Corporate Social Irresponsibility

Progressives need to end their fixation with corporate social responsibility–and focus on reform that actually works.

After years spent fruitlessly attempting to organize Wal-Mart, unions and other liberal activist groups have taken a new tack: a public campaign to force the Bentonville behemoth to become more socially responsible. In 2005, Andrew Stern, the president of the Service Employees International Union (SEIU), created Wal-Mart Watch, with an annual budget of $5 million, devoted exclusively to making Wal-Mart “a better employer, neighbor, and corporate citizen.”At almost the exact same time, a parallel group called Wake Up Wal-Mart launched, with much the same goal.

In the nearly two years since, both Wal-Mart and its new opponents have spent millions dueling in the public and legislative spheres. The labor-backed groups have managed to stop Wal-Mart from opening stores in a number of communities and won isolated victories in court to force the company to increase benefit expenditures. Yet they have not fundamentally altered Wal-Mart’s behavior: Its wages are unchanged, its benefits are still restrictive, and its workers are still non-unionized. All of which raises an important question: Can progressives really change Wal-Mart–or any other company, for that matter? And if they can, at what cost?

A generation of activists has been raised on the idea of corporate social responsibility (CSR)–that large corporations can be cajoled into paying employees better, being more environmentally responsible, improving labor conditions in developing countries, retaining more American workers, embracing diversity, and donating money to fix inner-city schools. Where firms cannot be enticed, the strategy goes, they can be bullied. In the late 1970s, Nestlé learned this first-hand when a massive boycott was launched to protest its overly aggressive marketing of infant formula. In 1999, a series of protests convinced Home Depot to sell more lumber from sustainable logging operations. More recently, campaigns against the fast-food industry have included a full barrage of boycotts, lawsuits, movies, and books to pressure companies like McDonald’s and Wendy’s to stop advertising to children and to serve healthier food.

In pursuit of similar success, enormous resources have been directed away from lobbying for regulatory regimes and toward recruiting powerful corporations into voluntary battle against a variety of injustices. Yet CSR campaigns have had limited success in actually changing corporate behavior in a meaningful way. More often than not, CSR crusades result in companies allocating a relatively small portion of their profits for public affairs advertising, community donations, and token changes–from signing on to “industry codes” to hiring CSR-focused senior executives or consultants. At the root of the problem is an inconvenient but implacable fact: Corporations care about profits. Corporations will not–and their shareholders do not expect them to–engage in behaviors that do not maximize profit. Indeed, shareholders would punish them if they did. In concept and in practice, therefore, CSR is at best a partial solution to solving social injustices and correcting for market externalities. After years of relative futility and millions of dollars spent, progressives who are concerned about market failures and their impact on the common good need to do the responsible thing and end their fixation on corporate social responsibility. It is time to recognize that most market failures can only be solved by governments and multilateral agreements, and progressives need to redirect activist pressure appropriately.

The Origins of Socially Responsible Business

CSR is as old as the legal corporation itself. In the late nineteenth century, commentators bemoaned the decline of “the personal responsibility on which the integrity of democratic institutions depends” in private business, and they urged the business community not to undermine social values through their new brand of rapacious capitalism. And to an extent, it worked. Turn-of-the-century business leaders like Andrew Carnegie and John D. Rockefeller believed they were stewards of a social contract between business and society and as such were required–through philanthropy and good management–to hold society’s resources in trust in order to increase total social welfare (apparently this social contract did not curtail all ruthless business practices). Business stewardship was insufficient, however, to deal with the social needs created by the Great Depression, a void filled by government intervention. And the idea that the private sector had a “social responsibility” did not gain traction again until the 1960s and 1970s. Then, the concept reappeared with the rapid increase in the size and power of corporations, and it shifted focus from the noblesse oblige of wealthy business owners to an institutional philosophy that placed business alongside government, local communities, and religion to collectively enhance society.

The anti-apartheid movement against South Africa in the 1970s and 1980s, one of the first modern CSR campaigns, illustrated this new institutional focus. Religious institutions in the United States and Great Britain called international attention to South African apartheid and directed pressure toward the UN, governments, businesses, and consumers to use their respective influence to economically and politically isolate the country. Official U.S. sanctions followed the private divestment movement (epitomized by the “Sullivan Principles” that delineated private business responsibility in transactions), and eventually worldwide governmental pressure helped to end the apartheid regime.

Before the 1990s, the divestment movement was the most visible CSR campaign. In general, though, critics of business during the pre-1990s era had little to say about the business case for CSR, being more concerned with the stark abuses of corporate power or the acquiescence of corporations to odious regimes. Moreover, their strategies were designed to create public demand for regulation or other government interventions, rather than calling on companies to act on their own initiative. In a similar vein, in recent years some activists have tried to use markets to change the private sector, advocating socially responsible investing (SRI)–investing in firms that meet social as well as financial criteria–rather than criticizing capitalism more broadly.

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