The Big CSR Debate Takes on Responsible Capitalism

"Unfortunately these days, there is a tendency to demonize businesses and the business community needs to stand up and explicitly defend free market capitalism," he began, continuing, "Capitalism does serve public interest very well in many cases but unfortunately many executives these days spend much more time making wishy-washy statements about CSR than defending capitalism."

-- Professor Aneel Karnani's opening remarks at a debate on CSR and the role of business today.

The much anticipated, much talked about debate and sparked by Professor Karnani's recent editorial in finally took place on Friday. The panel was impressive and expectations were high: Susan McPherson, SVP with organizers Fenton Communications; Dave Stangis, VP for CSR and Sustainability with Campbell Soup; Georg Kell, Executive Director with UN Global Compact; Christine Arena, CSR blogger and CEO of SparkUp; Aron Cramer, CEO of consulting firm BSR; GE's VP for Corporate Citizenship Bob Corcoran; Matthew Bishop, US Business Editor and New York Bureau Chief for The Economist; Chrystia Freeland, Global Editor-at-large with ThomsonReuters; and of course, Karnani.

Some of the highlights from the panel and key takeaways:

Free Markets Are Not Responsible for Societal Ills

Point: Karnani used most of opening remarks blasting companies that proclaim that "social responsibility lies at the core of our strategy," and declared that CSR in hindsight becomes nothing more than "a distraction" and mostly, "irrelevant." Instead, he said, government regulation is the ultimate solution for ensuring corporate social responsibility, iterating that not having to "rely on best intentions" is a better way forward since despite "their faults, governments are a far more effective protector of the public good than any campaign for corporate social responsibility."

Counterpoint: At the time Karnani's editorial first appeared, SustainabilityForum had said, "[The argument that] profits will benefit the overall society as an argument is old school Milton Friedman thinking. History and our present dire situation, economically (bank crisis, unethical trading, etc.) and ethically (values and purpose of employees in companies in general) has shown that this is NOT the case. Otherwise there would not be an outcry and need for more responsible business practice. CSR is the real world view."

While Karnani agreed that he was quoting Friedman, he was equally quick to shove off any suggestion that his argument was dated, alleging that free markets and capitalism have no room for social responsibility, and no crisis can change that.

Takeaway: Karnani in one go, not only devalued the role of government as a participant in social responsibility, he also gave free rein to businesses to put profits ahead of all concerns. Fat lot that logic has done for Wall Street.

Rhetoric vs. Strategic

Point: Citing BP and the Gulf of Mexico oil spill, Freeland argued that a company that had long been a poster child for CSR and environmentalists is now in the dumps for its social irresponsibility. On the other hand, she said, it turns out that Exxon Mobil, "the big bad oil company from Texas," was really the one with the better safety track record. "So where does that leave the CSR world and their rhetoric?"

Counterpoint: "That's exactly it. When it's rhetoric, it doesn’t work," said Arena, "but when it is strategic, it does work." The Economist's Bishop turned the heat up a notch by calling Freeland's recent article in The Washington Post—where she equated social responsibility with charity and philanthropy—"ridiculous" and her claims "ludicrous."

According to Bishop, it isn’t that companies like BP and Goldman Sachs behave differently during a crisis "because of some fetish in the board room to be green or look good to the public." It goes much deeper than that, he said, adding that it was clear that many things had gone wrong since the time of former CEO Lord Browne's famous speech.

Takeaway: CSR can't work if it's just rhetoric: there's a reason that companies that try it are accused of "green-washing". As I've said before, CSR is , but a strategic principle that must live within the business model.

The language of CSR

Point: Karnani alleged that the solution to companies' ills is good governance and better management, not CSR. "CSR becomes a smokescreen for companies to hide business conflicts, and therefore, becomes rhetoric," he said. "We have been teaching good management in business schools for years. CSR is not the solution."

Counterpoint: Bishop pointed out that, while Milton Friedman's arguments might have been sound in a world where sectors were distinct entities, in today's "flat world" where we are all employees, consumers, and capitalists, this no longer holds true. The problem, he said, is the way the language of corporate social responsibility has been constructed, creating confusion because of a lack of widely agreed upon clarity.

Takeaway: Regular readers will remember a similar argument by Campbell's Stangis, who alluded to this at a recent panel at the AsianMBA Leadership Conference, calling this lack of terminology CSR's biggest challenge. This is a continuing struggle for people who work in the CSR field. Defining and streamlining the many elements contained within the acronym is a work in progress, and will require much debate and engagement in the years ahead to reach consensus.

The Role of Business Is To Increase Shareholder Value & Pursue Profit

Point: Short-termism vs. long-termism is a key component of Karnani's argument, and in the discussion the professor put the onus on shareholders, claiming that they must ask for long term results for a company to stop focusing on short term profits. "Telling a short term manager to become long term oriented because he is a good citizen is not going to work. Companies want to become long term, but this is a governance problem, not a social responsibility problem," he stressed.

Freeland further added that that companies use CSR rhetoric as a safety net marketing ploy to keep the real conflicts and issues out of sight.

Counterpoint: This time Arena turned the stage to Stangis, who, perhaps, summed up the key context of the entire debate.

"When I was hired at Campbell, at my first board meeting, I told them that they didn’t hire a tree hugger. I wasn’t going to go out and plant trees and clean up the streets. They hired a capitalist that was going to try and help them become a better company and make more money, but with the tools of CSR and sustainability. Now the language might be jargonized, but we translate that into what it means for each business unit: If I'm in the supply chain, how can I think of building social impact or create long term goals around energy and water usage that minimize environmental impact and take costs out of the system's supply chain?"

Similarly, he continued, within the HR department CSR is discussed in terms of employee engagement and retention; marketing discusses sustainability in terms of our consumer promise and customer affinity. "So, while our definition is long, it ends with 'building competitive advantage' and that’s what's key to my role: driving a cultural change aligned with the company's mission."

Takeaway: It almost seems like wasted words to repeat this, but CSR must be contextual for a company to be effective. And Stangis expressed this well. When each department translates sustainability contextually, there are bound to be measurable goals and corresponding results that together form a comprehensive business model capable of making profit while creating positive impact.

What does CSR have to do with recruitment and future business leaders?

Point: While Cramer recalled a recent conversation with the head of Alcoa who called corporate responsibility essential to recruiting top talent, Stangis emphasized that today's top talent is increasingly asking companies to show a commitment to CSR and transparency.

However, the question was most effectively addressed in the final few minutes when Arena referred to a surge in the number of courses being offered across business schools on CSR, and asked: Are these students wasting their time?

Counterpoint: A professor of management and strategy, Karnani was well poised to answer this. Stressing that the conversation must begin by explaining what is meant by CSR, whether that is voluntarism, philanthropy, corporate governance or simply good management.

"The big question would be what the role of business in society is today? If I were to design a course, it would not be called CSR, it would be the role of business in society," he ended.

Takeaway: Finally, a point on which Karnani and I agree.

The verdict: CSR blogger and author of upcoming book put it well, "The likelihood is that the camp you started out rooting for is the camp you remained in. And that camp won." View the complete webinar, archived for 90 days.