Is corporate social responsibility a dangerous idea?

August 25, 2010

The notion that companies have a responsibility to act in the public interest and will profit from doing so may be an appealing proposition, but it’s an illusion, and a potentially dangerous one, a University of Michigan professor argues in a Wall Street Journal opinion piece. When profits and social welfare are diametrically opposed, appeals to corporate social responsibility are usually ineffective because executives are unlikely to act voluntarily for the public interest and against shareholder interests, Aneel Karnani writes. The danger, he says, is that in cases where profits are at odds with the public good, a focus on corporate social responsibility will only delay or discourage more effective measures to enhance social welfare.

Sometimes profits and social welfare are in synch. Fast-food companies have profited by offering salads and other options for health-conscious consumers, for example, and auto makers have profited from responding to consumer demand for more fuel-efficient vehicles. But social welfare isn’t behind these trends, Karnani writes. Indeed, he says, healthier foods and more fuel-efficient vehicles didn’t become common until they became profitable for the companies that offer them.

Most often, doing what’s best for society means sacrificing profits — which is why so many companies talk about social responsibility but do nothing, a tactic known as “greenwashing.” Karnani believes that government regulation is the ultimate solution. For all their faults, he writes, “governments are a far more effective protector of the public good than any campaign for corporate social responsibility.” — Greg Beaubien

View Comments