Dialogue: Corporate citizenship under the microscope

DAVID HENDERSON on the 'misguided' conception of corporate social responsibility.

Today's conception of "corporate social responsibility" (CSR) has caught on. It is now widely agreed that businesses should run their affairs, in close conjunction with a range of stakeholders, so as to pursue the goal of sustainable development. They should embrace "corporate citizenship."

Only by acting in this way, it is said, can businesses respond to society's expectations; this is supposedly the key both to long-run commercial success for companies' businesses and to ensuring public support for private enterprise. Capitalism has to be given a human face.

From what I have seen, CSR has few opponents - there is a broad consensus in its favour.

I believe that this consensus view is misguided, and that its acceptance has the potential to do harm. Here is a partial list of the unconvincing or worrying aspects of CSR.

Contrary to what is typically stated or assumed by CSR supporters, neither sustainable development nor the measures to achieve it are well defined or universally agreed.

In embracing CSR, many corporations and business organisations have failed to contest, or have weakly surrendered to, the arguments and demands of anti-business activist groups.

They have treated these arguments and demands as embodying society's expectations. They have failed to make an informed case for the market economy.

With few exceptions, the contribution of the business world to public debate on these issues has been, and continues to be, inadequate or worse.

Often, though not always, supporters of CSR, both in the business world and outside, present a misleading picture of recent trends in the world economy and their implications for public policy.

In particular, it is wrongly maintained that globalisation has brought with it marginalisation, social exclusion, and a shift of power to multinational enterprises.

For individual businesses, CSR means imposing a wider range of concerns on management, installing more elaborate accounting and reporting systems, bringing in new and time-consuming consultative processes, and adopting self-imposed and more exacting norms and standards. All this is likely to raise costs and impair performance.

Socially responsible firms have an incentive to see that their unregenerate competitors are compelled to follow their example. This will increase the pressure for over-regulation of business and reduce the extent of competition.

I believe that the adoption of CSR by businesses generally, with the acquiescence or support of Governments, would reduce welfare and undermine the market economy.

As they stand, these are no more than statements of opinion. However, they are based on arguments and evidence, which can be read in an essay of mine which is to be published in book form next month.

* David Henderson has been director of economics at the World Bank and head of economics and statistics at the OECD. His book Misguided Virtue: False Notions of Corporate Responsibility is published by the Business Roundtable.