In today's WSJ, Aneel Karnani makes a case against corporate social responsibility. There's niot a ton that's new or novel here, but it's reasonably well done. His core argument is that:
Very simply, in cases where private profits and public interests are aligned, the idea of corporate social responsibility is irrelevant: Companies that simply do everything they can to boost profits will end up increasing social welfare. In circumstances in which profits and social welfare are in direct opposition, an appeal to corporate social responsibility will almost always be ineffective, because executives are unlikely to act voluntarily in the public interest and against shareholder interests.
Actually, it's not at all obvious to me that "executives are unlikely to act voluntarily in the public interest and against shareholder interests." To the contrary, executive pursuit of corporate social responsibility is both a chief source of agency costs and a chief way of camouflaging those costs. As Karnani explains:
Managers who sacrifice profit for the common good ... are in effect imposing a tax on their shareholders and arbitrarily deciding how that money should be spent.
Ordinarily, we would expect the market to discipline such managers:
Executives are hired to maximize profits; that is their responsibility to their company's shareholders. Even if executives wanted to forgo some profit to benefit society, they could expect to lose their jobs if they tried—and be replaced by managers who would restore profit as the top priority.
But CSR provides camouflage and cover for them:
The movement for corporate social responsibility is in direct opposition, in such cases, to the movement for better corporate governance, which demands that managers fulfill their fiduciary duty to act in the shareholders' interest or be relieved of their responsibilities. That's one reason so many companies talk a great deal about social responsibility but do nothing—a tactic known as greenwashing.
I've written a lot about CSR, see, e.g.:
- Bainbridge,
Stephen M., In Defense of the Shareholder Wealth Maximization Norm.
Washington & Lee Law Review, Vol. 50, 1993. Available at SSRN:
http://ssrn.com/abstract=303780
- Bainbridge, Stephen M., The Bishops and the Corporate Stakeholder Debate
(April 2002). Villanova Journal of Law and Investment Management.
Available at SSRN: http://ssrn.com/abstract=308604
- Bainbridge, Stephen M., Catholic Social Thought and the Corporation (October 22, 2003). UCLA, School of Law Research Paper No. 03-20. Available at SSRN: http://ssrn.com/abstract=461100
