Sep 13, 2015

Want to help society? Just make a profit and you will

Corporate social responsibility is an indulgence of affluent societies and rich companies.

Some might say such policies are essential for business in the 21st century, but I think a lot of this stuff is merely capitalism’s version of “virtue signalling” — companies and executives competing to prove who has the greatest conscience.

Theoretically, the whole movement is unnecessary. Either a firm can simultaneously do good and make profits — in which case it surely will; or the generation of profits and increased social welfare are in direct opposition, in which case the business should prefer profits, unless the management decides to operate it as a charity. The directors are cheating the shareholders if they do not optimise profits.

The economist Milton Friedman was the definitive commentator on free markets and CSR. He believed executives should spend their own time and money on philanthropy, and let investors decide how to give away their money once profit had been distributed as dividends.

I have always thought that the overriding priority of a business is to give customers products or services they want — at a margin — and in the process create jobs and pay taxes. A profit is essential if the undertaking is to invest and grow. Companies that do not make a surplus on their activities usually shut down — which is surely the worst outcome of all. For a great many businesses, CSR can be a distraction from their main purposes — staying solvent, keeping customers and investors happy, and paying their bills, including the salaries of their staff.

The word “sustainable” now tends to be used in the environmental sense, but I have hardly ever met an entrepreneur who isn’t interested in their business enduring. Virtually all companies depend on repeat custom and voluntary exchange — they often operate with much longer-term objectives than politicians, who generally care more about re-election than anything else. As a way of life, capitalists defer gratification by investing today with the hope of a return tomorrow. Most founders work for many years for fairly modest rewards, dreaming that one day they might make a capital gain; many others take an even longer-term view and want to build a family enterprise for their children to inherit.

A great deal of posturing is being done by managers of big business trying to show who’s the most ethical and caring. One of the big four accountancy firms has taken a very public stance in favour of the living wage, a concept recently described by the journalist Charles Moore as being “almost as mystically bogus as the medieval concept of the Just Price”. Of course it is easy for audit practices — part of a tiny oligopoly selling services required by law and hiring out senior staff at perhaps £400 an hour — to pay their employees at least £8.50 an hour.

Possibly they feel guilty about some of the expensive tax advice they give to multinationals, helping them by complex means to avoid paying corporation and other taxes. Championing the living wage in such circumstances reminds me a little of the practice in the Middle Ages of purchasing indulgences from the Catholic church for the forgiveness of sins.

The BBC prominently featured Justin King, the former chief executive of Sainsbury’s, who bravely said that the significant pay inflation fuelled by the living wage would not lead to increased productivity but fewer jobs, as companies automated, outsourced, or simply cancelled plans for expansion. As ever, the BBC slanted its coverage of the private sector, feeding its usual Guardian-style prejudices. Those bosses who welcomed the living wage are fakes; why do they need government to dictate pay policies? Are they not competent to decide their own pay scales? Surely if they felt higher pay was needed, they should have already increased salaries and gained a competitive advantage in staff hiring and retention.

According to research by the consultancy EPG, the world’s 500 biggest companies spend more than $15bn (£10bn) a year on CSR activities. It has become big business in itself. Type “corporate social responsibility” into Google and the first result is “corporate responsibility jobs”. It is an employment bandwagon.

Inevitably those who derive a living and status from the sector will vigorously defend its impact and importance. Like human resources, CSR sometimes resembles a dependent organism feeding on a host industry: too often it appears to be a ritual, a carousel of consulting work, training courses and so forth. No doubt it makes boardroom members in giant corporations feel good about themselves, while the directors award each other egregious remuneration packages. But is it practical or effective?

Perhaps some companies with thoughtful CSR policies can recruit and retain better staff, and enjoy better customer relations. Good luck to those actually founded with a social premise. But the field feels rank with hypocrisy, unrealistic expectations and questionable motives.