Corporate social responsibility strategy threatens entrepreneurship and innovation
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.