Op-Ed: CSR and the Nazis

Here is a piece that I wrote for my school paper. While it is not focused on India specifically, I believe that the topic is relevant to every country.

Profits or Profiteering?: Why Companies Are Responsible for More

If a corporation’s responsibility is truly only to its shareholders, then I guess the actions of Mercedes-Benz, BMW, and General Motor’s OPEL immediately prior and during World War II would have made Milton Friedman proud. Using the cheapest legally available resources around them, each company maximized value for their shareholders. Of course part of this cost advantage came in the form of the forced labor of the Jewish people that were bound by the Nazi party’s laws to work essentially as slaves. But hey but these companies were not doing anything wrong right? They simply operated within the confines of the regulatory and cultural framework of that time, and they were surely doing so in order to please their shareholders.

Now I present such an extreme example for a reason much greater than simply rehashing one of the lowest points in human history. I bring it up primarily to show that such extreme situations are not only capable of manifesting, but actually have in our past. Thus when looking forward and developing theories and philosophies on how businesses and society should operate we must be able to reconcile them with the realities of humanity’s own failures. It seems somewhat narrow-sighted then to argue that as Friedman argues that companies are required “to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.”

The issue of corporate social responsibility has garnered substantial attention over the past few decades particularly with its place (or lack thereof) in market-based business practices. On one end of the spectrum, the absolute free market supporter would argue that ‘softer’ concepts like CSR has no place in business, as the only responsibility of businesses is to their shareholders in the form of profit maximization. On the other end, there are proponents of the notion that increasing power and influence of corporations in society commands that they work with governments and act as stewards for society. While I am hesitant to vote for either extreme, it does seem as though pragmatically the solution must operate in between the two poles.

One possible source for enlightenment might be the father of modern economic theory himself, Adam Smith. Likely best known for the principle of the invisible hand (which underpinned much of Friedman’s thinking), Smith also wrote extensively on the human condition and the desire for human being to seek approval from what he termed as an “impartial spectator” — which placed continuous pressure on individuals to exhibit sympathy for each other. In this way, one’s self-interest is not one of narrow selfishness, but rather one embedded with sympathy for their fellow citizens. Smith saw these as inextricably linked, essentially the same fluid concept, which explained his somewhat uneconomic beliefs, such as continually pushing for higher wages for the poor.

Now I believe that just as the argument that governments often do a much poorer job in allocation of resources is sound, I also believe that corporations are unlikely to be the best facilitator for ensuring societal health. We do not wish for companies to deviate so far from profit they they cease to have any identity of their own. After all, even Nazi soldiers needed to look good in their BOSS uniforms (that is right, Hugo Boss was responsible for those snazzy duds, some food for thought next time you throw on that suit for an interview); what better way to ensure that they are dressed than to make sure that the tailors get paid?. But we also cannot operate in a world, where corporations are able to enact blinders on the world around them as long as they satisfy the expectations of a single, quantifiable $core, no matter how form fitting their stitching may be.

Specifically, when we operate in a world where corporations are able to enact so much influence on the very policies and rules within which they are expected to operate, there does need to be some check on their actions. We will need to be able to develop more robust rules by which corporations operate going forward into the 21st century. With the emergence of China as a global economic power, we cannot rely on the simplistic dichotomy of governments equaling society and corporations equaling profits. In China these two entities flow together in a way that makes the two often difficult to distinguish, and so their actions in places like Sudan call for a more robust theory on corporate behavior.

What seems most absurd about allowing corporations to be judged on a single metric is that such a unidimensional standard does not really exist anywhere else in reality. Academic institutions must successfully balance a myriad of priorities, from student life, endowment, academic prestige and so forth. When we “invest” or attend one of these institutions, we look at rankings for sure, but so many other factors are also important. In our healthiest friendships and relationships, we would be hard pressed to be able to isolate one single aspect that determines their success. Or even in government, we hold them to an expectation of being both fiscally prudent but yet socially effective — two criteria that can often be mutually exclusive particularly in times such as these.

But for some reason we have allowed for corporations — simply another manifestation of human organization — to be measured by a single and often short-sighted metric of profit, one that often fails to account for the entirety of that companies costs or benefits. History and present have shown that when given the opportunity to do so, such myopic determinations of what is or is not a successful company can lead to potentially catastrophic results. It is up to us to recognize that such a system is actually an exception not the rule, and to ensure that we can develop an alternative where such catastrophes cannot occur.