So, what is Corporate Social Responsibility (CSR)? Wikipedia defines it as “the deliberate inclusion of public interest into corporate decision making”. This definition was somewhat misleading – I felt that this definition was not exactly correct. The reasons? Read on.
Can any corporation live for the sake of the society? What then is the rationale behind the pooling in of money, effort and technology to develop products/services? If corporations were to survive only for the sake of society, if each of their decisions were based on public interest, why should they be owned by private entities? Why not they renounce their control to the government and make it a charitable trust? Such questions flooded my mind before the next question provided the much needed direction – is the term corporate social responsibility a misnomer?
Yes – that was my immediate answer. Pat came the next question – why is it a misnomer? To satisfy my insatiable brain, I tried to define the need for the existence of a corporation:
- A corporation exists to create quality products/services and thereby yield profit and return on its investment
- A corporation exists to create value for the product and as a corollary to create value for the money used to purchase that product
I further analysed each of the above points in detail. Here are my musings:
- Quality products are not produced for the sake of public but for the sake of common sense – if the product is not a quality product, then no one will buy it and the corporation cannot survive
- Value is created by the quality of the product. I do not want to delve deep in to the economic considerations such as the effect of value and quality on inflation but I can support this observation with a simple example: consider that a customer wants to buy a car. Typically, he will do some research on what car will meet his requirements – the car must be spacious enough for his family, it must deliver good mileage, it must fit within his budget, etc. After short listing a few cars, he will choose and buy the one that offers him the highest value for his money.
Coming back to the main question: why CSR is a misnomer? Paradoxically, a corporation should be “socially responsible” for its own sake. Creation of value by using quality can either be interpreted as social responsibility or selfishness. This partly explains why I consider the term CSR a misnomer. But, is creation of value the professed ideals of a company's CSR policy? Unfortunately, no! In my opinion (at least!), most organisations that claim to be socially responsible are missing a point by not realising the true meaning of social responsibility. For example, consider a company that claims to be socially responsible by planting trees, organising blood donation camps, etc. These activities are not wrong but to claim that the company is socially responsible for these reasons is what is not correct. These might be socially responsible acts, but the company's existence does not require it to involve in such acts. I am not against an organisation advertising these things as CSR or involving in such acts, but I cannot accept the claim that these acts make the company socially responsible. If the company cannot create value by producing quality products, then it is not socially responsible. These acts do not compensate even a fraction of the loss caused to the economy of the nation by poor quality products. If you might immediately feel that I am money minded (yes I am, and who is is not?), here is another way of telling the same thing: if the company's product lacks quality, is it not something against the customer? The customer is after all, at the heart of the society to which the organisation is committed to and therefore by not focusing on the quality of the product but by focusing on certain other seemingly “socially responsible” acts, the company is deluding the society, is it not?
To elaborate a step further, do customers prefer companies that proclaim their commitment to CSR? If this were the case, then customers would prefer a product even if it were inferior to another product made by a company that does not “proclaim” its commitment to CSR. Every business activity is based on rational means of creating value that is mutually beneficial to the creator as well as the consumer – this means that “public interest” in a business decision is serendipitous rather than intentional. Nobody buys a product because the creator cannot survive otherwise; the product is bought because it is the best among others in the eye of the buyer. The company can be called “socially responsible” (I still won't use that term) because it has created value for the customer's money. But the fact remains that the company has created value not for the sake of the society but for the sake of its survival – the survival based on rationality rather than on public interest.
