Is CSR a Crony Capitalist Profit-Maximization Strategy?

business_ethics_highlights_2Are corporate social responsibility (CSR) initiatives a deviation from firms’ pursuit of profits or are they instead (part of) profit-making strategies? This blog post draws together a lot of recent research to suggest that the answer may be the latter, but the mechanism of profitability may have as much to do with governments’ willingness to extend tax breaks to firms with reputations for CSR as it does with any actual increase in firms’ financial performance. The piece could be useful in seeding a classroom discussion animated by questions such as: What is CSR? How is CSR related to business function? Are CSR initiatives a net benefit to society or a disguised transfer scheme? Are CSR and shareholder wealth maximization compatible or incompatible (and whatever your answer, what follows from that)? >>>

LINK: Why are corporations ‘socially responsible’ (by Ben Southwood in Adam Smith Institute Blog)

[T]he bulk of evidence suggests that firms do better financially when their ‘corporate social performance’ is higher. A 2003 meta-analysis of 52 papers and 33,878 firms found a positive association—though this was stronger when you measured financial performance by accounting measures rather than investor measures. A 2007 meta-analysis looked at 167 studies and found a similar result: corporate social responsibility is associated with higher financial performance, though quite weakly.

Intriguingly, the reputational advantages [of CSR] may also extend to the government. Davis et al. (2015) discovers that firms who do more nice stuff also lobby more and pay less tax; i.e. that corporate social responsibility and tax are substitutes. This suggests that CSR overall is not driven simply by some measure of manager altruism or empathy or quality—the sort of thing we might usually wonder about. (Though some evidence disagrees.)

What do you think?

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One comment

  1. Francis Bellamy

    The Adam Smith Institute itself appears to represent a rather notable instance of CSR. ASI receives funds from tobacco companies whose managers are concerned about our individual liberties.

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