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Socially Responsible Debate

In Trends on August 24, 2010 at 2:46 am

I just read an article in today’s Wall Street Journal by Aneel Karnani, associate professor of strategy at the University of Michigan’s Stephen M. Ross School of Business. Before I finished the second paragraph, I knew it needed a rebuttal from the REACH Blog.

Our loyal readers (thanks, Mom) know that REACH is focused on two things – helping our clients and helping people in need. We think helping others is kind-of a good thing to do. We do it at home. We do it at church. And we just figure why not do it at work too?

But the professor from Michigan has different ideas. He has in mind huge global corporations where corporate citizenship is much more politically tricky. With so many people involved – shareholders, employees, customers, public opinion – what’s a company to do? Too much of the greater good could endanger profits and sour shareholders. Too little could drive away socially-responsible customers and employees. Plus there’s the question of how. Should Starbucks support fair trade or clean water? Which is more important? Which is more urgent? It’s impossible to please everyone.

But since these issues are difficult, Karnani seems to suggest that the best solution is to avoid them altogether. His recommendation instead? “Let the government do that.”

I’ve chosen the most egregious sections of the column to rebut, but out of fairness, I encourage you to read his entire article because not all his points are as ill-conceived as those highlighted below. Granted, the professor is weighing the merits of models rather than individuals. He’s thinking macro. Global economics. But some of his points are poorly-presented or just plain wrong. So much so that it’s hard to parse what of the macro-level logic carries weight.

“So now what? Should executives in these situations heed the call for corporate social responsibility even without the allure of profiting from it?

You can argue that they should. But you shouldn’t expect that they will.

“Executives are hired to maximize profits; that is their responsibility to their company’s shareholders. Even if executives wanted to forgo some profit to benefit society, they could expect to lose their jobs if they tried—and be replaced by managers who would restore profit as the top priority.”

This point would make perfect sense if we assume that “profit as the top priority” is the mantra of every company on Earth. I think that’s assuming too much, partly because I know several companies who aspire to greater goals. What if a corporation and all its shareholders (it might help to imagine a smaller company) agree that their highest goal is not profit? What if a group of shareholders, in fact, hired and promoted executives because they chose not to sacrifice social welfare for the sake of money? What if a company did expect more of its executives? What if a company wanted a CEO who would lead them well into something richer than cash? Those companies exist. Let’s hold them up as shining examples rather than unrealistic expectations.

“Managers who sacrifice profit for the common good also are in effect imposing a tax on their shareholders and arbitrarily deciding how that money should be spent. In that sense they are usurping the role of elected government officials, if only on a small scale.”

I have two observations about this paragraph.

1. If Professor Karnani isn’t used to submitting to this kind of arrangement, he really should join the majority of Americans in supporting a charity. This is exactly what happens with almost every nonprofit organization in the world. Supporters agree to live with less, and trust leaders of their chosen charities to make decisions about how to spend their donations. It really is a freeing thing to give away money. The professor should try it.

2. I understand from this paragraph that the professor sees it as the government’s role to impose taxes and then arbitrarily decide how the money should be spent. That approach turns democracy and capitalism exactly backwards. Of all organizations on the planet, government is the one that should be allowed the least autonomy in “arbitrarily deciding how money should be spent” for two very obvious reasons: A. Elected officials are exposed to less risk than corporate leaders (before you protest, professor, consider your point from the preceding paragraph about the tenuousness of executive tenure), and B. Elected officials have done nothing to help earn the money they’re spending.

“The ultimate solution is government regulation.”

This is the part of a well-written article where the author would support his point with examples of markets where government regulation proved to be the ultimate solution and brought about the greatest good for the greatest number of people. Oddly, those examples are missing here. Another tack may be to detail the reasons why government regulation is the “ultimate solution” – logical arguments as to why, even if it doesn’t work now, it “ought” to work sometime. But Karnani can do none of that. Instead he supports his point about the “ultimate solution” with a laundry list of flaws and failures – inefficiency, cost, incompetence, lack of funding, opposition by industry groups, and corruption. All of these are cited and explained in the article. It’s like saying, “She’s got half a million miles, she won’t pass inspection, she only starts about half the time, and I think there’s a body in the trunk. But I think she still ought to bring blue book.”

Again, to be fair, the professor has in mind economies from around the world to include developing countries and societies much different from our own. But I suggest that to the extent that those markets cannot reasonably police themselves, they are not ready for capitalism. America’s second president said, “We have no government armed with power capable of contending with human passions unbridled by morality and religion. Avarice, ambition, revenge, or gallantry, would break the strongest cords of our Constitution as a whale goes through a net. Our Constitution was made only for a religious and moral people. It is wholly inadequate for the government of any other.”

I’m a regular reader of the Wall Street Journal and as a former newspaperman myself, I appreciate the paper’s continued success amid troubling times for journalism. I can even applaud their commitment to present a wide range viewpoints. Unfortunately, I think they might have done well in this case to find a viewpoint that made more sense.

PS: I know it’s pretty easy for me to take pot-shots at Professor Karnani when there is little chance he’ll ever read this. So I’ve emailed a copy of this essay and a link to this blog to the contact information listed for him at the bottom of his article and on the University of Michigan website.

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  1. So did the prof ever respond to you?? 🙂 I really enjoyed reading this by the way!

    • Hey Kaci-
      Thanks for reading. No, I never heard back from the prof. I’m sure he has better things to do than get drawn offsides by some startup punk in Texas. 🙂

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