Corporate Social Profits

Much has been said about corporate social responsibility. Milton Friedman opposes it wholeheartedly, arguing that corporate social responsibility takes away from the corporation’s main responsibility to its shareholders. On the other hand, consumers, as well as the general public, applaud corporate social responsibility, pledging their support to companies that give back the most. The Economist has even published a special report on it, containing pieces about the current trends of CSR (especially the huge amount of momentum gained from climate change) as well as the effectiveness of CSR for profit-generation. Apparently, recent research has shown that CSR is only weakly correlated to profits, although the correlation exists. Furthermore, the issue of causality remains a mystery. No one knows for sure whether greater profits lead to greater nominal expenditures for CSR, or if it’s actually the other way around.

The questions that arise then: If CSR isn’t profit-maximizing, why do companies do it? If CSR is indeed a ploy to gain profits, does that necessarily make it a bad thing?

Corporate social responsibility is perceived by companies to have a beneficial impact on the company image. A company with generous expenditures for CSR is more likely to get positive publicity from the general public, and is less likely to find protesters storming the front gates, calling them “bloodsucking, power-hungry capitalists who exploit workers in sweatshops for the sake of profits”. Although it might not affect profits that significantly, because the addition revenue from additional customers may not exceed expenditures for CSR (thus creating a loss in profit margin rather than a gain), but a good corporate image is never a bad thing. Although profit margins may decrease by a little (and remember, they might not), one can assume that a good corporate image grants the benefit of stability, as opposed to the volatility of stock prices and revenue which doubtless has been experienced by every company that has ever faced a mob of angry protesters. This may grant long-run benefits, and would be profit maximizing for the long run.

Secondly, so what if CSR is just a marketing scheme or a publicity stunt? Even if it is, it’s a publicity stunt that benefits the people, and has more positive impacts than TV advertisements will ever have, so as far as I’m concerned, if companies really are considering the use of CSR projects to draw in more customers, it would be much better to encourage those than to limit their advertisements to just posting billboard ads and running jingles on the radio.

So, what’s wrong with CSR, anyway?