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Should Corporations be Socially Responsible?

August 30, 2015
CSR The debate over whether corporations should pay attention to issues outside of profit maximization and increasing shareholder value has been around for decades. Indeed, your faithful correspondent recalls taking a course on business social responsibility in 1977, as part of his undergraduate degree in economics. Since then, what has been labeled as Corporate Social Responsibility (CSR) has come in and out of the limelight, depending on economic conditions and which political party is in power.

While the topic of environmentalism has injected itself into the broad debate in recent years, catapulted by concerns over climate change’s impact on rising sea levels and droughts around the world, it has also had to contend with the slow recovery following the 2008-09 Great Recession. Weak job growth and anemic family income growth? Not a whole lot of interest in the environment; perhaps mostly lip service.

Governments have proven to be mostly impotent at stimulating job growth, in particular Canada’s federal government. America’s highly dysfunctional Congress, despite its valiant attempts to ruin the world’s oldest non-interrupted democracy, has largely failed. Post Great Recession, the U.S. economy has steadily regrouped, more recently growing at a respectable rate, except for the persistence of high youth unemployment. When you have a huge economy, composed of some 315 million people, a strong work ethic and a tremendous capacity for innovation, even the most vile politicians cannot undo the will of the people and, by corollary, entrepreneurship and business.

When it comes to the pernicious problem of youth unemployment, a stain on any supposed democracy, public servants have only to hang their heads in collective shame. Your correspondent devoted many years in his former life working on labor market trends and forecasting jobs of the future. Sorry to inform you that it’s all smoke and mirrors. The world has become too volatile and unpredictable, with the complexities of technology’s impacts, not to forget the emergence of newly developed countries, to try to achieve any half-assed clue on what the job market will require in a few short years.

The same problems yours truly was tackling in 1981 are essentially the same as with today, except young people have much higher real (inflation-adjusted) student debts, fewer actual job opportunities (opposed to working under-employed) and brutally high entrance costs to owning a home.

Teenage university student looking for work

Teenage university student looking for work

So what progress is being made on the youth unemployment problem? Not a whole lot from the U.S. government, and virtually nothing from Canada’s Prime Minister Stephen Harper.

What sets the U.S. apart from Canada, especially most recently, is the business community stepping forward to help take on the challenge of sustained high youth unemployment.

At the beginning of August 2015, Starbucks CEO Howard Schultz announced a plan by his company and 16 other firms to give jobs, apprenticeships and internships to 100,000 young Americans over the next three years. The bureaucratically corny 100,000 Opportunities Initiative is just the most recent example of American business stepping forward to contribute to creating jobs.

Lest anyone think that this is the brainchild of Schultz or other CEOs, take note that in 2014 some 200 European companies launched a program aimed at creating job, internship and training opportunities for young people: the Alliance for Youth. According to the CEO of Nestle Europe, Laurent Freixe: “We are confident that more than 100,000 opportunities will be given in the coming years, but it should go beyond that.”

Although the U.S. and Canada have unacceptedly high youth unemployment rates, in many European countries it exceeds 25%. The challenge is more daunting across the ocean, especially in light of Freixe’s comment: “We need to turn our kids into brilliant digital entrepreneurs.”

These well-intended (self-serving, according to skeptics) initiatives are juxtaposed against other weird occurrences in corporate land in the United States. For example, Walmart still sells assault rifles in the U.S., which contrasts sharply with its do-gooder attempt at improving the public perception that it exploits its employees, typically in the lower income strata.

Walmart is supposedly increasing the pay and improving the benefits of its massive 2.1 million workforce (1.4 million in the U.S.), a company with $485 billion in sales in 2014. Impressively, this extra-ordinary accomplishment exceeds the combined state expenditures of Texas, New York State and California. Astonishingly, Walmart’s employees cost U.S. taxpayers an estimated $6.2 billion in public assistance, including food stamps, Medicaid and subsidized housing (Americans for Tax Fairness, 2014).

Schultz What about Starbucks, whose re-installed chairman Howard Schultz (pictured), a made-in-America story of rags to riches, the son of a vacuum cleaner salesman, which provides ample ambivalent views from a broad spectrum of society? The company, despite its slick marketing, demanding product prices and high expectations of its employees, consistently provides high quality service (attested to by yours truly who has visited Starbucks locations across North America)

To boot, Starbucks is almost unique among employers in the service sector in that it has provided benefits to most of its employees and recently introduced a continuous learning program in partnership with Arizona State University.

Okay, let’s get it out in the open. Howard Schultz, though undoubtedly well-meaning and hoping to address a systemic problem dating back hundreds of years, misfired on his Race Together campaign. This naïve attempt to open conversations on race, in the midst of extremely heated debates resulting from the murders of numerous African Americans by police, in Starbucks stores drew immediate scorn from a wide swath of America–and around the world. With its tail between its legs, Starbucks rapidly withdrew and killed the campaign.

One can argue from here to eternity about what should be the role of business in society. Capitalist diehards will argue that the role of the corporation is to maximize shareholder wealth. Do-gooders will exclaim that corporations need to take a bigger view, embracing concerns for the environment and society, and not just profits.

The late Milton Friedman, an adherent to the tenets of the Chicago School of Economics , exclaimed: “The problem of social organization is how to set up an arrangement under which greed will do the least harm, capitalism is that kind of a system.”

Yet Jack Welch, retired hard-ass CEO of General Electric who fired tens of thousands of employees during his tenure, yet who rebuilt the company to success, saw it differently. Take a moment to read this Bloomberg Businessweek interview with Welch on the obsession with shareholder value .

Should corporations, despite any self-serving motives, engage in responding to society’s ills? Or should they restrain themselves, content to focus on serving their shareholders? And if they are to self-initiate to contribute to society do we have the right to criticize them?

Take a moment to share your thoughts.

In my view the successful companies of the future will be those that integrate business and employees’ personal values. The best people want to do work that contributes to society with a company whose values they share, where their actions count and their views matter.

– Jeroen van der Veer, Committee of Managing Directors (Shell)

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