Francesca R
20th March 2012, 07:28 AM
Mostly, this book explains why the market of its title—that of doing good for society or corporate social responsibility (CSR)—is small, and should be small, at least relative to some contemporary hype. And mostly it does this by placing corporate virtue in what this reviewer regards as its correct place—alongside an array of business strategies that differentiate firms and appeal to some constituent stakeholders and turn off others. Ostensibly it walks a middle ground between enthusiasts who claim that CSR is, or can be, and probably should be for all, and rigidly market driven advocates who see CSR as nothing but a fortunate coincidence (for society) when it coincides with seeking profits. But the truth argued by the author is actually closer to the latter than the former.
In dealing with the charge that business has no business doing anything other than increasing shareholder wealth, Vogel dismisses the hard-line idea that managers ever completely shelve their individual preferences, such as non-financial objectives of civic virtue. Nor can they be expected, or more importantly forced to do so. So some responsible behaviour, whether good, bad or indifferent to the bottom line, sneaks under the radar. Whether this is offset by an equal and opposite amount of socially nefarious behaviour—again related to manager preference and not business success—is not mentioned. This reviewer suspects that the sum of activity below the floor of corporate reach likely adds up to not a lot either way.
The greater effect, covered more comprehensively, is a rise in the co-incidence of interests in CSR and profits, with the dominant force driving this having been “civil regulation” (informal pressure through the market and media from activists, customers, employees and investors). And this can have an impact deeper than market/media pressure, which is attested to by examples (maybe not many) of civil norms becoming later replaced by laws (the examples are in the realm of binding conditions being attached to various international trade agreements).
But the stronger message from this book is a sensible downplaying of how extensive company do-gooding can or should realistically be. In short, it must reflect the aggregated preferences of the stakeholder groups of the previous paragraph, and they have not changed as much as some would think. Or rather—what hasn’t decreased in people, and has increased according to others’ arguments, is the influence of their economic interests, which are—after all—to the fore whenever they interact as a customer and an employee, and certainly as an investor. Thus, shoppers will often reach for the non-dolphin friendly tuna can, rather than its more virtuous neighbour on the shelf, even if the price discount is only a penny. And Phillip Morris still does not need to offer higher compensation than nobler firms in order to get inundated with applications from high-achieving graduates whenever it advertises a position.
As for shareholders, thanks to SRI flags on stocks and funds, they can buy according to what is written on the label of their equity holdings too. But the financial performance of ethical indexes compared to universal ones is wisely set aside as lacking adequate data from which to infer. So if today’s best guess is that it doesn’t really matter financially to owners if a firm is virtuous or not, and CSR is effectively without measurable cost, shouldn’t it be increasingly demanded for reasons of moral expression alone?
Not really, which is the point. Some firms might benefit from being responsible, and some may suffer from the opposite. But this doesn’t, and cannot, mean it is in the interest of all to do the same. There is no reason to regard CSR as much other than a market niche which, like most niches, has diminishing returns to scale, and is not for everyone. Ford is an example of a company with powerful forces preventing its greening in the face of activism: “the consumers, the [United Auto Workers] union, and the shareholders are all not particularly interested in fuel economy”. Pressure to divest from South Africa in public protest against the apartheid era led to a number or firms responding, only to find it hard to re-enter after the regime was dismantled—so a victory that can perhaps be at least partly attributed to CSR was financially a loser. Unocal, facing imperatives to get out of Myanmar in the 1990s, fled from its US operations and transferred the offending business to Malaysia.
But the most glaring thorn in the side of universal CSR advocacy is, simply, that if everyone is doing it then any early adopter differentiator is lost. Businesses are not in the habit of persuading competitors to copy winning strategies after all. The “market” in which all firms are more responsible, and the civic norms pressed by the most vocal enthusiasts are universally applied, is one that does not clear today. It may do, should investors, consumers, employees and other stakeholders voluntarily sacrifice their economic interests in greater measure as a whole. But don’t hold your breath, nor take the loudest siren-calls to represent the masses
In dealing with the charge that business has no business doing anything other than increasing shareholder wealth, Vogel dismisses the hard-line idea that managers ever completely shelve their individual preferences, such as non-financial objectives of civic virtue. Nor can they be expected, or more importantly forced to do so. So some responsible behaviour, whether good, bad or indifferent to the bottom line, sneaks under the radar. Whether this is offset by an equal and opposite amount of socially nefarious behaviour—again related to manager preference and not business success—is not mentioned. This reviewer suspects that the sum of activity below the floor of corporate reach likely adds up to not a lot either way.
The greater effect, covered more comprehensively, is a rise in the co-incidence of interests in CSR and profits, with the dominant force driving this having been “civil regulation” (informal pressure through the market and media from activists, customers, employees and investors). And this can have an impact deeper than market/media pressure, which is attested to by examples (maybe not many) of civil norms becoming later replaced by laws (the examples are in the realm of binding conditions being attached to various international trade agreements).
But the stronger message from this book is a sensible downplaying of how extensive company do-gooding can or should realistically be. In short, it must reflect the aggregated preferences of the stakeholder groups of the previous paragraph, and they have not changed as much as some would think. Or rather—what hasn’t decreased in people, and has increased according to others’ arguments, is the influence of their economic interests, which are—after all—to the fore whenever they interact as a customer and an employee, and certainly as an investor. Thus, shoppers will often reach for the non-dolphin friendly tuna can, rather than its more virtuous neighbour on the shelf, even if the price discount is only a penny. And Phillip Morris still does not need to offer higher compensation than nobler firms in order to get inundated with applications from high-achieving graduates whenever it advertises a position.
As for shareholders, thanks to SRI flags on stocks and funds, they can buy according to what is written on the label of their equity holdings too. But the financial performance of ethical indexes compared to universal ones is wisely set aside as lacking adequate data from which to infer. So if today’s best guess is that it doesn’t really matter financially to owners if a firm is virtuous or not, and CSR is effectively without measurable cost, shouldn’t it be increasingly demanded for reasons of moral expression alone?
Not really, which is the point. Some firms might benefit from being responsible, and some may suffer from the opposite. But this doesn’t, and cannot, mean it is in the interest of all to do the same. There is no reason to regard CSR as much other than a market niche which, like most niches, has diminishing returns to scale, and is not for everyone. Ford is an example of a company with powerful forces preventing its greening in the face of activism: “the consumers, the [United Auto Workers] union, and the shareholders are all not particularly interested in fuel economy”. Pressure to divest from South Africa in public protest against the apartheid era led to a number or firms responding, only to find it hard to re-enter after the regime was dismantled—so a victory that can perhaps be at least partly attributed to CSR was financially a loser. Unocal, facing imperatives to get out of Myanmar in the 1990s, fled from its US operations and transferred the offending business to Malaysia.
But the most glaring thorn in the side of universal CSR advocacy is, simply, that if everyone is doing it then any early adopter differentiator is lost. Businesses are not in the habit of persuading competitors to copy winning strategies after all. The “market” in which all firms are more responsible, and the civic norms pressed by the most vocal enthusiasts are universally applied, is one that does not clear today. It may do, should investors, consumers, employees and other stakeholders voluntarily sacrifice their economic interests in greater measure as a whole. But don’t hold your breath, nor take the loudest siren-calls to represent the masses