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The Myth of CSR:
The Problem With Assuming That Companies Can Do Well By Also
Doing Good Is That Markets Don’t Really Work That Way

By Deborah Doane,
Chair of the CORE Coalition, UK

Stanford Social Innovation Review
Fall 2005

The unprecedented growth of CSR may lead some to feel a sense of optimism about the power of market mechanisms to deliver social and environmental change. But markets often fail, especially when it comes to delivering public goods; therefore, we have to be concerned that CSR activities are subject to the same limitations of markets that prompted the movement in the first place.”

In her article, “The Myth of CSR,” writer Deborah Doane argues that, despite the enormous popularity of and attention paid to the Corporate Social Responsibility (CSR) movement, CSR will fail to seriously change capitalism because its assumptions are ultimately incompatible with market realities. Doane begins by acknowledging that the rise of CSR has done much to raise public awareness of corporate behavior, for example by fueling the growth of “ethical consumerism” and the “fair trade” industry. She also notes that, in certain circumstances, responses to public pressure can produce substantial changes in the basic practices and transparency policies of individual companies (for example, following a string of lawsuits over sweatshop conditions, Nike is now considered a world leader in transparency and improving labor standards in Third World factories). According to Doane, however, many CSR improvements are skin-deep and do not seriously resolve the fundamental tension between corporate and public welfare. Because they rely on the market itself for impetus, CSR approaches are vulnerable to market failures such as imperfect information, externalities, and free riders. Proponents of CSR, she argues, have placed too much emphasis on the ‘cure-all’ potential of CSR by over-simplifying the complex incentives that drive markets and by failing to address the fact that, eventually, “trade-off’s must be made between the financial health of the company and ethical outcomes.” “When they are made,” she continues, “profit undoubtedly wins over principles.”

Doane makes her argument by deconstructing what she calls “the four key myths” of CSR: 1) That the market can deliver both short-term financial returns and long term social benefits; 2) That the ethical consumer will drive the charge; 3) That there will be a competitive “race to the top” over ethics amongst businesses; and 4) That in the global economy, countries will compete to have the best ethical practices. She concludes by outlining several alternatives to CSR, such as direct regulation, social labeling, and changing the legal structure of the corporation.

Doane’s article raises questions about the viability of CSR as a stimulus for good corporate citizenship. When the demands of the stock market require most companies to adopt two-to-four year time horizons in considering investments, is it realistic to expect that they place the long-term goals of ethical reputations and better labor practices, however profitable they may eventually be, above the immediate drive for higher profits?

Furthermore, when popularity of gas-guzzling sport utility vehicles and bottom-line companies like Wal-Mart continues to rise, how much impact on corporate practices is “ethical consumerism” likely to have?

And when, despite highly publicized corporate donations to schools and other charities (which the article suggests often serve the companies PR interests more than they do the public’s) corporate income taxes in the US fell from 4.1 percent of GDP in 1960 to 1.5 percent in 2001, shouldn’t we question how dedicated the corporate world is to funding public works?  In the end, Doane challenges us to place CSR within a larger social context, to question how far we can stretch it before broader and deeper reforms are needed. 

For the full article, follow this link

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The Market for Virtue: The Potential and Limits of Corporate Social Responsibility
by David Vogel, Brookings Institution Press 2005

David Vogel provides an in-depth review of the contemporary CSR movement in both the United States and Europe. He is the Solomon Lee Professor of Business Ethics at the Haas School of Business and a professor of political science at the University of California, Berkeley. See Brookings website

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Corporate Social Responsibility in Brazil

The June 2005 issue of Latin Finance magazine contains an article on CSR by Maria O’Brien that highlights a Brazilian perspective. It quotes Ricardo Young, CEO of Instituto Ethos, a not-for-profit Brazilian organization: “Bad publicity can translate into a lower stock price. We always say that behind a CSR strategy there is a business opportunity – to increase profits, reduce risks and be less exposed to liabilities of all kinds.” Ethos is said to have approximately 1,000 members. Young is also quoted as noting: “Brazil’s sugar producers, for example, are competing in the global market. They are having to face issues such as the environment and child labor. They are realizing that if they don’t make a huge investment in making their business more sustainable, cheap sugar won’t help them gain market share.”

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“Stamping Out Sweatshops”
A May 2005 editorial in BusinessWeek

The article praises the efforts of the Joint Initiative on Corporate Accountability and Workers’ Rights, an ambitious pilot project sponsored by six anti-sweatshop activist groups and eight global apparel makers (including Nike, Gap, and Patagonia). The Initiative aims to establish a single set of labor standards and common plant inspection guidelines at dozens of factories in Turkey that produce apparel and other goods for the companies. The editorial notes that “This 30-month experiment is a great first step in bringing order to the piecemeal manner in which even the biggest companies set and monitor workplace conditions across the developing world. But a much broader solution is required to make real progress against sweatshop conditions. Social Accountability International. A local living wage is a particularly contentious issue for manufacturers, since it is subjectively determined and likely to exceed the local minimum wage in many countries.

For more information, see "Rising Above Sweatshops: Innovative Approaches to Global Labor Challenges". Edited by Laura P. Hartman, Denis G. Arnold, and Richard E. Wokutch. Forewords by Ken Block, Frank Vogl, and Norman E. Bowie

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Ethics & Values of Globalization
by Frank Vogl

Never before have issues of ethics and values been so prominent within debates and official negotiations across national borders under the heading of globalization. Every industry is impacted. It relates to the enforcement of patent rights. It concerns perceptions of genetically modified foods. It embraces the ways in which U.S. firms sub-contract factories in poor countries to produce goods for Western markets. It relates to every aspect of the natural resources industry. For business, coming to terms with this vital and complex agenda means new strategies and corporate behaviors.

  • It means having a vision about where the world is going and our part in it;
  • It means restructuring the company to make it genuinely multinational;
  • It means being right on top of the latest global developments that can influence business decisions, knowing the strategies of foreign competitors, and having the right contacts.

Major corporations worldwide are often seen as suspect by local publics in part because they are perceived to be more powerful than national governments, yet not democratically accountable. Globalization is widely seen as undermining the power of governments, while boosting that of business.

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