Is capitalism the cause of our problems or the solution? At BusinessEarth, I’m constantly amazed at the number of companies that are tackling global issues and creating jobs and profits in the process. However, there are still those who believe government regulation is the driving force behind social and environmental change.
In an editorial to the Wall Street Journal, Dr. Aneel Karnani advocated for the role of government regulation in the Corporate Social Responsibility (CSR) revolution. While I agree that regulation has a role to play, achieving significant and positive change will only happen when businesses and consumers to step up to the plate on their own terms.
In spite of its catchy title, The Case Against Corporate Social Responsibility falls short in relaying a message of responsible business. Activists, governments, businesses and consumers all play a role in making the world a better place. However, nothing will change until positive actions make financial sense in the long run.
How Activists and Consumers Drive Change
According to Karnani, social activists have little effect on corporate behavior. For example, he notes that healthier food alternatives didn’t become commonplace until they were profitable for their makers.
While this sounds logical, that’s not quite how it happened. As Mallen Baker explains in his Corporate Social Resistibility blog, most fast food chains didn’t change their menu to make a buck. Rather, they started offering alternatives because (a) activists were making noise and the media picked up on it (have you seen Fast Food Nation?) and (b) consumers became educated and started reading nutritional facts. Likewise, consumers drove the shift to fuel-efficient automobiles.
U.S. automakers fought fuel efficiency standards for years and an abundance of cheap oil made customers indifferent to change. When gas shot up to $4 per gallon, Asian automakers thrived and U.S. companies caved because customers demanded fuel-efficient vehicles that they didn’t have.
In both examples, change didn’t occur until it made sense financially. Meeting customers’ needs and making money is how businesses stay in business.
Regulation: Where Government Meets Business
Like a true academic, Karnani’s “ultimate solution” is government regulation. He admits that government regulation isn’t perfect because “industry groups might find a way to influence regulation” or there might be “outright corruption”. Really? This has only been going on since the beginning of time. Without a doubt, government regulation plays a role in tackling social and environmental issues, but it is not the ultimate role.
Karnani also suggests that business is not only the cause of many problems, but business has no incentive to alleviate the problems because their profits would suffer. He goes on to say that “reducing pollution is costly to manufacturers” and “companies could (reduce poverty) by pay(ing) their workers more and charging less for their products, but their profits would suffer.”
Reducing pollution is indeed costly to manufacturers. But educated consumers understand how pollution impacts their quality of life. These consumers voted for politicians who stepped up and mandated cleaner emissions. This represents a perfect combination of activism, regulation, business and consumer behavior coming together to alleviate a problem.
A Role for Responsible Business
Karnani states that a CEO’s sole responsibility is to “maximize profits”. In truth, a CEO’s main responsibility is to maximize “shareholder value,” which includes profitability, enterprise value, motivated employees and a stable and growing customer base. All of these can happen within a well-executed CSR plan.
In spite of his dismissal of a business role in social responsibility, Karnani would agree that if a “conscious company” goes out of business for lack of a sustainable financial model, then we’re all poorer for having lost this business.
Unless we make positive change profitable, it will not be sustainable in the long run. As much as my tree hugging friends hate to admit it, at some point, we have to pay for positive change. To be fair, many of my capitalist pig friends admit that unbridled corporate greed is responsible for many of today’s problems. We must acknowledge the interconnections among stakeholders in order to find common ground to global problems.
The Case for Cooperation: Driving Profitable Change
In contrast to Karnani, I believe that companies can and should make a difference in their community and environment. Government regulation is not the ultimate solution. Consumers and financially sustainable companies with a conscious are the drivers of true change.
Consumers buy the products and services that keep companies in business and they vote for politicians who regulate industry. As a consumer, I encourage you to buy products from companies that are responsible stewards of people and planet. Strive to find opportunities where others see hopelessness and seek positive impactful change when others seek to lay blame. This isn’t business as usual.