Growing Support for CSR
Environmental awareness and social responsibility have become very common. Since the 1990s individuals, government organizations, NGOs and for-profit businesses have become increasingly concerned with environmental and social issues. Many of these people and entities have adopted goals that relate to sustainability.
Criticism of Corporate Social Responsibility
Many notable economists including Milton Friedman and investors including Warren Buffet have criticized the idea that for-profit businesses should cater to all stakeholders. They advocate that business managers should be solely focused on the needs of their shareholders. This shareholder-centric view is based on the idea that management should be trying to increase the value of shares while abiding by the laws of the countries they operate in.
There are many arguments against CSR:
1. Division of labor arguments. The first argument is that c-level executives should focus their efforts on making a financial profit since that is what they are best suited to do. They have been selected among many candidates and presumably, at least as a group, are very capable businesspeople. They have not been selected to work on charitable projects and are not the very best in that arena. This is a division of labor argument: they should focus on what they are best at and leave social causes to the experts.
Bear in mind that executives have not mastered the art of increasing shareholder wealth to the point of it being an afterthought. Generating a profit and making the shares of a company worth more over time is very challenging, and many smart managers still fail when they try to do so. Other managers seem distracted from managing their firms by their own pet projects which often include charitable causes. With this in mind, it seems ridiculous that managers should take on responsibility to other stakeholders given that they have problems satisfying their first stakeholder group: shareholders.
2. Another argument is based on the idea that maximizing shareholder wealth is ultimately good for all stakeholders. Essentially, this is the idea that earning a profit legally is good for society as a whole because profit requires converting cheaper resources into more valuable products. This increases the wealth of society overall. Employees and suppliers are paid from this process and taxes are generated from it too. Customers must be happy because they wouldn’t purchase the company’s products if they did not. If a company’s profits do not incorporate costs and benefits of other stakeholders, for example, damages to the environment, the government can levy taxes or create regulations to account for this. Moreover, a society made wealthier by profitable businesses will have more wealth and resources to confront environmental and other problems.
3. CSR in for-profit businesses challenges the roles of other institutions. For-profit organizations that engage in CSR are competing against the mandates of governments and non-profit organizations. They are taking on roles that are traditionally filled by government and charities. In doing so, they inspire political questions. Are governments and charities incapable of promoting social welfare? Are for-profit businesses a form of government?
4. CSR in for-profit businesses challenges individual responsibility. When a consumer purchases from a business with a CSR program, will the consumer do less charitable work herself? Is the CSR movement a way of abandoning personal responsibility to contribute to social problems directly?
5. CSR initiatives do not make up for mismanagement of the core activities of a for-profit enterprise. Donations and recycling programs do not make up for accounting fraud, management oversight or illegal activities.