CSR - The Case Against CSR

Aneel Karnani’s article in the WSJ back in 2010 is well worth a read for colleagues and students looking for a bit of balance in the debate about whether CSR is worthwhile for profit-maximising firms.

Karnani argues that where firms appear to be meeting society’s needs with products and services which are a win-win, the motivation for this is simply profit maximisation. So fast food chains which try to boost sales with ranges of healthier food alternatives, or firms like GE which have sold $bns of products which offer improved energy efficiency do so simply because of the profit motive.

What should firms do in cases where doing what’s best for society means a firm sacrificing profits. For example, Karnani argues that society might expect firms to pay their employees higher wages or to address the social costs of pollution. Where this happens, firms rarely act in society’s best interests, because managers are wedded to their ultimate responsibility to maximise profits for shareholders.

Karnani argues that there is a compelling case for government intervention to address market failure. The argument is that, despite their inadequacies, governments are a far more effective protector of the public good than any campaign for corporate social responsibility. Self-regulation is unlikely to work - companies are unlikely to voluntarily act in the public interest at the expense of shareholder interests.