Jessica Ludescher is an assistant professor of business ethics in the Albers School of Business and Economics at Seattle University, and holds a joint appointment in Management and Philosophy. Her research has focused on corporate social responsibility (CSR), theory of the firm, and globalization. Future directions of research include sustainability, indigenous perspectives, and development in the Amazon.She holds a PhD in philosophy from University of California, Riverside.
Courtesy of DoubleGrande, flickr.com
Recent years have seen an increase in both the demand for and the practice of Corporate Social Responsibility (CSR), in which corporations take on ethical obligations to stakeholders, society, and the environment and do so in excess of the requirements of laws and regulations. It has become trendy to laud CSR as a win-win practice for business and society; yet it is a practice rife with problems.
For all the CSR activities in which corporations have engaged, we have seen major lapses in ethical conduct, resulting in a series of bankruptcies, bank failures, government bailouts, a credit crunch, and widespread threats to the global financial system. The economic security of billions of people across the globe has been placed in jeopardy by the supposedly socially responsible conduct of corporations. In the current climate of fear regarding global economic instability, there is bound to be a certain amount of irrational thinking and carelessness in constructing solutions for existing problems. CSR has been a popular solution to ethical problems in business and justice problems in global society, and reliance upon such a careworn solution is likely. Should we count on CSR to solve these problems? Will CSR turn the tides of the current financial crisis?
I argue that we should not fall back on CSR to ameliorate present economic difficulties or to create a just global society. Instead we should strengthen government oversight over corporations and assign greater moral responsibility to persons who bear limited liability for corporate behavior. We also need to devise mechanisms for holding individuals legally accountable for the effects of their actions on markets as a whole. Ultimately, governments must rethink the governance structure of corporations to ensure that corporations adhere to principles of justice.
As we will see, CSR endangers governments’ capacity to fulfill their role as guardians of the public welfare. CSR has evolved into the notion that corporations should act as states that replace nation states in protecting citizens’ rights. The plausibility of a corporate state becomes all the more apparent once we realize that corporations are better understood as markets than as privately owned businesses. The logic of this analogy will lead us to abandon the CSR solution and instead forge into the terrain of justice for corporations.
Problems with Globalization, Strategic CSR, and the Corporate State
Counterintuitively, CSR may be most dangerous when practiced by multi- and transnational corporations operating in the global economic arena. On the one hand, globalization drives the demand for CSR, namely where governments do not protect human rights and the environment because they are weak, corrupt, or undemocratic. On the other hand, CSR enables corporations to usurp the power and autonomy of governments. The socially responsible corporation comes to replace the government as the institution for meting out justice and advancing social welfare.
Because wealth maximization is the primary function of corporations, executives are obligated to pursue CSR only when it is strategic for them to do so. In troubled economic times, CSR will not be a reliable form of assistance for developing countries. More problematically, the profit motive of corporations creates an incentive for them to interfere with the activities of any institution that impedes the goal of creating wealth.
Indeed, CSR could be adopted as a ploy to shrink the political sphere of society, weaken or control national governments and intergovernmental organizations, and minimize or eliminate laws, regulations, and restrictions. In his 1958 paper “The Dangers of Social Responsibility” Theodore Levitt anticipated this eventuality, arguing that CSR causes a troubling dissolution of the distinction between the private and public sectors and would eventually lead to heightened corporate power, to the detriment of government. Moreover, corporations have few checks against operating as unjust institutions that promote global anarchy or corporate autocracy, violating liberty, and corrupting the market system. Ironically, this possibility is the inverse of the socialist threat that libertarian Milton Friedman attributed to CSR in his 1970 article, “The Social Responsibility of Business Is to Increase Its Profits.” Friedman was absolutely correct that CSR is a “fundamentally subversive doctrine” that has “been undermining the basis of a free society,” but not for the reasons he supposed.
Recent developments in the Corporate Citizenship (CC) literature bear out Levitt and Friedman’s worries. CC is a relatively new concept and the difference between CSR and CC is ill-defined. In Matten and Crane’s 2005 paper, “Corporate Citizenship: Toward an Extended Theoretical Conceptualization” they argue that CC involves corporations acting as surrogate governments for inadequate nation states in that they secure the social, civil, and political rights of citizens. On their view, corporations aren’t citizens, but instead promote citizenship rights where governments fail to do so because of voter apathy, insufficient development, or supranational problems (i.e. climate change). They would say that the current financial crisis creates a need for CC since the proper functioning of global financial markets is not a matter that can be solved by any one national government, and “since corporations are the main global organizations active in world financial markets, they might be said to be one of the few actors able to reform them to improve protection of property rights.”
Although Matten and Crane acknowledge that such an expanded role for corporations is undesirable because it lacks mechanisms of accountability to citizens, they seem to think that CC can be a stopgap for present inadequacies in global governance. However, this stopgap may be dangerous for liberty and democracy over the long run. As Matten and Crane acknowledge, goverments sometimes fail to secure citizens’ rights due to corporate lobbying and contributions to political parties. The problem they fail to acknowledge is that, in so doing, corporations create a need for the governance problem they seek to solve. In “The Economic View of Corporate Citizenship” (2008), Ludescher, McWilliams, and Siegel have labeled Matten and Crane’s account of CC as advocacy of a “corporate state,” and argue that CC be interpreted as a self-legitimating version of a strategically employed CSR. The argument is that economically, an important motivation for corporations to engage in CC is to demonstrate the value of corporations to society, and hence maintain their capacity to generate profits. On this view, CC that legitimates a state-like role for corporations might be profitable, but it remains undemocratic. If CSR or CC were implemented broadly, the corporate state could supplant the democratic nation state.
