Sunday, July 18, 2010

The Corporate Social Responsibility Debate

Milton Friedman, the American statistician and Nobel memorial prize winner in economics, plainly stated in The New York Times Magazine in 1970, that ‘the social responsibility of business is to increase profits’ and believed that the notion of corporate social responsibility is a distraction from the economic fundamentals of business,(Todd, 2009, p.22).

Forty years later, corporate social responsibility (CSR) is still a controversial topic, where, as Luo and Bhattacharya state in their 2009 study, “according to the Friedman-esque view, shareholders entrust managers with their investment solely to maximise long-term returns, not so that managers can use the proceeds to underwrite their urge for a better world,” (p.198). Yet, fortunately, there is a growing body of evidence, through academic research, to suggest that organisations can have both.

CSR focuses on four key domains of business – economics, legal, ethical and philanthropic (humanitarian); where economics has achieved the most attention in the deliverance of profits. Yet for many the world has changed in forty years. At the macro level we are now much more aware of our planets limited resources and the need to find alternatives to sustain ‘us’ into the future. At the micro level research has shown that CSR can, in fact, offer the benefits that Friedman advocates, through increased customer satisfaction, increased customer loyalty, increased brand image and an overall improvement in organisational performance, giving it a direct competitive advantage in today’s global economy.

In an excerpt from the Harvard Business Review, September 2009, Nidumolu, Prahalad and Rangaswami equate sustainability to a key driver of innovation. Their research of 30 large corporations found that “smart companies now treat sustainability as innovations new frontier. By treating sustainability as a goal today, early movers will develop competencies that rivals will be hard placed to match. The competitive advantage will stand them in good stead, because sustainability will always be an integral part of development,” (p.10).

There is a need for more organisations to actively incorporate CSR into their corporate strategies, making it an integral part of their future development. Where some organisations give CSR nothing more than lip service, incorporating ‘flowery’ narratives into their websites, hoping that just the very mention of a CSR conscious company, will ‘fool’ the consumer, leading to misplaced loyalty - where they believe that ‘words’ speak louder than ‘action’.

History has taught us that industry and business can go through monumental shifts in the course of economic and consumer development, changing the very foundation of how business is conducted. The industrial revolution is a case in point, where some adapted and some died. Organisations need to accept that the world is changing and they should change with it. There is a growing trend around the world, where consumers are ‘demanding’ organisations to be more socially and environmentally aware and are voting with their purchases. Lee, Fairhurst and Wesley (2009) mention that “the basic idea of CSR is that business and society are interwoven rather than distinct entities; therefore, society has certain expectations for appropriate business behaviour and outcomes,” (p.142).

Even if Freidman is right and the sole responsibility of business is to increase profits, isn’t it also the responsibility of business to be sure where their long term profits are going to come from. If their consumers are demanding a CSR approach to business, then even Freidman would have to advocate a change in strategic direction to meet the needs and expectations of their consumers. We need to remember consumers are now much more aware of the ‘negative’ impact some organisations have on their communities and their lives, and are taking this into consideration as part of their purchasing decisions.

Maybe, we should consider the possibility that we are moving from the industrial revolution to the consumer revolution.


Lee, M-Y., Fairhurst, A. and Wesley, S. (2009). Corporate Social Responsibility: A Review of the Top 100 US Retailers. Corporate Reputation Review, Vol. 12, Issue 2, p.140-158.

Luo, X. and Bhattacharya, C.B. (2009). The Debate over Doing Good: Corporate Social Performance, Strategic Marketing Levers, and Firm-Idiosyncratic Risk. Journal of Marketing, Vol. 73, Issue 6, p.198-213.

Nidumolu, R., Prahalad, C.K. and Ranagswami, M.R. (2009). Why Sustainability is now the Key Driver of Innovation. Excerpt from the Harvard Business Review, September, 2009. International Trade Forum, Issue 4, p.10.

Todd, K. (2009). Corporate Social Responsibility. Baylor Business Review, Vol. 27, Issue 2, p.20-23.

1 comment:

  1. Interesting article - great points! There is a large amount of evidence today that demonstrates corporations can, indeed, have both - profits and a social conscience.