Thursday, March 03, 2011

CSR of a company is to make profit

That's another "political incorrect" statement that one can utter. Because the current and mainstream philosophy is that the corporate social responsibility (CSR) of a company is to "give back" to the communities and society via various social, economic and environmental programs, with no revenues or profit to be expected.

The implication here is that those companies have "stolen" or "unjustly benefitted" from society and the environment, thus it must "give back" to tone down whatever guilt feeling and atone for some "crimes", actual or imaginary, that it has perpetrated upon society and the planet.

The idea is laudable and cute. But come to think of it: the CSR of a company in a competitive environment is to make profit.

If a company does not make any profit anymore, then it
(a) lays off its workers and managers, worsening the unemployment situation;
(b) stops producing essential goods and services to its customers, worsening the supply-gap (which is inflationary) of such commodities and services;
(c) impoverishes its investors and stockholders, and makes the industry where the company is playing more susceptible to a monopolistic or oligopolistic industry structure.

It is better to see a competitive company giving out zero scholarships to poor students, zero environmental program, zero health care program to the community, etc. But that company is creating lots of jobs, employing the unemployed, giving the poor and industrious people an opportunity to improve their lives without being indebted to any politician or charity groups. And that company is providing good quality products (from slippers to cellphones to coffee) or services (from hair cut to medical check-up to bus lines) at a good price. This gives the poor good supply of reliable commodities. If the poor have stable jobs and regular income, they themselves can bring their kids to school, give them good food and health care.

The profitability of a company in a competitive environment is an indicator of the welfare that it has extended to society. Such welfare ranges from job creation to inflation control and supply expansion of necessary goods and services, to more innovation and modernization of production techniques.

Consider a monopoly or oligopoly corporation: it/they give away many scholarships, they are engaged in tree planting every year, they give out free medicines to poor communities, etc. But the same company/ies are bleeding their customers dry with super-expensive commodities and services; creating very few jobs (if at all) as they do not engage in innovation and cost-minimization (and hence, price-minimization).

A friend once countered that "a significant number of companies contribute to uplifting the 'state of well-being' of the marginalized sectors. Like the Philippine Business for Social Progress (PBSP), an association which has ongoing programs that respond to the needs of communities. And there are companies who just silently give their share - like, the project 'red school' of Coca Cola Philippines, which constructs school buildings."

I would rather call this as corporate social volunteerism (CSV) and not CSR. And I totally support, 101%, CSV. The key there is "volunteerism", not "responsibility". The former connotes "you like doing it" whereas the latter connotes "you must do it", otherwise you are a heartless, soulless, plain profit-hungry corporation.

In "volunteerism", personal or corporate, it is something that you do because you want to do it, you are happy doing it, and you are not coerced or forced by someone else, either by imposing high social expectations or enacted in a law, to do it.

Should we insist on corporate social "responsibility", then their responsibility is to make profit in a competitive -- not monopolistic or oligopolistic -- environment.

If they make profit in this environment, then they continue creating jobs, they supply various goods and services to society at zero cost to taxpayers, they force other players and companies to innovate, which further improves consumer welfare.

4 comments:

Tim said...

CSR doesn't expect those deeds without profit...in fact balancing people, planet and profit is the cornerstone of CSR.

You're right though, a company has to profit to make a difference but a balance is plausible and possible.

Nonoy Oplas said...

Thanks Tim. I just introduced a perhaps, more appropriate term than CSR, and that is CSV. We are actually talking about voluntary action by good-earning companies in a competitive environment. Some groups though, want to make CSR a "mandatory" action by all companies, they are even thinking of drafting a legislation so that showing a CSR project is mandatory before one can get a business permit every year. To me, that is another evil, interventionist move.

Lardy said...

CSR and CSV are just semantics. If I were a corporation, say, a big media entity, I would join the SV bandwagon because it's good public relations and a swell PR translates to ratings tick points. I agree with Noy -- this is another unnecessary intervention. Putting up a business that will provide employment opportunities has CSR import already.

Nonoy Oplas said...

Thanks Lardy. One can view the terms SR and SV as a matter of semantics. But I think there is big difference between "responsibility" and "volunteerism". For instance, to rear up children is parental responsibility, not just volunteerism. If a person will help take care of street children, it is his/her voluntary act but such act cannot be expected as a "responsibility" for everyone.