CSR – A (Counter) Intuitive Perspective

This article questions the intuitive interpretation of the CSR agenda and argues that the biggest social responsibility of the business is to earn profits while respecting applicable rules and social norms. It argues that, subject to its adherence to rules, every successfully operating business in the current context of Pakistan is, by default, a socially responsible entity.

Economic Affairs (December 2009), a leading UK journal advocating free markets, argues that the radical CSR agenda is a dangerous attack on pro-perty rights and institutional variety within a free society. It threatens the process by which businesses improve welfare through the proper pursuit of profit in accordance with shareholders’ interests. Indeed, it is unreasonable and inefficient to require bodies set up to pursue business purposes to pursue other objectives too. According to the journal editor, Philip Booth, “CSR is conceptually incoherent, practically unworkable and wholly unjustified.”

CSR agenda is ostensibly pro poor. In Pakistan, even according to official statistics, every third person lives below the bare minimum poverty line of $1 a day. Another one-fourth of population lives under $2 a day, still very poor. Thus in a society, in which more than half of the population is poor, any operating business, regardless of whether it follows CSR agenda or not, merely by its existence exhibits strong social responsibility through providing employment and products.

Given the current economic scenario, the power crisis and the law and order, any business, big or small, which is alive in Pakistan today deserves special kudos. By its existence, it not only employs people, but it also provides some necessary goods or services. Thus it is indeed socially responsible without even getting a CSR tag. It should not be obliged to spend money on charitable projects to get a CSR certification.

The manager is not a civil servant, and although in his
personal capacity, he is expected to behave as socially responsible citizen, this does not mean ‘corporate social responsibility.

Compliance with CSR may mean certain restrictions on hiring of labour or sourcing of raw material. As a matter of fact, undue imposition of the CSR agenda by international buyers on the suppliers in countries like Pakistan not only increases the costs of doing business, it also renders people unemployed thus putting more people at risk of abject poverty. It feels very nice to stage protests against sweat shops, but it hurts the very poor in whose name such protests are usually made.

Critics of child labour should note that parents do not necessarily send their children to workshops to keep them away from schools and have more income, rather they send the children to workshops to get better life skills, that the government schools fail to provide.

A noted writer against the conventional CSR, Elaine Sternberg, argues that CSR is against the principle of private property rights. The corporate executives spend the shareholders money to boost their own social image. It is the typical principal-agent problem, in which an agent might be advancing his own interests instead of the principal’s.

The corporate executives are employees of the owners or shareholders of a corporation and are obliged to achieve the goals set by the shareholders. Furthermore, the manager is not a civil servant, and although in his personal capacity, he is expected to behave as socially responsible citizen, this does not mean ‘corporate social responsibility.’

CSR certification of a business does reflect its spending on socially admirable projects such as education or health. However it says nothing of its fair labour practices, honest tax compliance and respect of competition. A company may well be promoting collusive behaviour, thus curbing the free spirit of markets, while supporting a noble cause. In fact, companies may invest in such social investments to conceal their truly irresponsible acts such as tax evasion, bribery to get government contracts and monopolistic practices.

In my opinion, companies spending heavily on welfare and charity projects but are not paying due taxes or not respecting the spirit of competition are socially more irresponsible than those companies which play by the book but do not spend directly on charity.

Management of companies ought to pay primary attention to goals set by the shareholders and the latter know that their interests are protected as long as the management stays close to the customers’ expectation.

Beyond being accountable to their shareholders and customers, any rules-respecting business concern is not accountable to any other entity, and in the least to those who champion the cause of CSR. The appropriate platform of welfare projects is either the government or civic voluntary associations, inclu-ding religious welfare organizations, which are made for the very purpose of community service. If a business entity adopts community service as an announced goal, it deviates from its main goal- wealth creation- and thus evades its primary social responsibility.

Companies spending heavily on welfare and charity projects but are not paying due taxes or not respecting the spirit of competition are socially more irresponsible than those companies which play by the book but do not spend directly on charity.

In his book “Capitalism and Freedom”, one of the most influential economists of the twentieth century, Milton Friedman said “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

Therefore if a business entity creates wealth for its owners and shareholders without violating rules and social norms, and does not explicitly spends money on charity, it should still be called a socially responsible business concern.

    Author Information

    Ali Salman currently works as a senior partner at Development Pool - a consulting firm and teaches Economics. Ali specializes in economic analysis, entrepreneurship, policy formulation and business models. He has worked in the private, public and development sectors of Pakistan for over ten years. Besides various publications, the book 'Alternative Youth Policy' is to his credit. He engaged in good governance reforms, citizens-government liaison and policy research during a two year period at Planning Commission, Government of Pakistan. Ali did his Masters in Economics from Boston University as a Fulbright Scholar; his MA in Development Studies as Royal Netherlands Fellow; and an MBA from Quaid-i-Azam University, Islamabad.

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