Corporate Social Responsibility Can't Happen By Itself
emphasis on short-term profitability stunts CSR’s ability to thrive in the market
Posted Oct 1, 10:40 pm in business, business models, culture, economics, ethics, finance, improvements, marketing, sustainability, unfinished thoughts
Regulation is a pretty hot topic. And when I say “hot,” I mean that it has an uncanny ability to divide a crowd. Progressives seem to generally favor regulations as a means of limiting the damage caused by corporate recklessness, and they have been quite vocal in pushing for greater government oversight in what companies can do, and how much they can do it before incurring serious penalties. Meanwhile, proponents of the free market maintain that the only fair and effective way to handle regulation is to allow the market to do the work; they believe in an efficient economic system that automatically controls problems that really matter (i.e. the problems most people care about). I personally can sympathize to some degree with both sides of this debate, but am not convinced that either can be implemented as solutions to the problems we currently face. What follows is my logic.
Before we can go on though, we have to face facts: it’s been obvious to those paying attention that market forces have not been effective in curbing devastating environmental damage caused by companies who have ignored the social costs of their operations. It’s not limited to environmental damages, either. The recent financial meltdown almost certainly would have been prevented with more oversight.
The traditional progressive (read: “liberal”) line about all this is that these corporations are just greedy and soulless, and don’t care about anything but profit. But this views corporate activity within a vacuum, and denies the economic realities underlying their behavior. In the absence of proper incentives, no company will behave in a manner consistent with diffuse, idealized social goals. Companies by their very nature act in ways that are most beneficial to themselves in the marketplace; even companies that try to do social good still have financial and publicity incentives underlying their behavior. Why? Because if they don’t, they effectively get punished by Wall Street and the market; remember that when we’re talking about the stock market, the bottom line is that public companies (i.e. the biggest organizations on the planet, who control the most money) pretty much need to post higher-than-expected profits consistently— or else. On Wall Street, nobody gives a hoot about how socially responsible you are— unless you’re making money from it. And tragically, our system is structured in such a way that companies really cannot afford to piss off Wall Street, for a number of reasons that go beyond the scope of this commentary.
Nevertheless, that is an economic reality; to condemn a company for being socially irresponsible overlooks the conditions that encourage the sort of reckless behavior that we hear so much about. In my opinion, it’s more of an indictment of our social and financial structure than it is of a company to say that they act irresponsibly. Like I’ve said before, we should think of corporations like organisms. They do what it takes to survive now. They typically can’t afford to think too far in the future, because Wall Street does not reward thinking far into the future; Wall Street rewards thinking about next quarter. Whose fault is that? I’d argue that it’s all of our faults. In an environment of high competition and high risk of market punishment, it’s unfair to blame companies for playing the game by the rules we ourselves constructed. Of course, it doesn’t make what they do ethically right, but like in any evolutionary context, the concept of justice doesn’t play a large role in behavioral decision-making; surviving does.
So yes, public companies do operate by almost strictly by financial motives, just like many progressives indignantly charge. But I would argue that this financial motivation should not at all detract from the actions of, say, Wal-Mart, who has done more than almost any other company in the world to enact serious green initiatives. True, they’ve done it for themselves, their own bottom line, and Wall Street— but still, they’ve done it. And if that’s the motivation they need to do it, then perhaps we should encourage that. Besides, if they were supposed to adopt a sudden conscience about their activities and rectify them, whose social goals are they supposed to strive for, anyway? Lots of different social factions have lots of different goals, and many of them have incompatible or actively contradictory goals.
For this reason, it seems fair to place the decision-making process in the hands of the public, through market forces. That allows a sort of collective decision-making process that is free from being regulated by “some guys on a board,” and allows for us to ostensibly have a shared voice in determining the direction that we take as a planet. Unfortunately, however, there are some problems that such market forces don’t resolve. For example, the economically well-endowed have a disproportionately large voice and thus the ability to unilaterally have a strong negative impact with their choices. And there’s still no guarantee that the aforementioned group will pay attention to social well-being if they’re still being held hostage by Wall Street demands. Free market economics as a means of regulation is dependent on not only market efficiency, but ethical, rational, and well-informed decision-making on the part of consumers— many of which are corporate entities.
But as consumers we are neither rational nor omniscient. We are sometimes ethical. But we can’t know everything about all the downstream effects of all our purchases at the time of purchase. This makes it pretty hard to argue the point that the market will be able to curb environmentally damaging business practices through selective consumption.
That may seem like a slam dunk for regulation, and many on the political left would love to see this happen. But it’s not that easy. The problem of regulation is complex, and it is difficult to enact regulation in a way that appears fair to everyone. Here’s the main problem: if there are regulations, who gets to call the shots?
Some might argue that we should use science to guide our regulatory policy, at least with regards to environmental concerns. But what science? Even science can have an agenda. The more you look into scientific research, the more you see how there is a chain of funding. Funding is a political process. People conducting research are subject to biases. No matter what the science says, or the preponderance of evidence suggesting one thing or another, when it comes down to drafting law, there will almost always be some arbitrary component about implementation (e.g. exactly how many tons of CO2 a company can release per year; exactly what chemicals a company can and can’t produce). And those people whose economic interests are being impinged will no more welcome the validity of the science or the arbitrary lines being drawn than a liberal would welcome Sarah Palin’s views if she was placed in charge of preserving endangered wildlife. Ultimately, any laws will be seen as political tools with embedded agendas.
Though it is debatable how much this might change corporate attitudes towards CSR, I think part of the fix is to change the nature of Wall Street. It does not serve companies or society to have such a heavy focus on short-term profitability. This structure denies companies the opportunity to act in ways that favor their own long-term efficiency, the public’s best interest, and the well-being of the planet. If companies didn’t have to keep impressing Wall Street, they could better take actions that could, over the long term, make their operations more efficient, streamlined, and less wasteful. That would be good for their bottom line and for environmental concerns. But that takes time, and it might require a few consecutive quarters of what may appear to be subpar financial performance. Right now, this is a highly risky strategy that most companies wouldn’t consider because they will not be rewarded for it.
Weirdly, even amidst all the talk about reform in the financial industry, I have not heard any talk about this. Admittedly, I’m not sure if anyone has worked out the details about how a “new and improved” stock market system would work, or if anyone has suggested a better set of economic incentives for waste reduction, but perhaps it’s time we started a national dialogue about it. It seems rather important.
extend option bonuses to vest in 50 years instead of 5. problem solved!
“Wal-Mart, who has done more than almost any other company in the world to enact serious green initiatives”
the greenest initiative walmart can do is dissolve.
There is no way to align behavior that is green-positive or even green-neutral with walmart’s ideology, because cutting waste is a minority component of environmentally progressive behavior, and it is the only one compatible with walmart’s playbook. Walmart can institute an ambitious zero-waste policy and it would still be better to have no Walmart at all. If people are to take more responsibility for the true costs of their purchases and actions, Walmart is an impediment to this, as their whole schtick is to encourage people to buy cheap shit that’s bad for them and the planet, and this problem becomes WORSE, not better, when they do this more efficiently or in a more “green” way. Not all companies choose to make their money this way, and they could more easily thrive in a marketplace where Walmart was eliminated.
But people loooovve shopping at Walmart — walmart was rated the top-loved brand in a recent study. You do not want to place this decision-making power in the hands of the public any more than you’d give a heroin addict the keys to your car and a map of dealer hotspots.
— HAYDOOD · Sep 30, 02:37 pm · #
Your point is likely true, but is an extreme view. By your logic, we could argue that it’s better to dissolve every company and kill off every human on the planet. I’m okay with this, but I think it’s a decision we really need to come to as a society.
Personally, I’m on the fence about Wal-Mart, but my reservations about it may be more out of habit and social pressure than anything else. On the basis of your argument, your disgust should be directed at consumer attitudes, not Wal-Mart. Wal-Mart just provides a service; it does not coerce people into doing anything they don’t want. It seems to me like scapegoating to blame them for our consumer society and desire for “cheap shit.” True, Wal-Mart perfectly complements it, and perhaps to some degree even enables it through convenience, but it’s hard to argue that it created it.
On its face, Wal-Mart is a great tool for consumption reduction because it offers a single marketplace for nearly all consumer needs, which alleviates the need for driving all over town to get stuff. Obviously, it’s a bit more complex than that, but I don’t see how it’s much different than saying that cities are more energy and land efficient than small towns. Futurists and urban planners suggest that cities are optimal human living conditions (speaking strictly in efficiency terms) because of high population density, low land requirements, and the reduction of utility and infrustructure redundancy. Wal-Mart can serve all these needs.
I think that people hate Wal-Mart for largely irrational reasons. I have so many friends who hate Wal-Mart but have no apparent qualms with Target. It seems to me a somewhat arbitrary attitude. The only difference is that Target is sexy and fashionable and Wal-Mart isn’t. Also, Wal-Mart is a huge company, which makes people distrust them. Also their mascot is an Orwellian smiley face, which probably rubs ‘intellectuals’ the wrong way. Other than that, I don’t see what Wal-Mart does that other companies don’t also do. Why should our collective anger and resentment be directed at Wal-Mart alone? I’d argue that any problems we stamp on Wal-Mart are ones that are broader social problems that we choose to use Wal-Mart as a whipping boy for.
— Rahul · Oct 1, 11:01 pm · #
Do crack dealers need to push or coerce customers to buy crack? It isn’t extreme to argue that crack dealers ought to be put out of business and replaced with proprietors of less harmful vices, and Wal-mart sells crack. What is extreme is the idea people can be weaned from their addiction to cheap shit purely through appeals to personal responsibility. Chasing out the crack dealers is a crucial step.
The idea that Target is sexy and fashionable is erased the moment you step into a Target and see who shops there.
“I don’t see what Wal-Mart does that other companies don’t also do”
The idea that all companies are indistinguishable capitalist scum is a more insidious Leftist myth than any amount of Wal-mart demonizing. Costco is a demonstrably less evil competitor to Wal-mart/Sam’s club in its treatment of employees, customers, and general approach to making money.
— HAYDOOD · Oct 2, 12:31 pm · #
No, crack dealers don’t need to push, but then I would argue that there’s nothing wrong with crack dealers themselves; they’re trying to make a living selling things that are in demand in a society hysterical about enforcing failed drug laws. Instead, I would argue that there’s something wrong with people who are addicted to crack. True, it’s easier to put the crack dealer out of business, but stopping addiction is the real solution; after all, if you put a crack dealer out of business, another one will come to take his place. It’s a simple supply-and-demand issue.
The idea that all companies are indistinguishable capitalist scum is a more insidious Leftist myth than any amount of Wal-mart demonizing.
I agree with this; it is a very prevalent attitude, and one based on empirically false information. Yet it is not uncommon to hear this condemnation leveled against the whole of capitalist society. Unfortunately, it is an attitude I have to deal with on a near-daily basis from people insistent on expressing ill-conceived political ideologies that are based more on unquestioned beliefs and tired neo-hippie talking points than on real data. I agree that some companies do bad things, but I am ultimately neutral about the role of business in society; extreme views ("all corporations are evil!!") are common, but reflect incredible naivete and myopia.
No question, there is a continuum of irresponsibility; but my own experience suggests that many of those who demonstrate the most virulently anti-business sentiments choose to direct almost all their anger towards those at the most polar extreme of the continuum. Why should we not distribute our criticisms across all companies that engage in the apparently “bad” behavior that people choose to level on Wal-Mart? Criticism is not a limited resource, and it's more valuable for our society to recognize waste and irresponsibility everywhere than to channel all our frustrations into an almost purely psychic war against a single entity of perceived to be the embodiment of pure villainy, which is neither constructive nor sensible. It seems to me that the companies that get away with bad behavior (e.g. Trader Joe's) happen to be blessed with good marketers or a sustaining image that makes people either forget, overlook, or ignore their misbehavior.
— Rahul · Oct 2, 12:42 pm · #
The idea that the behavior that underlies crack and crap addiction can be eliminated through appeals to personal responsibility is right-wing/libertarian fantasy. However, these behaviors can certainly be curbed by penalizing the suppliers. A dealer in high grade cocaine is better for the community than one selling stepped-on crack — addicts will indulge in a higher quality product, and they will indulge less, just as Trader Joe’s encourages an appetite for less-shitty food.
Criticism is in fact a limited resource — there is only a certain amount of attention one can pay to anything, and it makes sense to level this criticism at the largest, most visible offender. If you concede that Walmart’s contributions to “greening” is largely a function of its sheer size, then whatever meager deterrent effects of criticism will most effectively be deployed here. Worry about the Trader Joe’s of the world after you have toppled the “green” giant.
— HAYDOOD · Oct 7, 06:16 pm · #
The idea that the behavior that underlies crack and crap addiction can be eliminated through appeals to personal responsibility is right-wing/libertarian fantasy.
And the idea that outlawing stuff will stop people’s desire to engage in whatever behavior they feel like is largely a left-wing/liberal fantasy that Republicans have co-opted for their silly and counterproductive War on Drugs. My gut reaction is to support regulation, but reality has a way of snapping me out of that dream. To say that destroying Wal-Mart will curb excess is like saying that copy-protection practices have curbed piracy. Yeah, maybe it’s slowed it a bit, but ultimately what the movie and music industry needs to prop up their profitability is a better incentive structure for consumers. Likewise, taxing “bad behavior” might be a good short term fix, but regulation will be viewed by those who disagree with it as an arbitrary process, which will undermine its legitimacy. Society needs to develop better incentive structures for consumers and producers alike (consider reading the book Nudge if you are interested in this concept.)
What really needs to happen for real change is 1) public awareness of the problems, 2) fixes to the economic and socio-environmental conditions that serve as catalysts to social problems, and 3) better incentive structures that aren’t arbitrary, and can't be construed as such. For this last point, a method that could be implemented might be something like an across-the-board VAT tax in which the social and environmental costs of consumption (based on historical/estimated cleanup costs, health costs, downstream economic damage, etc.) are built into the costs of products. Products that deplete Ozone are taxed more than products that are biodegradable and harmless, for example. This would be a complex endeavor, but hopefully not too controversial, as it poses producers with a set of materials options that they can select from based on their own set of priorities; over the long haul, they will likely choose based on economic considerations.
— Rahul · Oct 7, 11:32 pm · #
“And the idea that outlawing stuff will stop people’s desire to engage in whatever behavior they feel like is largely a left-wing/liberal fantasy that Republicans have co-opted for their silly and counterproductive War on Drugs.”
1. Not to minimize the Leftist love of regulation but RightWingers have no need to co-opt this when they have a long history of endorsing prohibition on any behavior they feel like prohibiting.
2. Destroying Wal-mart would not be like instituting DRM, but rather like eliminating BMG or Ticketmaster or some other exploitive behemoth. In the case of large media companies, their own incompetence undermines their stranglehold over the marketplace, thus allowing other business models (such as itunes, hulu) to thrive, thereby normalizing the amount of piracy. However, Ticketmaster and Walmart operate in arenas where the barriers to entry are much higher (largely thanks to their own actions), and are therefore largely immune to such correction.
3. instituting “true costs” (which will ultimately be at least as arbitrary as anti-trust or any other market regulation currently existing) into sales would effectively lay waste to wal-mart’s bottom line. Therefore, wal-mart has great economic incentive to dash any such attempt. The idea that any rational means can be applied to a VAT tax will surely be challenged by them, and they have historically been willing to do this EVEN IF THIS COSTS THEM MORE THAN COMPLYING. In other words, Wal-mart leadership has consistently behaved like a bully even when it is against their economic interest to do so. Wal-mart is simply an impediment to any form of progress you could propose.
4. For a company like Wal-mart to be chastened by the marketplace, there would need to be a new technology that disrupts the manufacture and distribution of physical crap in the same way that online file trading did to music and movies. Until you can print out a bicycle from your inkjet printer, the only recourse against Wal-mart is constant and escalating criticism, and it is through this criticism that you can more easily raise public awareness of economic and social problems when there in front of you is a concrete and tangible expression of it.
— HAYDOOD · Oct 8, 02:20 pm · #
Anyway, you still have not provided a serious blueprint for eliminating the problems you perceive. It’s easy to say “WAL-MART MUST BE DESTROYED LOLLLL!!!!!111” but it’s much harder to enact a viable and worthwhile solution. Thinking rationally and within the constraints of the modern economic system is the only way change can reliably and realistically be enacted. It’s not ideal in the sense of time or in terms of ease, but it’s the only way it can happen short of a global coup d’etat.
As it so happens, I was at an excellent workshop on social marketing over the weekend. The individual leading this discussion was a fellow named Michael Rothschild, the world authority on social marketing. Social marketing is the idea of using corporate marketing concept towards solving social problems. He argues that there are three methods of enacting change in behavior. I’m surprised to say that in a previous message, I unknowingly suggested all three of these means as a combined effort to effect a global change in corporate behavior.
1) Education – raising awareness that there is a problem
2) Environmental – re-arranging the social environment to promote certain practices
3) Enforcement – using legal means to change behavior (e.g. VAT or consumption tax)
Your “destroy Wal-Mart” proposal falls into the third category. It’s all well and good to suggest this, but it’s another thing entirely to propose outlawing a Fortune, um, 1 company that generates $350 billion a year and employs tens of thousands of Americans. On what basis can you do this? It’s fine to be an idealist, but at some point you need to translate your good intentions into operationalized actions that can gain credibility on a non-political platform. If you come in with the standard liberal line about “Wal-Mart is EVIL!!” then you get nowhere.
instituting “true costs” (which will ultimately be at least as arbitrary as anti-trust or any other market regulation currently existing) into sales would effectively lay waste to wal-mart’s bottom line.
I disagree. It’s not as arbitrary because it would enact an across-the-board regulation on all materials. When you single out certain materials, you’re effectively just targeting some members of a large batch, which is more arbitrary than systematically examining the impacts of all materials in the batch.
Therefore, wal-mart has great economic incentive to dash any such attempt.
This is true but at the end of the day, Wal-Mart is just one company, and one that depends on consumers rather than other businesses. If society as a whole really felt that Wal-Mart was a destructive force, they would have the power to overcome it without much problem.
Wal-mart is simply an impediment to any form of progress you could propose.
Not necessarily; again, if you think about systematic waste reduction as a means of cost savings, Wal-Mart could serve as a model of green to other companies. In fact they are currently doing this. Your argument invalidates these efforts and the ripple effect this creates because they also happen to sell “cheap shit.” But again, it’s society that wants cheap shit. What really needs to happen is the elimination of the need, not the destruction of the supply. Eliminate the supply and a new supply will crop up in short time because there’s big money to be found in catering to this need; eliminate the need and the supply goes away forever.
For a company like Wal-mart to be chastened by the marketplace, there would need to be a new technology that disrupts the manufacture and distribution of physical crap in the same way that online file trading did to music and movies.
Technology may be one part of the puzzle, but it’s not the whole thing. We need to think harder. If as a society we really care about the profligation of “cheap shit” then we should institute incentives that wean people off of them. Think of human behavior as a series of substitutes. If you want people to take the stairs instead of taking the elevator, don’t put the elevator right next to the front door. If you don’t want people to eat bad fast food, make it easier to get healthy food. Likewise, if you don’t like Wal-Mart’s market offerings, then we should offer better value propositions that more easily allow people to make better choices. Again, read the book “Nudge” by Richard Thaler and Cass Sunstein, and I think the tone of this conversation would change dramatically.
— Rahul · Oct 11, 06:55 pm · #
“It’s easy to say “WAL-MART MUST BE DESTROYED LOLLLL!!!!!111”
FUN, TOO!
‘3) Enforcement – using legal means to change behavior (e.g. VAT or consumption tax)
Your “destroy Wal-Mart” proposal falls into the third category.’
Who said anything about legal means? However wal-mart is made to suffer is fine with me. Many towns have successfully prevented Wal-mart from opening there. How legal and rational are their methods? Many small businesses are helped to stay in business by clientele who do so at least partially out of hate for Wal-mart.
‘instituting “true costs” (which will ultimately be at least as arbitrary as anti-trust or any other market regulation currently existing) into sales would effectively lay waste to wal-mart’s bottom line.
I disagree. It’s not as arbitrary because it would enact an across-the-board regulation on all materials. When you single out certain materials, you’re effectively just targeting some members of a large batch, which is more arbitrary than systematically examining the impacts of all materials in the batch.’
how will you examine the impacts of these materials? if you have a vested interest in the sale of any of these materials, any method will seem arbitrary to you, and if you have money you can fund your own studies to “debunk” ones not in your favor. These materials will obviously have different environmental costs depending on which countries produce them. Do you expect the trade ministers of these countries to idly accept the “rationality” of any system that places them at a disadvantage? At some point you will have to say, “screw it, it’s arbitrary but you lose — we are taxing material x at rate y”
‘If as a society we really care about the profligation of “cheap shit”’
but we don’t, and we cannot be made to care when people smarter and more powerful have an incentive to keep it that way. but as a society we do hate big business bullies, so why not indulge this hatred when it happens to be justified this time? If this “Nudge” book is worth its salt, it would cover how much more on the ball Wal-mart and their ilk are at subtly pushing consumers towards emptying its wallets through these same techniques. For every employer that increases its employee’s retirement savings by making 401k opt-out instead of opt-in, there is an unscrupulous credit card company employing the same tactic to lock you into some shitty program you had no intention of signing up for. You cannot effect positive systemic change in consumer behavior from the bottom up when the top is so much better than you at it, and pushing in the opposite direction.
Wal-mart’s leadership circle is quite small and composed of very old men (and they are assholes!) A climate of anti-Wal-mart sentiment can spur the election of more progressive leadership as they die off.
Hating Wal-mart can help such a regime change happen, just as Bush-hate helped Obama get into office.
There is an anecdote by a physician turned health-advocate in a book full of examples similar to “Nudge” where dinner party guests thank the host for removing the supply of cashews in front of them. They rationally knew it would spoil their dinner, yet they could not restrain themselves to eat just a few.
“Thinking rationally and within the constraints of the modern economic system is the only way change can reliably and realistically be enacted. “
If you believe you can simply provide rational incentives and education to resist extra cashews (or cheap crap), you are ignoring the lessons of behavioral economics. We rely on hosts who have progressive interests to enact the very policies you propose to push people and institutions towards socially responsible behavior. Wal-mart is a particularly bad host in this regard, and is therefore your enemy. Their destruction is prelude to, not byproduct of any solution you propose. Them and Fox News.
— HAYDOOD · Oct 14, 08:44 pm · #
You’ve made a lot of good points, many of which I admit that I can’t argue against. Indeed, you have done much to diagnose the nature of the problem; however, this is not sufficient. We already know there is a big problem, and there is little debate about what it is. The world is filled with identifiable problems.
But so far I am the only one here who has proposed an actionable set of solutions. Your most thoughtful set of actions is hoping for a backlash against Wal-Mart that will supposedly mirror that of the backlash against G.W. Bush that culminated with the Obama election. Again, this is not a sufficient solution.
The backlash was only one part of the reaction. The bulk of the work was due to the Obama campaign’s ability to build trust and personal vision, grassroots organization, the communication of consistent and coherent messages that advocated actionable behavior, strengthing community bonds, and let’s not forget its unparalleled fundraising efforts. Yeah, maybe it was able to capitalize on the anti-Bush sentiment, but it’s hardly the natural product of it.
It’s not realistic or practical to think simply creating awareness will naturally translate to an organized and effective campaign.
— Rahul · Oct 14, 09:09 pm · #
“hoping for a backlash against Wal-Mart that will supposedly mirror that of the backlash against G.W. Bush”
There is already such a backlash, and where blogs excel is at disseminating propaganda to fuel such backlashes.
Where blogs do not excel is in proposing and enacting policy change. The dynamic of Enlightenment-era salons publishing brilliant broadsheets and galvanizing ideas do not translate to the facebook-era.
“Yeah, maybe it was able to capitalize on the anti-Bush sentiment, but it’s hardly the natural product of it.”
Do you honestly believe Obama would have won without the Bush catalyst? It defined the messaging in his campaign: Change. Change from what? (GWB pointing thumbs at self: THIS GUY)
This is not an isolated occurrence. Google’s positioning as the Anti-Microsoft was crucial to its wide acceptance. Being technically superior is not enough.
— HAYDOOD · Oct 15, 06:50 pm · #
_Do you honestly believe Obama would have won without the Bush catalyst? _
Again, it was likely necessary but not sufficient. I don’t think you really need this link, but see here for the distinction.
Anyway, blogs by themselves don’t do anything. This encourages nothing but widespread slacktivism. People just end up thinking that all they need to do is complain to other like-minded people about it. That’s not enough; they have to convert people and that has to translate to actual changes in action.
— Rahul · Oct 15, 09:17 pm · #