Why businesses don’t need “corporate social responsibility” to be ethical
For example, it is argued that those who do not believe that companies should have an explicit social mission instead support the pursuit of shareholder value at all costs. This is not true. Even Milton Friedman, in making the case that management should pursue the interests of shareholders, said that this should be subject to the law and ethical codes as determined by the culture of society. Indeed, as a Christian, I would argue very strongly for all business people to behave ethically and would have a wide view of what I regarded as ethical behaviour. But where does CSR fit into all this?
At its worst, CSR can be corporate window dressing designed to improve a company’s image, sales and profitability. Indeed, a government report in 2007 argued in favour of CSR on the grounds that it would improve “competitiveness” and create a “trading advantage in global markets”. An ethical approach to business, properly understood, might improve a company’s bottom line, but the point about an ethical code is that you follow it regardless of the cost.
Whatever qualifications we add relating to ethics or the law, we should not forget that shareholder primacy is based on the ancient principle that the stewards of property (the managers) should manage that property in the interests of the owners (the shareholders). And CSR can lead to managers’ goals being followed instead of those of shareholders.
And what are the alternatives to a model of shareholder primacy? Some argue that corporations have a “licence to operate” from society and so should pursue broader social goals. But if companies follow social goals set by government, this will not just entail providing nice things like better working conditions, it will involve cooperating with all the nasty things that governments try to do too. Close links between business and government can be implicated in the cronyism and corruption that pervade many South and Central American states – not to mention Fifa.
The other model that is often proposed is a more “long-termist” management-driven model. But we saw in the banking crisis what happened when Fred Goodwin and other senior managers were able to put their interests ahead of those of shareholders. Disaster followed. Of course, this experience provides an argument in favour of more shareholder discipline as well as against the state bailing out banks.
Finally, there is the classic Anglo-Saxon CSR model, whereby companies promote community engagement and related projects. Companies can do that if their shareholders wish. And some corporations will have mixed social and profit-making objectives. However, the main social function of business is to provide goods and services of value to consumers. Businesses should not feel morally obliged to pursue other goals which are the legitimate functions of civil society institutions, charities, and so on. And, of course, the great proponents of CSR such as Enron and RBS do not have a glorious history.
Britain needs ethical, shareholder-run businesses. But behaving ethically is not the same as having a CSR policy or explicitly promoting general social goals.
Philip Booth is professor of finance, public policy and ethics at St Mary’s University, Twickenham, and editorial and programme director at the Institute of Economic Affairs.
This article first appeared in City AM.