Corporate Social Responsibility, Take 2

Time has a long piece on corporate social responsibility (CSR) that pulls off our October cover debate among Whole Foods' John Mackey, Nobel laureate Milton Friedman, and Cypress Semiconductor CEO TJ Rodgers. A snippet from the end:

To Cypress's Rodgers, all this talk about purpose higher than profit also seems like a Trojan horse for the eventual piling on of top-down government controls on commerce. The virtues touted by CSR, in his opinion, come just as easily if markets are left to run freely. Rodgers points to the initial public offering last month of Cypress's solar-power subsidiary, SunPower, and asserts that investors chipped in not to make an environmental statement but because they believe clean solar power is a potentially profitable enterprise. He is running a business, he notes, whose motivation is profit alone. In his mind, the long-term pursuit of profit necessitates socially responsible practices. "We practice and have always practiced good environmental standards because it's good business," says Rodgers. "The idea that you can pollute and get away with it is wrong. It doesn't work. It's bad business."

Whole thing here.

Reason's debate is online here.

Comments

[joe]

Uh, there's a reason polluting is bad business. There's a reason it's worth the extra money to send your oil-laden barrels of TCE out for proper disposal, rather than pouring them out in the lot behind the shop.

And that reason has nothing to do with a market for used degreasing chemicals.

[MP]

And that reason has nothing to do with a market for used degreasing chemicals.

I'd be curious if the social ostracization that comes with being a known polluter will ever be a strong enough incentive (in the absence of regulation) not to pollute. I tend to doubt it, but it is possible.

[Phil]

In his mind, the long-term pursuit of profit necessitates socially responsible practices.

Hahahaha. There are still CEOs thinking beyond next quarter's 10-Q? Really?

[Warren]

The letters to the editor in this month's issue of Reason hit on key points.

* Corporations will not make good shepherds of social responsibility. Since the goals and required skills of running a corporation are different than those of running a philanthropic enterprise, the result will be that neither is done well.

* Whole Foods has been quite successful, allowing them to indulge themselves on the 5% giveaway. However, the growth they have enjoyed these past few years, must inevitably taper off. We will see if Whole Foods maintains their 5% policy when times get lean.

If Whole Foods does modify their policy upon market saturation, it will make an interesting compare/contrast to Wal-Mart, which now has modified the formula of it's success, in the face of new forces brought about by that success, to give the appearance (if not the reality) of being a socially responsible corporation.

[JD]

Hahahaha. There are still CEOs thinking beyond next quarter's 10-Q? Really?

Ah, the good old "nobody thinks beyond the next quarterly results". So, Phil - how do new pharmaceuticals get developed? I assume you know that that's a process that takes years if not decades.

[R C Dean]

And that reason has nothing to do with a market for used degreasing chemicals.

True. It could have everything to do with catastrophic liability for nuisance and trespass (when your chemicals migrate beyond your boundaries), or with turning your real estate into an unmarketable asset.

There are restitution-based principles and market forces that will punish polluters, you know. joe seems to think capitalism is just top hats and big cigars down at the club, when really its about maximizing value.

[Jason Ligon]

There certainly is a way to market to a do gooder niche and do well. In fact, if a company is going to compete with Wal-Mart, it really has to define itself in a dramatic way. Do gooderism has appeal as a way to explain the higher prices being charged from the niche shop. Let's not kid ourselves, though. All we are talking about is brand positioning. Whole Foods' strategy to compete with low cost groceries sold in big boxes is no better or worse than Victoria's Secret's strategy to compete with underwear sold in big boxes.

Like any marketing strategy, 'we care' can be done well or poorly. I would note that much ink is spilled on Whole Foods because it is the exception to the rule that companies with much invested in social responsibility don't do very well. All you have to do is take a gander at Domini Social Equity (DSEFX) or similar 'socially resposible' mutual funds or indices to see that lower performance is built in to the concept. I would also note that if you push deeper, you will not find that the underlying stocks that provide the bulk of the performance of these funds are primarily known as socially conscious companies. What provides the performance is companies that are more 'socially neutral'. As of the third quarter, the top ten holdings of the Domini Index, for example, included Microsoft, P&G, Intel, and JP Morgan. Whole Foods isn't in the top ten.

[joe]

"It could have everything to do with catastrophic liability for nuisance and trespass (when your chemicals migrate beyond your boundaries), or with turning your real estate into an unmarketable asset."

Both play a role. But it wasn't liability and real estate that got the lead out of our air and water.

Blah blah blah RC thinks blah blah stereotype stereotype.

[joe]

"Whole Foods' strategy to compete with low cost groceries sold in big boxes is no better or worse than Victoria's Secret's strategy to compete with underwear sold in big boxes."

Really, Jason? Donating money to feed the poor and carry out other good works is morally indistinguishable from running ads, dressing mannequins, and locating your stores in malls?

[Douglas Fletcher]

Joe, I happen to know that Victoria's Secret donates edible panties to charities around the country. Now don't you feel silly?

[Phil]

So, Phil - how do new pharmaceuticals get developed? I assume you know that that's a process that takes years if not decades.

Good point, JD. I guess that's why so many pharmas are dedicating their R&D budgets to groundbreaking therapies for congenital, life-threatening diseases instead of new boner-prolonging meds, new indications for SSRIs and MAOIs, and bladder control.

[Jason Ligon]

joe:

No, it is not morally distinguishable. One party may believe that acts of contrition in the board room make the company moral, and another party may find the whole notion to be nonsense since the company is an inefficient agent of charity. Big picture, leaving you with more money to donate yourself to causes you prefer is no less moral than donating on your behalf.

This is not to say that there is no action that a corporation can take that is immoral. Clearly, deception and uncompensated pollution of commons fall into the category of immoral business practice. What Whole Foods is doing is something else altogether, and I don't know that 99.9% of what they are doing strikes me as a particularly better expendature of money than any other boutique marketing campaign I've ever seen.

Efficacy matters, and I don't care about intentions whatsoever.

[Thomas Paine's Goiter]

"Good point, JD. I guess that's why so many pharmas are dedicating their R&D budgets to groundbreaking therapies for congenital, life-threatening diseases instead of new boner-prolonging meds, new indications for SSRIs and MAOIs, and bladder control."

So doing both is unacceptable?

Wow. I can't wait until you run the benevolent corporation of good guys.

[Russ 2000]

Whole Foods likes to market themesleves as giving a shit, but I don't see them putting up stores in underserved-by-grocers neighborhoods in America like Roxbury, Roseland, or Compton. They always plop their stores right down into the latest upper-class or gentrifying neighborhoods. Sure they'll give a few bucks to food kitchens, but god forbid they put a store within 2 blocks of one. They don't exactly tell people how far they can stretch their food stamp dollar at their stores. Meanwhile, people rip on McDonald's for opening restaurants in bad neighborhoods, as if McDonald's is somehow trying to keep other restaurants and stores out.

[joe]

Jason, quick, name me the charities Whole Foods contributes to. You clearly know so much about them that you can state with confidence that their donations are not effectual. So please, enlighten us. To what infeffective charities does Whole Foods donate?

And don't try to hide behind that "some people say, other people say" meally mouthed bullshit in your first sentence.

[joe]

Russ2000, Whole Foods also doesn't run a shelter for lost puppies or a clinic where burn victims can get reconstructive surgery. In fact, I can think of a whole host of good acts Whole Foods isn't engaged in. Is there point in here somewhere?

[Jason Ligon]

joe:

You miss the point. The corporation referred to in 'the corporation is an inefficient agent of charity' isn't Whole Foods in particular, it is for profit corporations in general. The charitable instincts of each customer would be better served by donating to whatever causes each customer prefers to advance.

Further, to the extent that any of these charities receive funds that otherwise diverted would increase economic growth, we should be skeptical.

For specifics, advocacy of organic foods means advocacy of the most inefficient form of food production currently known. Broadly adopted, more people would starve. Opposition to GM crops has a similar effect.

By the way, is it really meally mouthed to use that turn of phrase when everyone reading this knows who I was talking about? It may be obnoxious, but it is not meally mouthed. You think the boardroom is the place for charity, and I think you have a simplistic view of charity. Is that better?

[Russ 2000]

In fact, I can think of a whole host of good acts Whole Foods isn't engaged in.

And every one you mention has nothing to do with their core business. Every one I mentioned does.

I have nothing against Whole Foods, if there was one close to my house I'd probably go there from time to time. They cater to a snob market, and I am a snob on occasion. But most snobs would rather be called something other than "elitist prigs", so "socially responsible" winds up being the preferred euphemism.

You can slice "corporate social responsibility" nine ways to sunday and disregarding a few of those nine ways just because McDonald's and WalMart are doing them is dishonest. When Whole Foods selects only certain producers for a particular item, it's called "responding to the customer". When McDonald's changes their food packaging it's called "bowing to pressure". In reality, both companies responded for the same reason, but it's framed depending on snobbery - Whole Foods has an elitist reputation and Wal-Mart doesn't.

[rd]

See this post by Slate writer Eric Umansky debunking some of the article's findings:

http://www.ericumansky.com/2005/12/the_nyts_page_o.html

[joe]

Jason,

"The charitable instincts of each customer would be better served by donating to whatever causes each customer prefers to advance." Not necessarily. The large donations coming from a large donator like a department store can achieve big things that scattered and disaggregated efforts cannot.

"Further, to the extent that any of these charities receive funds that otherwise diverted would increase economic growth, we should be skeptical." Some charitable efforts, such as alleviating poverty, can have economic growth ramifications beyond simple transfers, by allowing people who would not have otherwise been productive to become productive. Second, economic growth is not the only virtue promote. Third, I remain highly skeptical that donations to charity are prima facie less likely to promote economic growth than if the money went into salaries and dividends for top management.

"For specifics, advocacy of organic foods means advocacy of the most inefficient form of food production currently known. Broadly adopted, more people would starve." You clearly don't know very much about organic farming, if you are willing to accept such a statement. You've got a problem with your definition of "efficient."

And what is mealy-mouthed is to hide behind "some people say, other people say" without regards to the objective reality. You don't write for the WaPo do you?