Over at the Wall Street Journal, Professor Aneel Karnani of the University of Michigan’s School of Business created quite a stir last Tuesday, attempting to argue “the case against corporate social responsibility”.
To be fair, it is doubtful that the essay’s provocative headline was chosen by Karnani himself. One surmises that this was the work of the WSJ’s editors, eager to stir the pot a little. Mission accomplished.
But headlines aside, Karnani’s forceful opening salvo quickly disintegrates. The greatest flaw of his argument lies in the old saw that responsibility and profitability are, for the most part, mutually exclusive concepts and that appeals for greater responsibility ultimately undermine any other avenue available to “strike a balance between profits and the public good”. Karnani fails to present any supporting evidence, but the truth is that awareness of material risks and opportunities (“financial calculations”, in Karnani’s words), voluntary action (“self-restraint”), civil society pressure (“watchdogs and advocates”) and regulation are all part of the mix. There are circumstances where none may be sufficient on its own to drive real change, but understanding corporate responsibility also means understanding their complementarities.
A good example is the large number of countries that are – for a variety of reasons – unable or unwilling to introduce or enforce effective regulation. In these regulatory voids, corporate responsibility can serve as an indispensable organizing principle to avert disaster. Why? Because companies have real choices to make: they can join the race to the bottom or they can uphold what they believe to be universally applicable principles of good behavior. No doubt, too many still choose the former (and get away with it), but the choice (and risk) is both moral and material: today’s cell phone video of poor working conditions can easily become tomorrow’s headline, often triggering a fateful sequence of negative consequences, from civil society protests to consumer boycotts to investor action, litigation and stricter regulation at home. Increasingly, principles and profits are two side of the same coin.