corporate social responsibility thesis


The New York Times
OPINION | August 17, 2009
The Opinionator: Whole Foods Fight
By Eric Etheridge
A health care op-ed by the C.E.O. of the food chain is causing some to boycott its stores.

Quite frankly, I’m not surprised by any of the liberal outrage… John Mackey is a libertarian (the first HuffPo guy has it all wrong — an easy misrepresentation) and for obvious ideological reasons would be against government-run healthcare. But Mackey is also proof that doing good doesnt have to be altruistic… but if its not, it definitely has to be profitable.  For obvious business reasons, if Mackey’s company is already providing good healthcare benefits, a government-led health care initiative would undercut Whole Foods Market’s competitive advantage.

The problem with the original WSJ op-ed (which most of his boycotters will probably overlook) was that Mackey wrote it in his capacity as WFM CEO, rather than his personal capacity.  Apparently even after the “Rahodeb” fiasco, Mackey has yet to learn a few lessons in PR. In speaking on behalf of his company, obviously like this article says, he railed against most of the demographic of his own company. But had he written in a personal capacity, he could have (though probably wouldn’t have) easily been forgiven.

Personally, the only thing I ideologically disagree with Mackey on is ending government mandates regarding what insurance companies may cover. But then, I’m not a free-market libertarian, so that makes sense to me that Mackey would propose such an idea. It is also the reason why Mackey asserts that “all countries with socialized medicine ration health care by forcing their citizens to wait in lines to receive scarce treatments”: a libertarian would obviously choose the free-markets to decide resource scarcity allocation —  in opposition to a liberal, who would look toward government to determine resource scarcity allocation.

What Mackey writes is nothing new, is nothing earth-shattering, and is nothing that is out-of-line by libertarian standards (“many of our health care problems are self-inflicted” not the least of his statements). It’s thus no surprise he chose to go to the right-leaning WSJ for publication. What is ironic is that the well-educated consumers who threaten boycott fail to recognize any of this — further proof of the ideological polarization and incivility to which the United States is headed (this is not to mention that, as indicated in the Times blog, those on the far left are likely supporting farmers’ markets and co-ops, rather than corporate America).  Opposing viewpoints are treated with incredulity, rather than any form of rational discourse.  But this is another subject…

Again though, I come back to the fact that the byline should have read “The author writes in a personal capacity,” theoretically (though not realistically) avoiding such ridiculous conflict.  Those who are boycotting Whole Foods Markets on the basis of Mackey’s op-ed are just plain pound-wise and penny foolish.

NICHOLAS D. KRISTOF
Would You Let This Girl Drown? 8 July 2009, p.A31
Why we’re so willing to try to assist a stranger before us, yet so unwilling to send donations to save strangers from malaria half a world away.


If that article was a reading passage from the GMATs, they’d have a field day with it. The analogy of the girl in the pond is riddled with logical inconsistencies. As a result, it overall fails (at least to me) to make an completely accurate, valid point. And as it’s the impetus of the article, it kind of shuts down half the remaining premises.

Kristof’s point about the one vs. the many is initially appealing, and here’s why. Look how many people donate to a “John Doe Cancer 10k Run” or a “Jane Doe Multiple Sclerosis 10k Walk.” It almost never fails that the aggregate amounts of monies poured into individual-benefit charities is larger than the amount donated to global charities. Like Kristof says, it’s easier to give to a charity that benefits one than one that benefits many.

As Kristof also shows, the personal appeal to emotion has a vast impact on charitable giving. It’s also easier to give the money than to work outside the scope of capabilities. But the lack of funds is why global charities are often understaffed and often unable to carry out their missions to “save the money,” at least without UN funding or MNC funding; those who are willing and able cannot sustain themselves to do the work of saving 25,000 lives.

So, for example, I look at my friend’s annual appeals to donate to the Terry Fox Run. People would be more likely to donate 1) because they know my friend had cancer (ie, the feel-good reward) and it’s an easily identifiable cause and 2) because the actual research of cancer is beyond their scopes of capabilities (ie, personal responsibility).

However, by addressing the logical flaw, the initial appeal of the “one vs. many” starts to fall apart; the G8 would not let the individual girl drown (nor would anyone else) primarily because of Premise 1. But, to say that the G8 would catch up on its commitments for the millions of lives relies on the assumption it must recognize both Premises 1 and 2 above. Quite frankly, that’s a rather emotional assumption to rely on, after all, the conclusion depends on an unwritten Premise 3: International altruism supersedes domestic economic interest (and certainly now, France and Italy not in positions to fulfill that premise). If you yourself are in a wheelchair, it is going to be very difficult to help the drowning girl in the pond — the best you’ll do is recognize the problem and try to get help from elsewhere. Making the leap from the “one” to the “many” paves the way for logical inconsistency in any argument.

The fact is, the global public needs to recognize that the commitments of the G8 members are essentially non-binding. They are a guide for the top global leaders to shrink the wealth gap and achieve that which is in the best global interests. The world has valid interest in where these actors are molding the the direction of the world is.

But because his inductive logic leaves out Premise 3, I disagree with Kristof’s main point of contention that humanitarians are “abjectively ineffective at selling their causes.” A customer’s inability to buy may not be defined the same as his lack of desire to buy. The G8 is a consumer of humanitarian causes, just like any other actor.

P.S. The saying “One death is a tragedy, a million deaths is a statistic” is often attributed to Joseph Stalin. How ironic to use that quote in a story about charitable donations.

WSJ.com – The Do-Good Marketplace – Feb 2, 2009

FT.com – The hot air of CSR – Feb 2, 2009

Leave it to the Journal to bash social entrepreneurship.  I guess they talked to no one at Fuqua’s Center for the Advancement of Social Entrepreneurship.  But it wouldn’t be the Journal unless it equated philanthro-capitalism with being able to break the Fortune 500.  Such is its ideology…

I’ve not read the book Creative Capitalism, though I’m familiar with it… the FT has also book reviewed it and referred back to it on occasion.  I’ll respond to the Journal‘s article, as sent to me by my colleague Julio:

 

1) The Richard Posner/Steven Landsberg argument (as described) is also similar to that of Robert Reich’s Supercapitalism.  It is Friedmanian in certain aspects, but moreso because the belief is that SR is the responsibility of G instead of the C’s.  Get people to become more involved in their governmental affairs and maybe it’ll ripple back to corporations.  Since companies compete, and it’s all about costs and profits, the only way to impose good ESG (environmental, social, and corporate governance) principles is by government leveling the playing field for all the companies so that no company is preferentially advantaged in the market.

 

2) The David Vogel argument (as described) sums to companies not doing CSR for altruistic principles.  Well personally, I think companies should employ CSR for altruistic principles, but I’m not that idealistically naive.  So… who cares if CSR isn’t necessarily altruistic?  This is about making labour conditions better in Bangladesh… It’s about making sure that the speed of putting toxins in our atmosphere doesn’t outstrip our biological evolution…  Whether you’re profit maximizing or not, the third law of thermodynamics is real.  Entropy exists (and you see it in the current market environment).

 

3) The dichotomy between these two arguments is the reason why, in the corporate world, many of the larger companies try to institutionalize CSR via their CSR reports.  And several of these reports try to show their ESG committments alongside profitability by via a “triple bottom line” (people, planet, profits).  In the respect that corporations tend to be good at maximizing capital and profits, then yes, they would be better suited to enhance social responsibility.  Nonetheless, that should not marginalize the need for philanthro-capitalism, nor its successes (ref: Grameen Bank or Ashoka).

 

4) Michel Albert’s Capitalisme Contre Capitalisme is a good read for seeing why the “Rhenan” form of continental capitalism tends to be better suited toward welfare states and enhancing the value for all stakeholders, rather than just corporations (ref: MPIfG Working Paper 97/6, June 1997; “The Future of Continental Socio-economic Models”).  This is in contrast with the Anglo-Saxon (free market) form of capitalism, where free market principles tend to focus solely on differential taxation that doesn’t provide the same welfare benefits.  Its libertarian-rooted ideology is what widens the gap of income distribution and has also been considered one in the line of potential causes for the current economic collapse.

 

A focus on excesses rather than a reallocation of excess to where it is needed for reducing poverty, improving labor standards, and cleaning up and maintaining the environment got everyone into this mess.  Does the prescription sound socialistic?  Perhaps, but “socialism” and “social responsibility” take their root from “society,” which in turn takes its meaning from the Latin socius, meaning “partner, associate, ally, fellow, sharing.”  Who cares if its philanthro-capitalism or CSR that gets it done… it’s about ameliorating society.

As I’ve not had luck extending my CSR networks at St. John’s, I decided to take some initiative to form my own networks. Using my thesis as leverage (and being truthful, since my paper is not yet published and I still have the ability to express their comments), I decided to write to various companies in the hopes that 1) I might learn some more info that is not necessarily expressed in the literature; and, 2) Generate corporate network contacts in hopes that, by May graduation, one of these companies might find me valuable enough to offer me a position in the field.

The result has been quite interesting. A couple of companies (Intel, Ford, Timberland) said they would be happy to speak to me. One company (Citi, Nike) didn’t have time to talk, but answered my e-mail questions–which was an option I gave. A few more companies (3M, Dell, and Gap) said they did not have the time and bandwidth to respond. Two companies (Gap and General Mills) responded to the effect that the information was either “confidential” or “proprietary.”

Perhaps I haven’t yet learned enough out of my internship, but based on what I do know, it doesn’t seem to me that large cap corporations would not have the time nor bandwidth to answer my questions (or at least speak with me). In the age of high power IT and Blackberrys that someone would have the availability to communicate, even if briefly. People don’t write long messages on their Blackberrys (and don’t like reading them either), but when they sit at their desks, they can take a couple more minutes to generate an e-mail. Read their response as: we’ve got no interest in participating.

But it is the responses by Gap and General Mills that have me most puzzled. Part of corporate social responsibility involves the transparency of corporations. To me, a company puts itself in the complete wrong CSR frame of reference when it’s being asked questions of CSR and chooses to excuse itself by effectively stating it’s not my business as a private individual. While I understand that corporations are private entities and do have the right to decline, it seems that responding that their answers are confidential is worse than not responding at all.

I still have several more of these companies to hear back from (or perhaps, not hear from at all). But it will be interesting to see which companies give excuses and what excuses they’re giving.  I wrote to them as a “multi-hatted” stakeholder (individual/career prospecter/csr advocate/academic).  It is curious to see, in practice, how stakeholders are engaging with someone who is writing on stakeholder engagement.  These companies may be large caps, but through my networking, I’m finding out just who the winners and the losers are in corporate transparency and accountability.

image_30474053.jpgBefore I get into the main subject of this posting, I just wanted to recap the French debate. The New York Times put it best, it was the kind of “vivid confrontation that has disappeared from the American scene, where the candidates avoid each other as much as possible.” The post-debate polls ended up split, and even the political analysts couldn’t make heads or tales on who actually “won” the debate. Both actually played off their opponents’ strengths, so for that matter, they each had pros as to who might have won. From a neutral standpoint, I’m also of the mind that it was a draw, however it is obviously the votes that count. On a personal level, it was nice to see Ms. Royal finally shed some of her charm and fight with some intensity against the usually hard-headed Sarkozy. She might not have had all of her facts right (those who aren’t privy usually find it more difficult to be right), but at least she shows that she could possibly have the cojones to run the country.

On a different subject, there was an interesting column by Jonathan Guthrie in the Financial Times today about carbon footprints. After reading it, I came away with a sharp check on my thoughts about Pigovian taxes. For those who don’t know, Pigovian taxes is an economic term that describes taxes that are levied as a way of reducing economic externalities (the effect a person/company has on another person/company, either directly or indirectly). In some instances, these taxes are called sin (or more formally, sumptuary) taxes.

Here’s the thing with Pigovian taxes. Taxes are a financial charge that are raised by the state. In the case of Pigovian taxes, the money raised would be used to offset the negative externality (in this case, carbon emissions). But what happens if we take a cynical look at Pigovian taxes?

Let’s pretend that Company X was emitting 200 tons of carbon a year. Let’s say there was no tax. That means that the company is taking normal income at face cost. The government derives no tax benefits of Company X’s pollution and no finances to actually offset the problem and the Company has no incentive to stop polluting.

Now, let’s say that there was a tax of $2m per ton of carbon. The company takes in normal income at face cost. Thus, the government now derives $400m in tax benefits off Company X’s pollution and has some finances to offset the problem, while the Company has some incentive to stop polluting: If it cuts its emissions by 50 tons, it only pays $300m in taxes.

This method of cutting carbon emissions seems like a great way to save the environment. And in fact, its one of the most feasible (and common) options that government can step in to reduce externalities. However, there are two reasons to be cynical here. The first is that we must assume that the taxes levied on the externalities are actually being put to use for carbon emissions. Here in America, we can’t even actually be sure that taxes aren’t being pooled together to fund the Iraq War instead of subsidising businesses that are researching environmental issues.

President Bush actually recently met with Angela Merkel and Jose Manuel Barroso and shrugged off the suggestion that the US get involved with the Kyoto treaty as to entice China and India to reduce their carbon emissions. His stance was to invest in new technologies and pass them off. This is a great suggestion, but it only works when the government’s budget and financing actually plows the Pigovian tax proceeds back into research.

The second problem I’m finding with Pigovian taxes is, as Mr Guthrie writes, the means by which they become nothing more than the indulgences the Catholic Church used to sell in the Middle Ages. Sure, this is why Pigovian taxes are often called ‘sin taxes,’ but now that the wealth in the world is massively disproportionate and the reach of the problems are truly global, the actual viability of these indulgences is actually unrealistic to me. And I’ll tell you why.

I have a friend who is very much the type of person who subscribes to this “pay to make it go away” mentality.  If Mayor Mike Bloomberg’s Congestion Tax ever makes its way to New York, I could see her being the type to pay $8 to bring her car into lower Manhattan.  There are companies that have the same approach: if they can afford to pay the $400m and it means they don’t have to spend any money on researching how to reduce carbon emissions, why not pay the $400m and call it a day?  Throwing money at problems solves them, doesn’t it?

Well that comes back to the previous premise.  In economics, there is an assumption that firms are profit-maximizers and that they will act rationally in order to achieve this goal.  The fact of the matter is, this is farther from the case.  Firms are actually more inclined to behave as people, with the same behavioural patterns (and one might even suggest, psychoses) that individual persons have.  Governments are the same way.  So while the Pigovian tax proposed by Mr Bloomberg might fund the planting of 1 million trees in New York City, Mr Bush may never put the money to R&D of these technologies (this coming from the man whose 2003 State of the Union suggested that hydrogen cars we’re not that far off but lost all ground to the Japanese in carmaking).

Throwing money at problems doesn’t solve anything unless you use money for problems.  Just as paying to rid oneself of sin is a ridiculous idea, so is paying to use tons of carbon just because the money is available.   So it is with low gas mileage SUVs where people say “If I can afford to pay for the gas, why shouldn’t I get one,” it is with carbon emissions.  “Affording it” doesn’t solve problems, reducing it does.

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