Why is Corporate Social Responsibility so hard?

35 years ago, Milton Friedman observed that Corporate Social Responsibility might ultimately pit corporate goals against social goals. "There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” In his view, CSR creates impediments in the running of business and can make for confusion about the true goals of the firm. With growth in the complexity of business and concerns about sustainability, there may be conflict between the enhancement of a company’s long-term profitability and its contribution to the public good.

The situation is often exacerbated by the apparent lack of rewards in following a CSR strategy. For example, Wal*Mart is rewarded by the market for cutting costs; Costco, which offers better insurance and benefits to its workers, is penalized by the market for not cutting costs as well, and therefore not being as profitable as Wal*Mart.

I started reading Robert Reich's new book, "Supercapitalism," with the sole intention to get myself annoyed. I had read in an Economist article that he trashes the concept of CSR, saying that that companies getting involved in socially responsible behavior was nothing but a dangerous distraction. However, his argument is more complicated than that. He argues that companies who don’t embrace the principles of Corporate Social Responsibility are neither brutally insensitive nor ruthlessly greedy. “They’re doing what they’re supposed to do, according to the current rules of the game – giving their customers good deals and thereby maximizing the returns to their investors.” Just as games require rules to define fair play, the economy relies on government to set the economic ground rules. If government wanted to change the way Wal*Mart does business, it would change the current rules – making it easier for employees to unionize, to get health insurance and pensions, and to grant a living wage.

Reich's book, so far, is one of the best I've read in years. No one wants to hear that CSR is ineffective, and the wrong answer to the problem. Like providing evidence that microfinance doesn't work, it's not the kind of conversation that gets you popular at cocktail parties. He gives a clear account of how democracy and capitalism have become decoupled, and maybe were never really an item in the first place. Why should companies be thought of as exceptionally good citizens if they treat their workers well, if they adopt sustainable practices, if they don't actively destroy society with their supply chain? The very fact that we find these actions exceptional is indicative of the fact that the wheels have fallen off our capitalist system. What is needed is, instead of a feel-good band-aid, massive reform.