Friday, March 18, 2005

No Nuts For You!

In my research on corporate social responsibility, I came across quite the interesting case study. Ben and Jerry's ice cream is possibly one of the most cited case studies for corporate social responsibility. Started by two hippies, Ben Cohen and Jerry Greenfield, Ben and Jerry's devoted 7.5% of all their pre-tax profits to charitable causes. In addition, they grew their ice cream business from starting up in a little old gas station to go multi-national, achieving millions in profits. And being hippies, they did everything in their power to use their corporate influence to save the rainforests, etc. Ben and Jerry's was essentially the corporate darling of the political left.

But this particular case study details the history of another one of Ben Cohen's ventures. And this venture failed miserably because Cohen's commitment to CSR drove him to make irrational and even unethical decisions; he sacrificed important primary stakeholders for the sake of tertiary stakeholders. I think academics should cite this case a bit more in CSR studies, no? :) The article is well worth the read for anyone interested in CSR (corporate social responsibility).
But operating problems seemed of lesser concern to Cohen than abstract issues such as the values, vision, and culture that he stressed in numerous memos to his managers. In one such message he wrote, "I want to be known as a company that uses business to meet human needs." In another, he saw CPI as part of a new world where what counted was "putting people ahead of profit and passing laws that end up getting more money into the hands of poorer people and less money into the hands of richer people."
This is a dangerous mindset in that if it's not managed properly, it can become Communist. Suffice it to say that the Communism does not work as an economic system because you reward according to existence instead of merit (the logic and morals would require a separate post). This particular case study has really spotlighted to me what The Economist was saying in its January 22-28 issue:
The one thing that all the nostrums of CSR have in common is that they are based on a faulty - and dangerously faulty - analysis of the capitalist system they are intended to redeem. Admittedly, CSR is now so well entrenched and amply funded that to complain about it may be pointless. We are concerned that it may even be a socially irresponsible use of scarce newsprint. Nonetheless, if businessmen had a clearer understanding of the CSR mindset and its defects, they would be better at their jobs and everybody else would be more prosperous.

Simply put, advocates of CSR work from the premise that unadorned capitalism fails to serve the public interest....
I think CSR is still necessary in this world. But it should never subvert free markets as Cohen attempted to do. That makes for an unsustainable CSR initiative that has multiple potentially negative ramifications, including poor product quality, chaining a poorer nation's economy to inefficient markets, and unjustifiably high prices. CSR efforts that promote things like high quality free trade coffee is good. CSR efforts to implement environmentally friendly technologies that can save money and increase efficiency is good. But the key thing about CSR initiatives like quality free trade coffee or environmentally friendly technology is that the firm is actually able to benefit. Free markets would have encouraged firms to go in that direction whether an onus for CSR existed or not. CSR that exists for the sake of CSR really is just corporate welfare. Give a fish to a man and he eats for a day. Teach a man how to fish and he eats for the rest of his life. We think too little of other people if we think that they are incapable of fishing for themselves. And they don't have to fish in ways that we impose upon them for the sake of our own CSR ideals.

Yes, I like CSR. But I am still an Adam Smith type at heart. CSR should work within an Adam Smith framework, not vice versa. At the same time, Adam Smith ideals can only have their intended beneficial results in a proper ethical and legal environment. Adam Smith ideals in a land with no respect for the law is a recipe for disaster. But that is an entirely separate discussion for another day.

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