• These are open discussion topics. Do not think of these topics as questions you must answer.  The forum is meant for you to express your learning and questions and conclusions you have.
• Do not go to some website and copy and paste. Use your learning this week to apply your analytical skills in order to further your learning.
• Always, adhere by Berkeley College Academic Integrity policy.

These are the minimal expectations. Do not expect to receive full credit for minimal work.

Week 2 Discussion topic

After you have read the Karmani Wall Street Journal article, please comment on the following assertion in the article:  “Social welfare isn’t the driving force behind these trends. Healthier foods and more fuel-efficient vehicles didn’t become so common until they became profitable for their makers. Energy conservation didn’t become so important to many companies until energy became more costly. These companies are benefiting society while acting in their own interests; social activists urging them to change their ways had little impact. It is the relentless maximization of profits, not a commitment to social responsibility, that has proved to be a boon to the public in these cases.”

Do you agree or disagree with this statement?  Can you cite examples of companies who have a true commitment to social responsibility?  A few companies come to mind: Bombas, Tom’s and Starbucks-what are your thoughts?

WSJ Executive Adviser (A Special Report): The
Case Against Corporate Social Responsibility:
The idea that companies have a duty to address
social ills is not just flawed, argues Aneel
Karnani; It also makes it more likely that we’ll
ignore the real solutions to these problems

Karnani, Aneel . Wall Street Journal , Eastern edition; New York, N.Y. [New York, N.Y]23 Aug 2010: R.1.

ProQuest document link

ABSTRACT
[…] the fact is that while companies sometimes can do well by doing good, more often they can’t. Because in most

cases, doing what’s best for society means sacrificing profits.

FULL TEXT
Can companies do well by doing good? Yes — sometimes.

But the idea that companies have a responsibility to act in the public interest and will profit from doing so is

fundamentally flawed.

Large companies now routinely claim that they aren’t in business just for the profits, that they’re also intent on

serving some larger social purpose. They trumpet their efforts to produce healthier foods or more fuel-efficient

vehicles, conserve energy and other resources in their operations, or otherwise make the world a better place.

Influential institutions like the Academy of Management and the United Nations, among many others, encourage

companies to pursue such strategies.

It’s not surprising that this idea has won over so many people — it’s a very appealing proposition. You can have

your cake and eat it too!

But it’s an illusion, and a potentially dangerous one.

Very simply, in cases where private profits and public interests are aligned, the idea of corporate social

responsibility is irrelevant: Companies that simply do everything they can to boost profits will end up increasing

social welfare. In circumstances in which profits and social welfare are in direct opposition, an appeal to corporate

social responsibility will almost always be ineffective, because executives are unlikely to act voluntarily in the

public interest and against shareholder

interests.

Irrelevant or ineffective, take your pick. But it’s worse than that. The danger is that a focus on social responsibility

will delay or discourage more-effective measures to enhance social welfare in those cases where profits and the

public good are at odds. As society looks to companies to address these problems, the real solutions may be

ignored.

http://ezproxy.library.berkeley.org/login?qurl=https%3A%2F%2Fsearch.proquest.co

m%2Fdocview%2F746396923%3Faccountid%3D38129

http://ezproxy.library.berkeley.org/login?qurl=https%3A%2F%2Fsearch.proquest.com%2Fdocview%2F746396923%3Faccountid%3D38129

To get a better fix on the irrelevance or ineffectiveness of corporate social responsibility efforts, let’s first look at

situations where profits and social welfare are in synch.

Consider the market for healthier food. Fast-food outlets have profited by expanding their offerings to include

salads and other options designed to appeal to health-conscious consumers. Other companies have found new

sources of revenue in low-fat, whole-grain and other types of foods that have grown in popularity. Social welfare is

improved. Everybody wins.

Similarly, auto makers have profited from responding to consumer demand for more fuel-efficient vehicles, a plus

for the environment. And many companies have boosted profits while enhancing social welfare by reducing their

energy consumption and thus their costs.

But social welfare isn’t the driving force behind these trends. Healthier foods and more fuel-efficient vehicles didn’t

become so common until they became profitable for their makers. Energy conservation didn’t become so

important to many companies until energy became more costly. These companies are benefiting society while

acting in their own interests; social activists urging them to change their ways had little impact. It is the relentless

maximization of profits, not a commitment to social responsibility, that has proved to be a boon to the public in

these cases.

Unfortunately, not all companies take advantage of such opportunities, and in those cases both social welfare and

profits suffer. These companies have one of two problems: Their executives are either incompetent or are putting

their own interests ahead of the company’s long-term financial interests. For instance, an executive might be

averse to any risk, including the development of new products, that might jeopardize the short-term financial

performance of the company and thereby affect his compensation, even if taking that risk would improve the

company’s longer-term prospects.

An appeal to social responsibility won’t solve either of those problems. Pressure from shareholders for sustainable

growth in profitability can. It can lead to incompetent managers being replaced and to a realignment of incentives

for executives, so that their compensation is tied more directly to the company’s long-term success.

Still, the fact is that while companies sometimes can do well by doing good, more often they can’t. Because in

most cases, doing what’s best for society means sacrificing profits.

This is true for most of society’s pervasive and persistent problems; if it weren’t, those problems would have been

solved long ago by companies seeking to maximize their profits. A prime example is the pollution caused by

manufacturing. Reducing that pollution is costly to the manufacturers, and that eats into profits. Poverty is

another obvious example. Companies could pay their workers more and charge less for their products, but their

profits would suffer.

So now what? Should executives in these situations heed the call for corporate social responsibility even without

the allure of profiting from it?

You can argue that they should. But you shouldn’t expect that they will.

Executives are hired to maximize profits; that is their responsibility to their company’s shareholders. Even if

executives wanted to forgo some profit to benefit society, they could expect to lose their jobs if they tried — and be

replaced by managers who would restore profit as the top priority. The movement for corporate social

responsibility is in direct opposition, in such cases, to the movement for better corporate governance, which

demands that managers fulfill their fiduciary duty to act in the shareholders’ interest or be relieved of their

responsibilities. That’s one reason so many companies talk a great deal about social responsibility but do nothing –

– a tactic known as greenwashing.

Managers who sacrifice profit for the common good also are in effect imposing a tax on their shareholders and

arbitrarily deciding how that money should be spent. In that sense they are usurping the role of elected

government officials, if only on a small scale.

Privately owned companies are a different story. If an owner-operated business chooses to accept diminished

profit in order to enhance social welfare, that decision isn’t being imposed on shareholders. And, of course, it is

admirable and desirable for the leaders of successful public companies to use some of their personal fortune for

charitable purposes, as many have throughout history and many do now. But those leaders shouldn’t presume to

pursue their philanthropic goals with shareholder money. Indeed, many shareholders themselves use significant

amounts of the money they make from their investments to help fund charities or otherwise improve social

welfare.

This is not to say, of course, that companies should be left free to pursue the greatest possible profits without

regard for the social consequences. But, appeals to corporate social responsibility are not an effective way to

strike a balance between profits and the public good.

So how can that balance best be struck?

The ultimate solution is government regulation. Its greatest appeal is that it is binding. Government has the power

to enforce regulation. No need to rely on anyone’s best intentions.

But government regulation isn’t perfect, and it can even end up reducing public welfare because of its cost or

inefficiency. The government also may lack the resources and competence to design and administer appropriate

regulations, particularly for complex industries requiring much specialized knowledge. And industry groups might

find ways to influence regulation to the point where it is ineffective or even ends up benefiting the industry at the

expense of the general

population.

Outright corruption can make the situation even worse. What’s more, all the problems of government failure are

exacerbated in developing countries with weak and often corrupt governments.

Still, with all their faults, governments are a far more effective protector of the public good than any campaign for

corporate social responsibility.

Civil society also plays a role in constraining corporate behavior that reduces social welfare, acting as a watchdog

and advocate. Various nonprofit organizations and movements provide a voice for a wide variety of social, political,

environmental, ethnic, cultural and community interests.

The Rainforest Action Network, for example, is an organization that agitates, often quite effectively, for

environmental protection and sustainability. Its website states, “Our campaigns leverage public opinion and

consumer pressure to turn the public stigma of environmental destruction into a business nightmare for any

American company that refuses to adopt responsible environmental policies.” That’s quite a different approach

from trying to convince executives that they should do what’s best for society because it’s the right thing to do and

won’t hurt their bottom line.

Overall, though, such activism has a mixed track record, and it can’t be relied on as the primary mechanism for

imposing constraints on corporate behavior — especially in most developing countries, where civil society lacks

adequate resources to exert much influence and there is insufficient awareness of public issues among the

population.

Self-regulation is another alternative, but it suffers from the same drawback as the concept of corporate social

responsibility: Companies are unlikely to voluntarily act in the public interest at the expense of shareholder

interests.

But self-regulation can be useful. It tends to promote good practices and target specific problems within

industries, impose lower compliance costs on businesses than government regulation, and offer quick, low-cost

dispute-resolution procedures. Self-regulation can also be more flexible than government regulation, allowing it to

respond more effectively to changing circumstances.

The challenge is to design self-regulation in a manner that emphasizes transparency and accountability,

consistent with what the public expects from government regulation. It is up to the government to ensure that any

self-regulation meets that standard. And the government must be prepared to step in and impose its own

regulations if the industry fails to police itself effectively.

In the end, social responsibility is a financial calculation for executives, just like any other aspect of their business.

The only sure way to influence corporate decision making is to impose an unacceptable cost — regulatory

mandates, taxes, punitive fines, pubic embarrassment — on socially unacceptable behavior.

Pleas for corporate social responsibility will be truly embraced only by those executives who are smart enough to

see that doing the right thing is a byproduct of their pursuit of profit. And that renders such pleas pointless.

—

Dr. Karnani is an associate professor of strategy at the University of Michigan’s Stephen M. Ross School of

Business. He can be reached at reports@wsj.com.

—

For Further Reading

Articles from MIT Sloan Management Review with other views on this topic can be accessed online at

sloanreview.mit.edu/wsj

Does It Pay To Be Good?

By Remi Trudel and June Cotte (Winter 2009)

In surveys, customers say they’ll pay more for ethically produced goods. But is that what happens when they

actually buy things?

How to Do Well and Do Good

By Rosabeth Moss Kanter (Fall

2010)

The key to achieving both of those goals together? Integrate societal benefits with company strategy.

Beyond Selfishness

By Henry Mintzberg, Robert Simons and Kunal Basu (Fall 2002)

A syndrome of selfishness has taken hold of our corporations and our societies, and it must be challenged.

(See related letters: “Letters to the Editor: To Whom Should Our Corporations Be Responsible?” — WSJ August 30,

2010)

Credit: By Aneel Karnani

DETAILS

Subject: Social responsibility; Executives; Society; Corporate profits; Energy conservation;

Public interest

Publication title: Wall Street Journal, Eastern edition; New York, N.Y.

Pages: R.1

Publication year: 2010

Publication date: Aug 23, 2010

Publisher: Dow Jones &Company Inc

Place of publication: New York, N.Y.

Country of publication: United States, New York, N.Y.

Publication subject: Business And Economics–Banking And Finance

ISSN: 00999660

Source type: Newspapers

Language of publication: English

Document type: News

LINKS

Database copyright  2020 ProQuest LLC. All rights reserved.
Terms and Conditions Contact ProQuest

ProQuest document ID: 746396923

Document URL: http://ezproxy.library.berkeley.org/login?qurl=https%3A%2F%2Fsearch.proquest.co

m%2Fdocview%2F746396923%3Faccountid%3D38129

Copyright: (c) 2010 Dow Jones &Company, Inc. Reproduced with permission of copyright owner.

Further reproduction or distribution is prohibited without permission.

Last updated: 2017-11-17

Database: ProQuest Central

https://search.proquest.com/info/termsAndConditions

http://www.proquest.com/go/pqissupportcontact

• WSJ Executive Adviser (A Special Report): The Case Against Corporate Social Responsibility: The idea that companies have a duty to address social ills is not just flawed, argues Aneel Karnani; It also makes it more likely that we’ll ignore the real solutions to these problems