10/19/2017 Opinion: The Case Against the Case Against CSR | Business Ethics

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The Case Against the Case Against CSR

Opinion: The Case Against the Case Against CSR

Posted by de-admin September 1, 2010 Printer-friendly

by Tim Mohin
Director of Corporate Responsibility, AMD

With apologies for the double negative, the rest of this piece will be a more straightforward argument for
why Corporate Social Responsibility (CSR) is not only a good idea but like breathing somewhat
necessary.

Last week Dr. Aneel Karnani published an Op Ed in The Wall Street Journal titled The Case Against
Corporate Social Responsibility. It is somewhat ironic that the author represents the Ross School of
Management at the University of Michigan which is hosting this years Net Impact conference an
annual gathering of more than 2500 business students, educators and business leaders focused on
CSR. Dr. Karnanis article seems almost deliberately provocative, generating more than 250 comments
and this response from Liz Maw, Net Impacts Executive Director.

While it is hard to add anything new to the maelstrom of criticism Dr. Karnani received for his opinion, I
will share three short observations on why I believe CSR has taken root from business schools to board
rooms and is growing faster than even Chinas GDP.

More and more companies are winning with CSR.

Tim Mohin, AMD

Dr. Karnani asserts that CSR only makes sense when the business interest and the publics interest line
up. So why are so many companies jumping on the CSR bandwagon? Sure it could be external pressure
from watchdog groups or the herd mentality of businesses trying to keep up with the competition. But
these are weak reasons for the magnitude of this trend. More than 85 percent of the Fortune 50
companies are now publishing corporate citizenship and/or sustainability reports in some format. A more
likely answer is that smart managers see potential for profit. They look at megatrends in the world and
ask themselves how can we apply our core competencies to win in the future? This is business 101
find the need and fill it It so happens that the many of todays trends point to CSR issues resource
scarcity, poverty, pollution, etc.

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While a litany of doom for some, these issues can also look like opportunities for a wise business
manager. (See my blog on less is more obvious). General Electric CEO Jeff Immelt a speaker at last
years Net Impact conference - would likely say that this alignment doesnt just happen; wise managers
develop strategies and position their companies for success in a resource constrained world. General
Electrics eco imagination line topped more than $18B in revenues in 2009 and is a growing profit center.

Smart Companies Take the Long View

Dr. Karnani warns that CSR may be dangerous because, by doing the right thing voluntarily, companies
may obscure the need for government regulation. One is left to conclude that a better path is for
companies to ignore CSR in the quest for short-term profit, and in so doing help increase the size and
power of government. Gosh, wouldnt this be a great outcome!

With no evidence or examples, this notion rests on the shaky ground of conjecture. What is not
conjecture is the flood of companies exploiting lower cost locations which often translates to weaker
environment and labor laws and/or enforcement. Rather than obstruct the role of government,
responsible companies have actually been propping up the role of government around the world. For
example, electronics companies sourcing from China have tangibly improved labor, safety and
environmental conditions in supplier factories. Why would they do this when the government does not?
The answer lies in taking a longer view.

Sure it may be more work and some initial investment to responsibly manage a business, but when left
unchecked, poor conditions can go awry costing many thousands of times more. Perhaps if BP had
placed more of its focus on safety and contingency measures, it might have saved itself billions in hard
costs, irreparable damage to its corporate brand and prevented the epic harm caused to the Gulf region.

While failures like BP are obvious, successes tend to go unnoticed. A great example of long-term thinking
is management of hazardous waste. Many developing countries have yet to implement laws to deal with
the scourge of toxic waste. Following the logic of the Op Ed, companies operating in these locations
should save money and just dump their toxic materials out the back door or into the local river. Well, it
turns out that many of these companies are US owned and have tried this before. Then came
Superfund. The Superfund law said that it did not matter whether dumping was legal at them time; if you
did it, you had to pay for the cleanup. And, oh by the way, you might also have to pay to clean up
everyone elses waste in the same dump if they could not afford the bill. Smarter companies learned a
hard lesson this way - better to manage toxics responsibly now than get stuck with a bill later and these
companies manage this way whether they are in Chicago or China.

Companies know CSR Impacts Brand Value and investment

Last but not least CSR is a vital component of brand value. Often listed as the largest intangible asset
on the balance sheet, brand reputation can make or break a business. The Reputation Institute and
others estimate that about 40% of brand reputation is manifest through CSR. Hmmm, 40% of one of the
larger items on the balance sheetCSR is starting to sound a bit more important to even the most self
interested shareholder. And, if that is not enough business value, the latest estimates of socially
screened investment assets are closing in on $3 trillion in the US, making it tougher still to ignore the
business implications of CSR.

Rather than struggling with definitions and rationales for CSR, it seems that most companies intrinsically
understand their duty to account for their impact and, if possible, lend a hand to make things better. This
change did not happen because CEOs woke up one day with a desire to save the planet. I believe the
trend toward sustainability stems from a common realization of scarcity and the instinctive imperative to
husband our resources.

Perhaps it is the Tragedy of the Commons on a global scale. Increasingly, the public consciousness
is demanding accountability and action not only to protect, but to enhance our common good and our
shared resources. It is encouraging that the thousands of young MBA students who sign up for Net
Impact know this.

The trade-offs inherent in this debate are difficult. Balancing the needs of people, impact on the planet
and making a profit is not easy. Perhaps I am an optimist, but I believe that as companies are
increasingly held accountable for their impacts and their behavior both negative and positive there
will be a steady stream of innovation leading us toward sustainability. If the past is prologue, the private
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sector will be the engine of change by actively selecting and deselecting winners and losers in the new
paradigm.

While it may not have been his intent, Dr. Karnanis provocative opinion may have done more to promote
CSR than to slow it. Having stirred up legions of impassioned objectors, he has added momentum to the
movement. Hopefully, Dr. Karnani will have a chance to share his views with the Net Impact audience at
his campus this OctoberI volunteer to moderate the panel!

Tim Mohin is Director of Corporate Responsibility at AMD and a board member of Net Impact. His
postings are his own opinions and may not represent AMDs positions, strategies or opinions. Links to
third party sites are provided for convenience and unless explicitly stated, AMD is not responsible for the
contents of such links sites and no endorsement is implied.

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Last reply was September 7, 2010

Gerard Escaler
1. View September 7, 2010

I exchanged emails with Prof. Aneel Karnani on the WSJ article. He sent me his originally working
paper and we debated his assumptions. What became clear was that we diverged on our
definitions of CSR - whereas strategic CSR is generally understood to align with business
objectives, Dr. Karnani refers to this not as CSR but what he terms fiscal responsibility to take into
account social issues in developing firm strategy, which is what he terms his zone of opportunity.
He further mentions that Social responsibility would require the firm to act in accordance with
social issues even to the detriment of fiscal objectives, which may have been the case many years
ago but no longer holds true. In response, and to address the concerns of our clients, we have
published our own Case for CSR on our website at http://www.inspired-catalyst.com.

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