Open Forum

New Delhi, 16 August 2011

Corporate Social Responsibility

CAN PROFIT BE THE END ALL?

By Dharmendra Nath

‘Today corporations govern our lives. They determine what we eat, what we watch, what we wear, where we do work and what we do. We are inescapably surrounded by their culture, iconography and ideology. And the church and monarchy in other times, they posture as infallible and omnipotent, glorifying themselves in imposing buildings, elaborate displays…...Corporations now govern society more than governments themselves do.’ So wrote Joel Bakan in 2004 in his book The Corporation; The Pathological Pursuit of Profit and Power.

Their conduct being the dominating influence on society, their accountability and morality are of great importance to our well-being. Arguably, is corporate social responsibility (CSR) confined only to making profits and providing jobs or does it extend beyond that?

A statement of Nobel Laureate Milton Friedman succinctly highlights the issue: ‘…in a free society…there is one and only one responsibility of business – to use its resources and engage in activities designed to increase its profits.’ This he wrote in an article The Social Responsibility of Business is to Increase Its Profits published in New York Times, 13 Sept. 1970.

This approach is countered by others who contend that it is the responsibility of business to go beyond profits. This latter approach is summed up by British management author Charles Handy in an article What’s a Business For published in Harvard Business Review, Dec., 2002. He says: ‘Business has to have a motivation other than merely making a profit as an end in itself. Profit would be a means to achieve a larger end.’

The controversy is perennial. Adam Smith spotted profit motive (selfishness) at the root of business transactions when he said: ‘It is not from the benevolence of the butcher, the brewer or the baker that we owe our dinner but from their regard to their own interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.’

On the other hand, Gandhi enjoined on us the moral aspect of business: ‘Customer is the most important person; he is not dependent on us, we are dependent on him’. By and large business conducts itself honourably in the interest of its own long-term survival and prosperity. The fear is that people will not do business with a discredited organization. But there are periods when prudence has been flouted in a significant way.

The Enron (Energy, 2001) and WorldCom (Telecom, 2002) scandals in the early years of this century shot into world attention and exposed the hollowness of profit motive. Their executives in collusion with their auditors falsified accounts to present a rosy picture of the company to earn their bonuses and salary raises. WorldCom’s independent auditors Arthur Andersen too sank with them.

Corrective action in the form of SOX legislation (2002) piloted by Senator Paul Sarbanes and Congressman Michael G Oxley ensued. It enhanced the standards for US public companies by way of better internal and outside monitoring, more disclosures, stricter code of conduct for insiders and separation of securities’ analysts from investment executives.

But this too did not help. Within the span of the next 5-6 years another onslaught of blatant greed outdid this legislation. The economic crisis beginning 2007, which is yet to subside was precipitated by the US housing companies, banks, credit-rating agencies, auditors and government oversight agencies-- all working in collusion in search of bigger profits.

They created an artificial property boom, an air bubble, which finally burst with large-scale adverse consequences for not only the entire US economy but the world as well because the US is plainly living beyond its means. So sank Lehman Bros and Washington Mutual.

‘What do you call giving a worker who makes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 house and then bundling that mortgage with 100 others into bonds --- which Moody’s and Standard & Poor’s rate AAA – and then selling them to banks and pension funds the world over.’ That neatly sums up the crisis.

The drive for higher profits moved banks and others into a position where they endangered the stability of the society they professed to serve. They were clearly selling over-priced products and creating a super structure of profits over it.        

Since housing touches almost every one, the overall impact on the economy this time is vast and almost every sector is seeking a relief package from the US Government. Banks had to be bailed out first to avoid the choking of life blood, then auto companies and others. The money being pumped in now is substituting for what was pumped out.

There is no escaping CSR, both in the legal and the ethical sense. Profitability is for a start, but ultimately companies’ activities have got to be socially desirable. In the words of Peter Drucker: ‘Profit is like oxygen for a person. If you don’t have enough of it, you’re out of the game. But if you think your life is about breathing, you’re really missing something.’ 

Western capitalism has seen good days and has done us a lot of good. The charities it has spawned are a shining example. Warren Buffett gave away $ 37 billion, Bill Gates $31 billion, Rockefeller $7.6 billion and Andrew Carnegie $ 4.1 billion, to name only a few. The corpus of Gates Foundation (US) is $ 60 billion, IKEA (Sweden) $ 38 billion, Wellcome Trust (UK) $22 billion and Ford Foundation $14 billion.

Nor is all business engaged in self-glorification. There are no dynastic ambitions in the case of many companies. Notably, Microsoft and our own Infosys have no succession plans within the family.

It is conceded that business has to be conducted in a responsible way. The food industry has to manage the issues of adulteration and obesity. The pharmaceutical industry has to contend with the issue of affordability of life-saving drugs. The financial services sector has to deal with teaser loans which might conceal real costs. The oil industry has to take care of oil-spillages. Beyond that the industry can add a philanthropic extra in the form of charity as in the instances cited above

Clearly, what worries us is that we have seen the demise of communism over the neglect of profit issue; capitalism faces the same threat over an obsession with it. ---INFA

(Copyright, India News and Feature Alliance)