money.

An example from the article to support this view is quite startling:

There is nothing wrong with making money: more than anything else, that is how companies do good. The welfare they create in the form of jobs, products and innovation dwarfs anything firms are likely to do explicitly in the name of CSR.

In 2004-05 Oxfam, an agency devoted to poverty relief, and Unilever, an Anglo-Dutch consumer-goods company, jointly conducted a detailed study of the economic impact of Unilever’s operations in Indonesia. The conclusions were eye-opening, especially for Oxfam. Unilever in Indonesia supported the equivalent of 300,000 full-time jobs across its entire business, created a total value of at least $630m and contributed $130m a year in taxes to the Indonesian government. The lesson for firms is that they have been far too defensive about their contribution to society. If efforts to do good become a distraction from the core business they may actually be downright irresponsible. After all, a socially conscious but bankrupt business is no good to anyone.

But the article argues that this is no longer the point: CSR is here to stay and is now an integral part of the marketing of most firms. More astonishing research to support that view:

In 2005 ABC Home Furnishings allowed two Harvard University researchers, Michael Hiscox and Nicholas Smyth, to conduct an experiment on two sets of towels. One lot carried a label with the logo “Fair and Square” and the following message:

“These towels have been made under fair labour conditions, in a safe and healthy working environment which is free of discrimination, and where management has committed to respecting the rights and dignity of workers”.

The other set had no such label. Over five months, the researchers observed the impact of making various changes such as switching the label to the other set of towels and raising prices. The results were striking: not only did sales of towels increase when they carried the Fair and Square label, they carried on increasing each time the price was raised.

No wonder companies are keen to appeal to ethically minded consumers, whether on labour standards or green credentials.

There are plenty of supporting graphs charts and tables too at Special Report on Corporate Social Responsibility - The Economist

Economist Report here