ROLL OVER, Milton Friedman. At a huge conference in Cleveland last week on 'Business as an Agent of World Benefit', billed as 'the largest outpouring ever of research and thought on global corporate citizenship', thousands of executives, academics and government officials assembled to face hundreds of papers and presentations challenging 'the trade-off illusion' - the idea that a company must choose between benefiting society or benefiting shareholders.
It could hardly have been a more portentous occasion. A group production by the UN's Global Compact, the US Academy of Management, and Cleveland's Case Weatherhead business school, the forum was nailed to the increasingly popular idea that, as Kofi Annan put it, business interests are more and more dovetailing with the UN's objectives for development and world peace.
'Today, leading businesses realise that the world's problems can become business opportunities - perhaps the business opportunities of the 21st century,' declared the conference website. To this extent, mused the Academy of Management's Professor Nancy Adler, Friedman's objection to corporate citizenship as incompatible with capitalism 'is being overtaken by events'.
So that's OK, then? Are we near, or at, a tipping point when a new era of business practices dawns, based on the linking of financial goals with social purpose and when, fortified by this handy convergence, business will move seamlessly from creating some of the world's most awkward development, environmental and social problems to solving them?
To which the reply can only be, not so fast. It's true that the business case for corporate social responsibility (CSR) has never been more forcibly put, or more widely believed, including, genuinely, by company executives. There were also some inspiring stories and presentations at the forum. CK Prahalad's assessment of the upsurge in corporate activity to stimulate commerce and development among the world's poorest people eloquently counterpointed the well-deserved award of the Nobel Peace Prize to Muhammad Yunus and microcredit Grameen Bank. A keynote on the potential of advanced energy and resource productivity induced hope and despair (so why isn't everyone adopting these techniques?) in equal measure.
Yet there are limits to what CSR can do on its own, and reality is not served by downplaying them. They are most clearly outlined in David Vogel's The Market for Virtue (Brookings Institution Press), a sober review of the field that notes while voluntary action by companies has produced some important gains - in working conditions in some developing countries, in fair trade, in reducing greenhouse gas emissions and in getting many companies out of Burma - its potential to bring about lasting change in corporate behaviour is much more modest than enthusiasts suppose.
'The main constraint on the market's ability to increase the supply of corporate virtue is the market itself,' Vogel writes. 'There is a business case for CSR, but it is much less important or influential than many proponents of civil regulation believe.' Thus, despite the new conventional wisdom, and earnest endeavours by researchers to prove it, there is no evidence to show that 'responsible' companies are more profitable than irresponsible ones, let alone a causal link between the two. Neither, alas, does socially responsible investing produce higher returns than the ordinary variety.
CSR, says Vogel, is better thought of as a strategy like any other. For some companies - think John Lewis, M&S, Timberland, the Co-op - it makes positive business sense as a key part of their brand and customer and employee appeal. For others - Shell, Nike, Dell - it is defensive, a way of containing risk and warding off unwanted attention. At least initially, says Vogel, 'their objective was not primarily to use CSR as a source of competitive advantage, but to prevent it becoming a source of competitive disadvantage.'
The argument that CSR pays is attractive but disingenuous and often untrue, recalling Archbishop Whately's maxim: 'Honesty is the best policy, but he who is governed by that maxim is not an honest man.' Maximising resource efficiency or minimising environmental damage may make financial sense, but then it's not CSR, it's responsibility to shareholders.
The bald fact is that a few companies in a few high-profile sectors do some CSR because it suits them and doesn't cost too much. Most don't, and the capital markets don't make them.
If companies are serious about responsibility, as Vogel says, they need to do more than go 'beyond compliance' themselves they need to push governments to raise compliance standards, level up the playing field and eliminate the free riders. CSR is shareholder capitalism's guilty conscience, but it leaves the justification of shareholder primacy intact. And some guilt it can't assuage: in the late 1990s, one company was highly rated by ethical investment funds and garlanded with environmental awards. Its name was Enron.
The Observer, 29 October 2006