“Corporate Repsonsibility Is An Illusion?” According To Prof Karnani. What Is He Thinking?

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This is an argument that will not go away anytime soon. I have had heated debate in our b-school days way back.The question goes back to the core of the modern corporation. What role does business plays in creating value in societies? Or the question should be more about the ‘how’? Among B-schools there are many different point of views on what is a modern corporation.

CSR is becoming a buzzword much as social media. There are many real experts and many wannabes. Why the rush now? Well, the answer is simple, with all those money thrown into advertising whether targeted at institutional or retail investors in WSJ or general public adverting on cable TV, they are almost a total waste of money. Net net, people don’t trust large corporations. Period. This is not even a question of brand value or equity, it is simply difficult for companies to communicate anything—without the trust. Not to mention asking for a price premium.

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So how have some companies joined the socially responsible bandwagon? We first launched the Aviva Change Fund 2 years ago with stellar success, followed by Pepsi launching of its Refresh Project. There are many campaigns out there these days and now everyone wants to be like Petagonia. Marriot utilized giving a washer basket from World of Good – a social enterprise helping overseas artisans create more sustainable lives. Liberty Mutual’s campaign with the theme/slogan 'Responsibility'. You have probably seen some of the television spots depicting everyday Americans confronted with a decision to do the “right” thing or “look the other way.” (For full disclosure, Pepsi, Liberty and Aviva are all current clients of Idea Couture).

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CMOs are very enthusiastic and are convinced CSR is the answer to customer engagement.

The role of CSR in marketing and branding is undeniable and its importance will grow for sure. But what about CSR in business strategy?

I remember in my business school days I had long debates about the role of business in societies. 35 years ago, Milton Friedman wrote a famous article for The NY Times Magazine with title aptly summed up its main point: “The Social Responsibility of Business Is to Increase Its Profits.” The future Nobel laureate in economics had no patience for capitalists who claimed that “business is not concerned ‘merely’ with profit but also with promoting desirable ‘social’ ends; that business has a ‘social conscience’ and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers.”

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I seemed to share the same point of view then but since then my views have changed. I am not a socialist by any definition at all, but I think what is missing is the humanitarian dimension of capitalism. I am not fully convinced that a corporation role of adding value to societies is not just maximizing profits and then perform philanthropies. The order should not be that way; it is not about making tons of money at the expense of the planet and then figure out how to put money in fixing it. This is not how it should work. They need to put people and planet not ahead of profits, but aligned with profits. I believe that the enlightened corporation and CEOS should try to create value for all of its constituencies including investors but not excluding everything else.

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I admire companies that make good profits, usually those are the results of continuous innovation, operational efficiencies, strong leadership and great brands and I am not hostile to profits and shareholders. In fact, I believe in relentless pursuit of profits. But I believe good CSR is good for profits.

A recent WSJ report suggested otherwise. Aneel Karnani, a prof at the University of Michigan's Stephen M Ross School of Business, believed the idea that companies have a responsibility to act in the public interest and will profit from doing so is fundamentally flawed.

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He argued that CSR is an illusion, and a potentially dangerous one. Very simply, in cases where private profits and public interests are aligned, the idea of corporate social responsibility is irrelevant: Companies that simply do everything they can to boost profits will end up increasing social welfare. In circumstances in which profits and social welfare are in direct opposition, an appeal to corporate social responsibility will almost always be ineffective, because executives are unlikely to act voluntarily in the public interest and against shareholder interests.

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I think his views are very narrow and dated. The answer lies in what kind of executives we are breeding today for tomorrow. It is all about maintaining that balance. CSR is an unstoppable movement against the public outcry over corporate malfeasance (you don’t need to agree with me). CSR means building sustainable economic development, sustainable societies and sustainable consumer lifestyles, the collective mission is to rethink and rebuild an economic system that is in balance with the natural world. You can’t have two worlds. Business and the rest.There is only one world.