Corporate social responsibility strategy threatens entrepreneurship and innovation

Although once intended to improve market efficiency and the free flow of goods within the Single European Market, harmonisation has become not only the European Commission’s prime weapon for influencing businesses, but also for shaping those businesses according to its ideological standpoint. One very good example of the European Commission’s agenda, and its attempts to stamp its mark on corporate practices, is corporate social responsibility (CSR). It’s also a good example of the dramatic way in which tools used by the European Commission make actors behave the way the European Commission wants them to behave.

The European Commission recently adopted a new CSR strategy. The most striking feature of the new strategy emerges if it is compared to the former strategy of 2001. The shift is quite dramatic. In 2001 CSR was a descriptive concept describing the efforts undertaken by firms to include social and environmental aspects in their daily business. By 2011 CSR was a normative concept which required firms to take responsibility for all their ‘impacts on society’. This is quite a broad definition, which provides the European Commission with a vast array of opportunities to interfere in the ways firms conduct their business. How far this newly assumed right of the European Commission reaches is outlined by the Commission itself:

‘CSR at least covers human rights, labour and employment practices (such as training, gender equality, and employee health and wellbeing), environmental issues (such as biodiversity, climate change, resource efficiency, life-cycle assessment and pollution prevention), and combating bribery and corruption. Community involvement and development, the integration of disabled persons, and consumer interests, including privacy, are also part of the CSR agenda. The promotion of social and environmental responsibility through the supply-chain, and the disclosure of non-financial information are recognised as important cross-cutting issues.’

It is obvious what the EU Political Commissioners have in mind with their CSR strategy. It is designed to increase the scope for the European Commission to interfere when it sees fit to do so. Suppose firm A is active in the mining industry, and 90% of its workers are men. Suppose firm A refuses to ensure that at least 40% of its board directors are women – a clear violation of CSR principles, which requires the European Commission to interfere, although it’s doubtful whether the European Commission will feel inclined to press a 40% quota for women with respect to ordinary workers employed by the mining company. Or suppose a firm engages in harvesting tar sands, a process which will inevitably result in localised pollution – again, a clear violation of CSR principles.

The new CSR strategy is a means to establish another piece of egalitarianism, and to put firms under pressure to succumb to the new CSR ruling. It will result in firms anticipating and complying with whatever is deemed ‘best practice’ in the field of CSR. Accordingly, entrepreneurship will change. The model of an innovation-seeking Schumpeterian entrepreneur who takes risks and wants to reap an innovation premium in the markets won’t be the model of entrepreneur to emulate, but rather the cautious, complying and risk-averse manager who navigates his way by riverbanks with predators waiting for him to lose direction while trying something new, something risky, something which can be used to squeeze compensation and other kinds of payments from him.

The European Commission is distributing negative incentives which will make entrepreneurs avoid European markets and shy away from any kind of risk. There is a danger that attempts to ‘harmonise’ markets and firms will result in the inertia and inability to react to changing environments which have always been a feature of communist systems.

Michael Klein is a scientific consultant and runs the Critical Science blog.

5 thoughts on “Corporate social responsibility strategy threatens entrepreneurship and innovation”

  1. Posted 17/08/2012 at 14:03 | Permalink

    Fine – but we should remember that existing market players often lobby for such initiatives as a means to protect themselves from new entrants by errecting barriers to entry. This is an important point to stress, but too often missed in the public debate when people pop up and say ‘oh but so-and-so big corporation argue for this too, so it must be right’, forgetting that that corporation has a vested interest in regulation and regulators are often ex employees of such large corporations. This is how we arrived at our current corporatist economy. The EU often does act against innovation and entrepreneurialism but it does so in often collusion with businesses, not purely against them as this article suggests.

  2. Posted 17/08/2012 at 14:56 | Permalink

    An excellent article. CSR has been described as the ‘Trojan Horse of Socialism’ with some justification. The story of how and why major businesses worldwide enthusiastically embraced this left-wing anti-business philosophy would surely fill a book. Campaign for Merit in Business is currently focusing on one manifestation of CSR, the innocuous-sounding ‘improved gender diversity in the boardroom’ initiative. The initiative is enthusuastically sposored by the Conservative-led coalition in the UK – prime minister David Cameron is a notable supporter, as is the business secretary, Vince Cable – but there’s also a European dimension: EC threats of legislated quotas for women on boards. I thought readers of your IEA article might also be interested in your article concerning Commissoner Viviane Reding’s use of opinion polls:

    Mike Buchanan

  3. Posted 17/08/2012 at 16:12 | Permalink

    It seems that the focus of this article is on the EU and not CSR. Diversity in the boardroom is one little thread in a tapestry of responsible opportunities. CSR isn’t a loophole for preventing creativity, it’s a philosophy that large corporations should take responsibility in every aspect of their business. Ensure their supply chain isn’t abusing the workers, reduce their impact on the environment, and support their local communities. Simply because there are rules stipulating what qualifies as CSR, doesn’t mean they meant to bind the company. They’re there to guide responsible companies – not interfere.

  4. Posted 17/08/2012 at 19:49 | Permalink

    GabeChesman – if they are guidelines then why legislate? If it is a philosophy, we don’t need laws to enforce it, with the effects I outline above

  5. Posted 21/08/2012 at 10:29 | Permalink

    A totalitarnarian state starts by saying they are only guidelines but then they ramp up the propaganda and “guidelines” become mainstream and then law. To ensure enforcement shaming tactics are often used to enforce social engineering policies on an “or else basis” as is being done with the Gender diversity in the boardroom edict.The EU is the most undemocratic organisation in the world accountable to no one and continues to foister on Europe social engineering policies that are ideological and marxist in origin. The EU accounts for years have still to be been signed off by auditors but why is no one asking probing questions and witholding individual state funds until they sort it out?. if the EU was a private sector organisation criminal charges would be brought…………I wonder why they are continuing to get away with this?.

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