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Published on GreenBiz.com (http://www.greenbiz.com)

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Why CSR is Essential in the Real World of Business

By Thomas Lyon
Created 2010-09-20 03:30
In a recent op-ed piece in The Wall Street Journal, my colleague Professor Aneel Karnani explained why he thinks corporate social responsibility (CSR) is at best irrelevant and probably socially damaging.

The heart of his argument lies in the assumption of a neat separation between markets and politics. In this idealized world, politics can be counted on to deliver the regulations needed to rein in corporate greed and malfeasance. Then corporations can safely be left in the hands of managers whose sole interest is maximizing profits.

I have a lot of sympathy for this perspective. If politics really worked as advertised, it would make perfect sense to leave social issues to the deliberation of our elected officials. The problem with this perspective is that government failure is just as common as market failure.

Certainly markets can fail because there are too few firms, consumers have inadequate information, or because pollution affects innocent bystanders who do not even buy the product that is polluting their air or water. But government can fail, too, sometimes because it is just too big and bloated to deliver what it promises.

Often, government fails because of the vigorous lobbying efforts of special interest groups. Sometimes these groups extract special favors that protect them from foreign competition (think sugar quotas that prevent Brazil from selling us cane sugar). Other times lobbying protects firms from regulations that would force them to pay for the environmental damage they cause (think former Vice President Cheney's "secret energy task force," which worked behind closed doors to ensure the views of the oil industry were enshrined in public policy).

Exxon -- until it was outed by Greenpeace -- funded research and advocacy by climate deniers who sought to raise doubt in the public mind regarding the reality of man-made climate change. Just as deviously, GM used to lobby against tighter fuel economy standards by lobbying in favor of a gasoline tax, pitting the (politically infeasible) best against the (politically threatening) good.

Face it -- we live in a country where Big Tobacco and Big Oil have covertly funded ideologically driven "science" and fed its biased results to politicians in the sway of local industries. For example, look at Senator James Inhofe, who claims climate change "is the biggest hoax ever perpetrated on the public." Many corporations have funded fake grassroots groups -- dubbed "astroturf" groups by Texas Senator Lloyd Bentsen -- in an effort to convince Congress that ordinary citizens share the political agendas of multinational corporations.

When corporations blatantly work to cause government to fail in its task of solving collective problems, how can we NOT demand CSR? How can we NOT support environmental activists who work to hold such corporations accountable? What else are citizens to do -- wait for CEO succession to deliver a firm into the hands of a boss too principled to dirty his hands in Washington?

Next Page: The myth about the separation of markets and politics.

The Chinese wall separating markets and politics is a myth, one perpetuated by special interests who cynically call for government to solve social problems while working behind the scenes to undermine it.

One response by outraged citizens would be to pass legislation that clearly states that corporations are not persons and have no right to free speech.

A more modest alternative would be to require corporations to account in detail for every lobbying dollar they spend. They should be required to report not only how much and who they paid to make their case, and to what politicians, but also what were the specific arguments they made and what, if any, supporting evidence they gave the politicians they approached.

To date, CSR has generally focused on the social and environmental efforts of corporations. Corporate political efforts deserve just as much, if not more, attention. Irresponsible political lobbying by powerful companies can greatly delay badly needed legislation. Allowing companies to keep secret their lobbying efforts allows them to skirt the boundaries of corruption.

We need to demand that corporate political activity become a central part of CSR. The issue is all the more urgent in the wake of the Supreme Court's decision in Citizens United v. the Federal Election Commission, which opens the door to much greater corporate spending to influence elections.

Step back for a moment to the world of corporate strategy. Most Americans are fed up with our political system, and the amount of influence wielded by special interests.

If firms were required to disclose their political activities, one can imagine them differentiating themselves in the eyes of customers by being politically "clean," that is, not engaging in lobbying at all. Then perhaps market competition would underpin the functioning of the political world, instead of undermining it. Until that time, however, CSR is a highly relevant part of corporate strategy, and firms that take regressive stands can, and ought, to be punished in the marketplace.

Thomas P. Lyon is the director of the Erb Institute for Global Sustainable Enterprise at the University of Michigan.

For further posts on CSR, see "The Case Against the Case Against CSR" by Tim Mohin, "Four CSR Myths Debunked" by Perry Goldschein, "Shooting the Messenger Over CSR -- Again" by Doug Bannerman and "The Perils of Oversimplifying CSR" by Dave Douglas on GreenBiz.com.

Image CC licensed by Flickr user echiner1