In simple terms, a company that does not look after its financial bottom line will cease to exist. However, Google's motto of "do no evil" is a good starting point.

Any company that makes a profit, employs people, and does no evil, is good for the community. A company that engenders good will amongst the community, will benefit. However, if the cost of this far outweighs the benefits to the company, it is doing neither itself or the community any good. If the company goes under, the community will be sad, but won't lift a finger.

For most large companies, CSR remains in the realm of public relations propaganda.
CSR expenditures are a feel-good operation devoted to heading off community and political resistance to business as usual.
Exhibit A is one of the Australia's Big 4 banks. It is a company with which the author would have some familiarity, because this institution has shown itself consummate in finessing the CSR-do-gooder fraternity.
It's CSR activities are substantial, but it continues to engage in unconscionable treatment of its small business and farming customers. Indeed, it is addicted to corrupt practices in these arenas.
Ironically, if this bank redirected the resources that it currently devotes to malpractice (including expenditure on an army of lawyers) to developing a culture of competence and integrity, its bottom line would probably be improved.
A genuine corporate social responsibility and profit would be mutually enhanced.
The notion that a corporation's traditional motivation is purely directed to the bottom line itself needs reexamination. Power for its own sake appears to be a motivating factor.
This particular company's CSR expenditure's impact is to be measured by the success with which it heads off regulatory impediments to an untrammelled exercise of its power. By this measure, its CSR budget is 'value for money' indeed.
In the meantime, this CSR-bottom line tradeoff debate remains meaningless prattle.

Great article, & just so true.

“For most large companies, CSR remains in the realm of public relations propaganda.”
That’s because it’s meaningless and displays a mistaken understanding of what profit it; and that mistaken understanding itself comes from Marxian propaganda.

Profit arises when a firm removes the maladjustment between where factors of production *are*, and where the masses of people *want them to be* in order to satisfy the wants that they consider most urgent. The greater the profit, the greater the maladjustment removed. No matter how great the profit is, the value created for the consumers must always be greater, otherwise they wouldn’t hand over the price.

The idea that businesses have a social responsibility above and beyond providing the greatest value to their customers, is based on the idea that by doing business, by making profit, by employing people, they are really doing something wrong. But the idea that corporations need to “give something back to the community” implies that they “taking something out” in the first place, in other words, that they are reducing social utility, reducing human welfare.

This idea in turn derives from the overwhelmingly Marxian notions that profit is an immoral quantity – it self-evidently proves the misallocation of resources - and that employing people is intrinsically exploitative – it is a rip-off of “surplus value” that rightfully belongs to the working class.

Suffice to say that these ideas are based on assumptions that are flatly incorrect, and cannot be defended. They are just evergreen slogans of the confused or deliberately dishonest.

So long as all transactions are voluntary (“do no evil”) then that answers all questions of morality so far as the business is able to. It is nonsense to talk of a corporation’s “power”. No-one has a gun at their head forcing them to buy Coca-Cola.

The author’s distinction between “social and financial returns” is a false dichotomy. What do you think financial returns are?

(cont.)

All people tend to prefer satisfaction of a given desire sooner than later, while delayed gratification is desirable as the source of all capital and therefore of all civilization. However the “correct” time preference can only be known through people’s demonstrated time preferences. The arbitrary pontifications as to optimal time preferences the CSR advocates are no better, no more accurate, and no more morally superior, than are the original valuations of the consumers that give rise to profit or loss in the first place.

Whatever the imperfections of private ownership, at least people have the interests of their own property in their own life time as a time horizon. By contrast in a democracy, the time horizon will be limited to the next election, and will always concern the ability to take money from other people. In a democracy, political interference will always tend to promote immoral short-term instant grat, and capital consumption, over longer term prudence and capital accumulatoin. By far the single biggest factor promoting the instant grat mentality, inflation, debt, economic chaose and social injustice in society is government’s vicious addiction to inflation as a means of finance, or rather favouring the political parasite classes at the expense of the productive.

Corporate Social Responsibility (CSR) increasingly appears to be verbiage and that alone. As Shergold points out much of what is touted as CSR is publicity creating appearance.

By contrast and as a construct I’d urge readers to consider Servant Leadership as an economic principle rather than a theological one. Economically the notion of serving the needs of clients, serving the needs of shareholders, serving the needs of employees and serving the needs of society which provides the basis that enables an economy to occur makes sense. That, though, needs to be considered twin paired with the construct of loyalty.

Sustained profitability requires genuine value be created in these four areas. Ignore them and one operates at one’s peril.

The standard definition of companies given in finance texts is that they exist to maximise shareholder wealth. If that is genuinely the case why are unions prevented from maximising the wealth of their members, they are ‘companies’ whose shareholders are its members! “But unions abuse their power and hold the rest to ransom”, look to behaviour of businesses and find abuse of power in the market place. Bank fees are the simplest example to come to mind.

Shergold points to the problem of time frame which is used by decision makers. Max Eggert (http://au.linkedin.com/pub/max-eggert/0/579/69) refers to careers in terms of the 3 Gs – Get, Gobble, Go; a basic 4 year cycle of getting a position, make the most of it then move on. “I am here to maximise my personal utility”.

Behind Hardin’s ‘Tragedy of the Commons’ lies a degree of wisdom; acting indifferently to what goes on around one can create destruction. If one genuinely believes markets will resolve the issues is it time to expose managers and executive forcefully to the long term consequences of their decisions? Is it time to remove the restrictions on employees from working collectively to maximise their utility? MAD is a theory applied to defence – should MAD be applied to economics, let all parties stare down the barrel of a gun in order to get wisdom into the system?

I am heartened when the clock ticks toward a discussion on 'Corporate Social Responsibility' and a belief that there is good reason to believe in a shared form of capitalism where money becomes a progressive force as a form of "exchange".

What ever the running arguments, I think that Corporate Social Responsibility has something to do with mindset in the area of cultural change. As the media and government are asked to represent citizens, it would be a greater world if those holding the power and capital could also look to the future contributing virtues toward a civilisalised world rather then justf stripping us all of the ability to problem solve.

For example, it is as Mr Altman says "Western countries industrialized in the late nineteenth century, creating social benefits for their communities was not often a high priority. Companies polluted freely, exploited workers, and used natural resources without concern for their sustainability."

The growing poverty in the world is taking on many complex forms. It is our humanity I am concerned about and the ways we jointly are exploiting ourselves and the planet. Those who have the least resource and power are forced to follow the hand of the capitalists, which becomes an issue of capacity, resource distribution and failure of markets when we consider the poverty issues. As we see in the Middle East, Spain and Americas, many of the unemployed are now also educated. This is the crux next that among all other complexities will weigh us all down. Human Capital is now as important as it ever was before and somehow the inclusive approach to market capitalism has never been more in focus for what it does or doesn't do now, as before.

I pray for a dynamic human mindset and world change.

http://www.miacat.com/

what would jesus do
the world is facing a huge problem
[ok many problems]

like this one
http://forum.onlineopinion.com.au/thread.asp?discussion=4616&page=0
[where i put this toopic forward as a fix]

so what would jesus do?
he would call together those who succeeeded
then give them a little more to be doing..

and guess what
it will then be done

so why not go
and do it now

get the rich..to fix it
for greater glory

here..as much as in the next realm

to whom much was given
much more is to be expected

we find the problems
then see who is the next ritchest...on the list
[give them the 'choice'..condition to retain their earthy wealth]

[they really do know who has been naughty
and man cant claim they dont know]

as much as those who played the game nice*
anyhow dont say you wernt told

I have always believed CSR to be a furphy.

Just motherhood statement with no tangible "socially beneficits".

SM has already said "Do No Evil" is a good starting point and a sentiment which I agree with.

The nature of private ownership of resources has been seen to be the best.

Private ownership means the determining values of those who direct the resouirces of an entity will not necessarily reflect the same values which may commonly be associated with "Social" or collective ownership.

However, a company operated for the primary benefit of private owners and private shareholders are still curbed from any unethical acts not just by reams of statute but also the response of its customers.

Whilst we have competition, people with a demand will "balance" the diverse benefits of supply against one another, price, delivery, quality etc. When we consider the cost of acquiring a new customer is several times more than the cost of satisfying an existing customer, sustainability is best achieved by retaining customers.

Getting the right "mix" will best produce commercial "sustainability"
and other measures of satisfaction.

I would observe, ethical delivery of its products and services are one way a business makes itself sustainable.

And anyone who thinks, for one minute, that "social ownership" will produce a more ethical or "socially beneficial" outcomes than private ownership has only to look at the failure of so many "socialist" adventures to know that.

How social owned government monopolies fail the consumer (aka the "social owners") is in two ways

1 the monopoly means the without the efficiency effects of competition, the price of mnopoly services is inflated, at the expense of the consumer (the social owners).

2 the vested interests of the employees who operate the state monopoly become entrenched, often with union support, this exasperbate the price gouging and effectively creates a "super-class" of state employees.

Anyone in any doubt about this has simply to check the relative performance history of state services, be they social or commercial, around the world, compared to privately owned "competitively driven" alternatives.

"In a nutshell, Altman believes that doing good really is good for business."

This idea has some merit but only to an extent and is perhaps more relevant to small scale local businesses than larger corporations. There is certainly some evidence that eco businesses or fair trade related products might increase profits by focussing on a certain market. That is cashing in on altruism and the belief that many people at heart seek to do good (or at least no harm).

Much depends on the nature of power in different economies. How a corporation might display CR in the developing world where there is little regulation is often different when CR is guaranteed (even if only minimally) through some level of regulation. If a corporation's primary market is geographically far removed from the point of production - corporate responsibility might prove meaningless as a profit driver.

History demonstrates that corporations often don't display responsibility in deriving profits but might act philanthropically by donating some profits to other good causes. But the untold damage that done by the pursuit of profit is sometimes left unresolved or has longer lasting negative impacts.

Bhopal chemical disaster in India and the recent nuclear incident in Fukushima are potent examples of where negligence and lack of CR can lead to tragedy. Short sighted thinking is the worst culprit and people have short memories, today's lack of corporate responsibility is tomorrow's fish and chip wrapper.

Leading one to ask: Are there enough profit motivated incentives to do good?

Neglect seems to play a larger role in the pursuit of profit than any notion of CR in doing the same.

If doing good is really good for business why don't more corporations act more responsibly and with greater integrity - paticularly in the developing world.

While the concept of doing good to make profit might not exactly sit in the realm of fairy stories and happy-ever-after, I don't think it is that simple.

Peter Shergold,

I am confused by the undefined terms that seem to appear on any treatise by a category of people that trade under the title of ‘Economist’.

The word Economist itself is undefined. We, as well as every other living being, have to deal with many economies, besides the economy of material possessions; environmental, social and emotional ones in the intricacy of relations we find ourselves in the course of our lives.

I am confused by what you mean when you say: Company, Community, Economy, Profit, Benefit, Efficiency, Obligation, Morality, Money, Value and their mode of association, like; bottom line, double line, time horizon, Profit Companies, Decision Making, Social, Sustainable Responsibility, et cetera .

It seems to me that we are sinking in an ocean of words created to confuse rather than inform or educate.

And, as words are free, a lot of us engage in mimicking the windbags we mindlessly elect to public office.

Morality and Humanity did not appear in your article or in that authored by Daniel Altman and Jonathan Berman and, as much I have been able to read, in the popularized works of Friedman and his wife.

In my long years I have never heard of a philanthropic Company but I know of ‘Not for Profit Companies’ otherwise known as ‘Charities’, whose entrepreneurs live in tax exempt luxuries; their un-exacted tax amounting to hundreds of billion $ yearly.

I also know of Philanthropists; Richard Pratt, Michael Milken, Bernard Madoff and the long string of ladies and gentlemen who preceded them, and, inter alias, of Alfred Noble, whose prize in ‘money’ is conferred to scoundrels for their peaceful efforts to blow the already bloody world into smithereens.

Has any Academic or Economist ever given any thought to the significance of ‘The Will and Testament’ which we duly compile before ‘kicking off’ for ever?

Doesn’t this ‘legal’ instrument amount to the control of our personal possessions after, as that politician said in ‘perfect logic’, we are dead, buried and cremated?

Lastly, can any Economist please define ‘Money’ for us