Professor Aneel Karnani's article, “The Case Against Corporate Social Responsibility” in The Wall Street Journal, takes a position that goes squarely against the merits of CSR, but I believe her argument is flawed.
Digging deeper, Professor Karnani believes “social responsibility is a financial calculation for executives, just like any other aspect of their business.” If socially responsible business practices must positively contribute to the bottom line, proof of their ability to do so is, quite literally, in the numbers. More than two out of three companies generate revenue through CSR activities, according to IBM's Institute for Business Value, and The Economist's Economic Intelligence Unit found 69% of CEOs see a strong correlation between a company's financial performance and its commitment to sustainability goals.
However, when Professor Karnani reprises Milton Friedman's 1970s-era position that the primary purpose of business is to make money, we must caution against myopically focusing on accounting ledgers. The road to profitability includes many checkpoints. While they may not have immediate quantifiable financial benefits, corporate reputation, talent recruitment, brand equity and differentiation, and license to operate in global markets - among others - are critical to long-term profitability. In fact, Jeffrey Hollander's The Business Case for Sustainability states that reputation accounts for 75% of the total value of the average US business.
And there are many other indicators of CSR's impact. During the recession, 65% of people remained loyal to a brand or company because it supports a good cause (Edelman goodpurpose™ Consumer Study); 90% of people are more likely to work for a company that is viewed as socially responsible (Kelly Services); and the perception of “doing good” raises the premium consumers are willing to pay for a brand by 6% (World Bank's Independent Evaluation group).
A company cannot simply decide to be socially responsible and begin touting itself as such. Social responsibility must be embedded within sound business strategy. By approaching CSR in the same way other business problems are addressed, Harvard Business School professor Michael Porter states that it “can be much more than a cost, a constraint, or a charitable deed – it can be a source of opportunity, innovation, and competitive advantage.”
Companies that get this right have aligned public and private interests and are, by their very existence, socially responsible. While Professor Karnani seems to assert that these examples are rare, we would assert the opposite. Today there are countless examples of socially responsible companies large and small – from Nike and SC Johnson to TOMS Shoes and Method – addressing a myriad of social, environmental and economic issues locally, regionally and globally. They embody the future of business.
Social responsibility is the new business paradigm. According to McKinsey, 95 percent of CEOs believe society expects business to tackle social problems more today than it did five years ago. The Boston College Center for Corporate Citizenship found 74% of US consumers believe, in the current economic climate, companies must keep their “commitment in keeping corporate citizenship among the top business priorities.” So, when Professor Karnani states that the effort of companies to solve societal issues is irrelevant and that these tasks are better handled by governments and NGOs, executives and their customers would likely disagree.
Perhaps the ability of business to be innovative and use its power for good is best stated by Virgin CEO Richard Branson: “Business is the force of change… because problem-solving is what business is best at: innovating, changing, addressing risks, searching for opportunities.” In this regard, Branson asserts, “there is no more vital task.”
In short, it only benefits corporations to be socially responsible, and to not treat CSR as separate but incorporate social responsibility into the very fabric of the organization. The payoffs of doing so will be triple-fold: social, sustainable and fiscal.
Carol Cone is managing director, brand and corporate citizenship at Edelman