Corporate Social Responsibility: Is It A Mirage?(Archive)

When veterans of the fight for social responsibility in business and investing gather in conferences, deliver speeches, write books and reports or just speak to one another, they invariably preen themselves on the progress they have made. They cite the proliferation of mutal funds which utilize social screens, they point to the phenomenal growth of shareholder resolutions challenging management, they talk about the trillions of investment dollars that are subject to some kind of social considerations, they reel off the new alphabet soup of organizations in this field: KLD, SIF, ICCR, CERES. Then along comes something like the Enron debacle, and you wonder if we are just talking to ourselves.
These comments are prompted by a column I just read in the International Herald Tribune, the Paris-based daily owned by the New York Times and the Washington Post. William Pfaff, one of the most astute observers of public affairs in the western world, labels the Enron scandal “the result of a profound and malignant mutation that has taken place in American capitalism during recent decades,” and he calls for a “return to responsible capitalism.”
Pfaff argues that Enron represented the triumph of the Adam Smith theory that the market “provides the best mechanism for arbitrating values and establishing the general interest.” An important corollary of this theory is that the less government regulation, the better we will all be. Let each corporation and person follow the lodestar of self-interest, and it will work out well for the general public. Deregulation became the mantra throughout the world. The “practical effect,” said Pfaff, “was not only to remove external restraints on corporate conduct but to dismiss internalized ethical inhibitions.”
Pfaff concludes then that this theory “destroyed the kind of capitalism that had been practiced in the United States from the time, early in the 20th century, when Theodore Roosevelt broke up abusive ‘trusts’ and established the Labor and Commerce departments to regulate corporate behavior.”
Taking Enron not as aberrant but typical corporate behavior, Pfaff said: “Now virtually no one any longer believes that U.S. company reports are trustworthy or what they are claimed to be…The system made executives wealthy, while they increased ‘productivity’ by firing employees and working the rest harder.”
Now what’s interesting about this argument is that all this took place while the social responsibility movement was supposedly gaining mass and growing in influence. Advocates in this movement would say that their actions have heightened the social sensitivities of corporations. But to Pfaff — and millions of others I am afraid — this influence is nothing but a tiny blip on the radar screen. Go into the street and ask people if they believe corporate social responsibility exists, and you are likely to be greeted by guffaws.
Pfaff clearly believes that the proper corrective is increased government regulation, meaning that companies, left to their own devices, cannot be depended upon to do the right thing. Nor are they influenced much by social activists. Pfaff says we have to go back to an older model of regulated capitalism. This was the model rejected by social entrepreneurs such as Ben Cohen and Anita Roddick. They sought to incorporate social responsibility into the day-to-day activities of companies. They would certainly not have defined the old system as “responsible capitalism.” The company founded by Cohen, Ben & Jerry’s, is now part of Unilver, and the Roddicks have been trying unsuccessfully to sell their company, The Body Shop.
The sobering effect of reading a column like William Pfaff’s is to leave a sense of how little we have accomplished. Or maybe we have accomplished something, but we have a very long way to go.
What do you think?