Chris Neels has posted an interested blog article about Corporate Social Responsibility . He argues that companies shouldn’t be doing things that are good for the community, because that hurts profit maximizing behaviour, and because of that, people are worse off. Additionally, he says that the BoD of a company shouldn’t be using shareholder’s money for Charity because that’s immoral and inefficient.
This will address his conclusions, which I find potentially faulty:
* Firstly, companies don’t do these projects because they are nice. They do that because they have never deviated from their profit-maximizing objective. CSR deviates from profit and efficiency maximization as much as marketing, which is to say, it doesn’t. CSR makes the company look better and more socially responsible when compared to other companies. When you live in an age where people, yes, are expecting companies to be more responsible, engaging in this social responsibility acts as a complement to the companies’ marketing scheme, since it increases awareness about the company and positions the company as one that is so close to their customers, that they directly help them
* The second claim is that because companies are not as focused in maximizing profits, people are worse off. This is fallacious in many levels. Firstly, profit maximization does not necessarily lead to the well-being of the population. Just take a look at monopolies. Competition makes people better off, not the bottom line for shareholders. Secondly, profit disregards externalities and non-monetary effects. Most companies do produce negative externalities, which means that the company is making everyone else worse off just so they can become better off themselves. There is nothing bad to the community if companies are ‘trying’ to offset such externalities. Is money being diverted from product research? Maybe. But money is also saved, because CSR works as marketing.
Are companies less efficient than charities at doing public good? Yes. Which is why most of the time companies prefer to donate to those charities. Sometimes though, they wish to grab some marketing attention out of CSR, and there is nothing immoral or inefficient about it. It’s simply uniting the useful with the nice. Companies look nice, people feel better, everyone wins!
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