Thursday, March 09, 2006

Corporate Social Responsibility

One of the comments to my post in (The Indian Economy Blog) TIEB, referred to this article by Milton Friedman, titled The Social Responsibility of Business is to Increase its Profits. The gist of the point made was that "ITC makes money by smoking, hence its CSR(Corporate Social Responsibility) is crap".

In the above piece, Milton Friedman himself makes the point,

"there is one and only one social responsibility of business–to use it 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."

Yes, the goal of a company is to make profits. The goal of a CSR, run by a company, is to increase its profits, one way or other. It could be by assuring quality of supply of its raw materials, securing its interests or simply increasing goodwill or brand awareness. In doing so, it does something that benefits society at large.

ITC may sell cigarettes, but does not ask people to choose smoking at gunpoint. It is a responsible corporate citizen, because it plays by the rules defined in the world of business. If ITC spends money on an initiative like e-choupal, should we say "good" or should way shoo away ITC from the e-choupal initiative and let the villages be in the dark ages of middlemen and price information asymmetry?

Likewise, where do we draw the line at whats evil and whats good? Sugar factories for instance. It is known that sugarcane crop drains the soil of water and nutrients. Sugar, causes diabetes. Indeed diabetes is more prevalent than lung cancer, so should we ban sugar too? How about cooking oil? It causes cholestrol and blood pressure. Maybe we should ban all those too? Then how about non profit institutions? Most of the Christian missionary institutions have had conversion as their agenda while they undertook so called CSR projects. Social workers, political parties have their careers and votes on their agenda.

If there was no ITC, indeed no company which produced cigarettes or liquor or anything else "evil", would the world be a better place? Perhaps marginally, perhaps not. And then again, where would we stop? Sugar? Cooking oil? Pesticides?

Lets not jump and in and compare a terrorist organization doing charity work. Companies which follow all the laws are not terror organizations that blow up 2 year old kids in crowded temples. Also remember terror organizations operate out of the framework of the law in the country.

Having accepted that, lets take out the CSR programmes. Is the society better off or worse off without these programmes? The society is better off. Now about the companies. If the companies produce liquor or sugar or cigarettes and make a profit, as long as they follow the rules established in the area where they operate in, why should someone complain? If it were not for the profit they make, would CSR exist? Would all those jobs they created exist?

Yes, CSR programmes are for profit or goodwill or something positive. To achieve this goodwill companies do some sort of service to society. Granted that our politicians will always (not counting exceptions) take bribes, money, kickbacks, donations. As long the work is getting done and the country progresses, what is better? They take money and do the work or they take money or do not do the work? Likewise, if any CSR helps our society move up in life, so be it. Let us not point fingers at CSR.

Update: In an offline discussion, it was argued that smoking is inherently evil, but sugar is not, hence the two cannot be equated. But poison consumed in micro quantities can be good, while too much of good food can lead to bad. The other question is, who decides that smoking is evil? It is the perception held by a certain set of people. There is no generalization of what is evil and what is good when it is consumed by humans. For example, according to Jains, potatoes and onions and anything that grows below the ground must be avoided, so if we followed Jainism (a true pacifist religion), we could say that CSR by a potato chip company is crap. You get the picture.


May I said...

i agree with u .
lets business do business,
goverment govern,
and the non profit organisations educate the customers to give business to to companies doing there business without going against the society. and in return forcing government to make a healthy co existance off all.

Anonymous said...

hey..its interesting to see an interest in CSR..however,i think ur missing a lot of points here. CSR is essentially contested as being a "greenwash" in the eyes of society. companies in the drive to achieve profits can misuse CSR to legitimise their potential wrongdoings. for example, ENRON was known to be a good corporate citizen...but its capitalistic motivations doomed the lives of many. also, critics question CSR in the context of globalisation..for we had coke ruining our environment and destroying lives of people who didn't have a voice.