Is CSR benefiting firm or society?

Famed University of Chicago faculty and Nobel Prize winner Milton Freidman ferociously claimed in 1970 that the sole purpose of a firm revolved around making money for its shareholders.

His powerful article defined a generation of debate surrounding the role of a company in society. Hundreds of public intellectuals since have lent their voice to commend, contradict, or expand Freidman’s pivotal work.

Corporate social responsibility (CSR) exists in stark contrast to Freidman’s view of the role that corporations should play. CSR specifically means business practices that aid society.

It may include cash donations, gifts-in-kind, and employee time to charity. CSR also comprises workplace initiatives to include more employee diversity, more fair hiring processes, improving how products and services help customers, or reducing pollution by changing to more green business operations.

On one side of CSR prevails revolutionary science entrepreneur Elon Musk’s Tesla. The car and energy firm seeks to reduce humanity’s carbon footprint all the while engaging in ethical business practices. On the other side, persisted American tobacco firm Philip Morris that in the midst of the American government’s lawsuit against cigarette manufacturers in the late 1990s, the firm infamously spent more money advertising its good deeds through CSR projects than the company actually spent on the CSR activities themselves.

The treatment of CSR as more marketing content rather than societal help combined with the fact that their products led to chronic diseases and death rank Philip Morris as one of the worst CSR firms in the past 20 years.

Employees around the world and right here in Kenya increasingly value the CSR activities taken by their employers. The perception that certain firms assist the wider community helps attract the best talent. Staff progressively find organisational identity in the good works conducted by affiliated foundations, such as the Safaricom Foundation, KCB Foundation, and Chandaria Foundation as examples.

Strong CSR programmes also increase the likelihood that workers will discuss the firm with people outside of it. Social scientists Christian Voegtlin and Michelle Greenwood recently dissected the latest research on the role CSR can play on a firm’s human resources. They delineate how CSR also helps to introduce standards for decent ways to conduct work. CSR also makes employers more aware of socially conscious human resources practices that increase employee morale.

CSR done incorrectly, on the other hand, can bring negative consequences to employer-employee relationships.

Downsides occur when employees become cynical because of a mismatch between the public persona garnished by CSR and the private contradictory actions taken by the same firm behind closed doors. As an example, a firm that espouses care and concern for the environment but employees privately see excessive wastage within can reduce staff morale lower than if no CSR took place at all.

Former big five accounting firm Arthur Andersen LLP notoriously stood for ethical business practices and donated substantial sums to charity. Their audits represented the proverbial gold standard, reassuring stakeholders that the firm’s clients operated under the highest ideals of financial integrity.

However, the entity later was revealed as complicit in the Enron accounting scandal of 2001, leading up to Arthur Andersen’s collapse in 2002. Not only did corporate clients flee the firm but also disappointed and embarrassed employees departed in droves leaving only the lowest calibre of staff who could not find jobs elsewhere. How does your firm stack up?

Scott may be reached on [email protected] or on Twitter: @ScottProfessor