The 20th Edge Debate: 6 May 2004

Corporate Social Responsibility- Menace or means to a sustainable (construction) industry?

Professor David Henderson

I appear before you as the spokesman for a minority view: I am the black sheep among the flock. There is today a general consensus, both within the business world and outside it, that businesses should pursue 'corporate citizenship' and 'sustainable development' in the name of 'Corporate Social Responsibility' (CSR). I am not part of that consensus.

I believe that businesses should indeed act responsibly, and should be seen to do so. But I do not believe that responsible behaviour today need mean, or ought to mean, endorsing the current doctrine of CSR. I believe that the doctrine is wrong in what it says about the world and that putting it into effect would do harm.

The true role of business

Before explaining why I am against CSR, I would like to put before you some positive thoughts about the role and contribution of business enterprises in a market economy. In relation to that role and contribution, I offer you five propositions.

Before the propositions a question: what is the purpose, the justification, for profit oriented enterprises? How do such enterprises contribute to the general welfare?

My answer to that question is based on the past historical record, a record of extraordinary) economic progress. I believe that this story of progress is, to a large extent, a story of business achievement. Hence my Proposition One:

The principal direct impulse to economic progress comes from profit-related activities and initiatives on the part of business enterprises.

This is true of countries everywhere, past and present, rich and poor. The justification, the primary role, of private business is to act as a vehicle for economic progress.

How can one account for this positive business role? Here is my answer and my Proposition Two:

The business contribution to economic progress and the general welfare results from twin stimuli which only a market economy provides: wide-ranging entrepreneurial opportunities and pervasive competitive pressures. The two aspects, the opportunities and pressures, go together.

This leads on to Proposition Three:

The role of business enterprises as vehicles of economic progress is linked, now as in the past, with 'capitalism " private ownership and profit-directed activity.

And then to Proposition Four:

In a competitive market economy, enterprise profits are performance-related: they can only be earned by providing customers of all kinds with products and services that they wish to buy, and doing so in a resourceful and innovative way.

Of the many anti-market slogans that are now in vogue, the most misleading, and potentially the most damaging in its effects, is that of 'people before profits'. In a competitive market economy, profits are earned by providing people with what they value: profits are performance-related.

The role of businesses as vehicles for economic progress is not one that individual enterprises consciously set out to play: businesses do not aim to further economic progress, nor even to serve the general welfare. They do not even exist to serve the general welfare. Hence my Proposition Five:

Economic progress does not depend on a commitment by businesses to bring it about, nor does it result from their good intentions or a sincere wish on their part to benefit people in general.

To repeat, it results from innovative profit-oriented activity within the framework or a market economy.

All these five propositions were true yesterday, and they remain true today. In this fundamental respect, the world has not changed: a new era has not dawned.

The CSR view of the world

The advocates of CSR, to the contrary, argue that a new era has dawned, in which businesses need to redefine their role and mission and to change their ways of operating. CSR is presented as a far-reaching creative response by business to new problems and challenges.

Among these supposed new problems and challenges, two stand out. One is globalisation, and another is society's expectations. A brief word on both.

Globalisation is neither a new nor a worrying development. It is a positive development. It has chiefly resulted from deliberate decisions taken by governments to make international trade and investment flows freer. It has not brought with it 'social exclusion'. It has not 'marginalised' poor countries. It has not conferred on businesses undue benefits or new powers. The idea that corporations now have to take on new and wider national and international responsibilities, because they have become more powerful while governments have become weaker, has no basis.

As to society's expectations, CSR advocates typically assume that these expectations given authentic voice by what radical critics of the market economy are currently saying. This is open to question. In any case, not all public expectations, and the pressures on businesses that arise from them, are reasonable and well founded. When they are not, businesses and business organisations have a right, and I would say a duty, to resist them, and to argue the case, on public interest grounds, for wiser courses of action.

Businesses and business organisations that support CSR have typically failed to contest, or have even endorsed, the arguments and demands of anti-business activist groups. They have treated these arguments and demands as reflecting the views of 'society'. Their strategy is one of appeasement and accommodation. They have
failed to make an effective case for the market economy and this is not responsible
conduct.

Making people poorer

Last, I turn to the consequences of endorsing CSR, which I believe would be
harmful.

Within enterprises, the adoption of CSR will tend to bring higher costs and impaired performance. Managers have to take account of a wider range of goals and concerns, and to involve themselves in new processes of multiple stakeholder engagement'. New systems of accounting, monitoring and auditing are called for. On top of this, the adoption of more exacting self-chosen environmental and 'social' standards is liable to add to costs - all the more so if, as is required by CSR, firms insist on observance of these same standards by their partners, suppliers and contractors.

The result of this may not at all be to make the world a better place. CSR embodies the notion that environmental and social progress lies in making norms and standards more stringent and more uniform, in part by corporations acting on their own account This approach may simply point the way to risky over-regulation.

Especially harmful are attempts, whether by governments or by businesses in the name of CSR and (so-called) 'global corporate citizenship', to regulate the world as a whole. When conditions differ widely across countries, as they do, imposing common international norms and standards restricts the scope for mutually beneficial trade and investment flows. It holds back the development of poor countries by suppressing employment opportunities within them.

In so far as 'socially responsible' businesses find that their new role is bringing with it higher costs and lower profits, they have a strong interest in having their non- conforming rivals compelled to follow suit, whether through public pressure or government regulation. The effect of such enforced uniformity is to limit competition and hence to worsen economic performance.

Conclusion

Today as in the past, the case for private business rests, not on the commitment by business enterprises to questionable though widely accepted social and environmental goals, and their willing compliance with social pressures whether these are reasonable or not. The case for private business has always rested, and still rests, on the links between private ownership, competition and economic freedom within a market-directed economy.

David Henderson
Westminster Business School
London, England.