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Review of Misguided Virtue: False Notions of Corporate Social Responsibility

Author: Matthew J. Rosenberg
April 1, 2002
International Affairs

Misguided Virtue: False Notions of Corporate Social Responsibility by David Henderson. London: The Institute of Economic Affairs. 2001. 171 pages. £12.50. ISBN: 0-255-365101

In 2000, the World Business Council for Sustainable Development (WBCSD) produced a report entitled "Corporate Social Responsibility: making good business sense." In it, corporate social responsibility (CSR) is defined as "the commitment of business to contribute to sustainable development, working with employees, their families, the local community and society at large to improve their quality of life." 85 member countries and many prominent multinational corporations participated in the working group that produced the Report. One Shell senior executive was co-chairman of this group. At first glance, what could be wrong with big multinational corporations acting to "improve the quality of life" for all? Corporations would simply voluntarily (or involuntarily) have certain "socially responsible" obligations imposed on them.

David Henderson argues in Misguided Virtue: False Notions of Corporate Social Responsibility that these obligations, as embodied in CSR, do much more harm than good. For Henderson, CSR represents a clear break from traditional corporate value-setting and is a much more systematic and far-reaching doctrine that many top-level managers are now accepting as an article of faith. By assembling an array of reports from the OECD, WBCSD, UN and many big multinationals, Henderson paints CSR as a policy mired in ill-defined terms and irresponsible thinking. One example is the idea that companies should have a "triple bottom line," where economic, social and environmental goals all factor into a company's financial statements. Yet what would the criteria be for achieving these goals and who would set them? Uncontroversial answers to these questions could only arise if a broad consensus were to be reached among governments, special interest groups, corporations and their shareholders. Such a far-reaching consensus has not materialized and is not likely to materialize soon.

Henderson's most salient point is that CSR could have potentially dire consequences in the developing world, a place where CSR is supposed to be the most beneficial. An implemented CSR policy like uniform international labor standards would actually reduce welfare for workers by raising corporate costs.

If a company is compelled to pay $x more per hour for labor in developing countries, it will have to employ less of it to keep costs from rising. Such standards would be additionally costly for businesses because they would have to devote resources to CSR enforcement. When revenues are diverted to such activities, profits are lowered. The costs of lower profits to people in the developing world is the value of what could have been produced with these profits (e.g. greater spending on technology and education). One well-documented case of CSR undermining sales, profits and share value occurred with Levi Strauss, where managers failed to prove that their company could be driven by social values in addition to profits. A result of Levi's attempt at more socially responsible behavior was the closing of many plants in the developing world.

Misguided Virtue straddles a fine line between vigorous critique and polemics when itemizing all the ills of CSR. However, the author is highly persuasive in calling into question lofty and, perhaps, unrealistic expectations in terms of corporate behavior. It is too soon to tell whether CSR is simply a phase and/or a public relations ploy. Nonetheless, Misguided Virtue is a striking indictment that should cause any manager to think twice about unquestioning acceptance of CSR.

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