A critical view on negative aspects of CSR

Abstract

According to the changing issues in society companies implement with increasing frequency corporate social responsibility (CSR) activities in their business plans. This paper describes and analyses the unusual issue about negative aspects which CSR encloses from a critical view by summarizing and discussing six scientific articles. It is pointed out that CSR can reduce the profitability of companies as well as the common social welfare. By creating political and economic grey areas with reduced accountability CSR can even cause danger for society. The critical view on CSR is not widely discussed by scholars and need to be monitored more closely in the future.

Full text

A CRITICAL VIEW ON
NEGATIVE ASPECTS OF CSR
Effective Leadership and Business Ethics – Mid Sweden University
2014
Sebastian Windeck
Sascha Klein

I
Abstract
According to the changing issues in society companies implement with increasing
frequency corporate social responsibility (CSR) activities in their business plans. This
paper describes and analyses the unusual issue about negative aspects which CSR
encloses from a critical view by summarizing and discussing six scientific articles. It is
pointed out that CSR can reduce the profitability of companies as well as the common
social welfare. By creating political and economic grey areas with reduced
accountability CSR can even cause danger for society. The critical view on CSR is not
widely discussed by scholars and need to be monitored more closely in the future.

II
Content
Abstract ...................................................................................................................................... I
1. Introduction ...................................................................................................................... 1
1.1. Purpose of the paper ................................................................................................ 1
1.2. Method used .............................................................................................................. 1
2. Summary........................................................................................................................... 2
3. Analysis............................................................................................................................. 3
3.1. Risks for a Company ................................................................................................ 3
3.2. Risks for Society ........................................................................................................ 4
3.3. CSR replacing failing governmental systems ....................................................... 5
4. Discussion ......................................................................................................................... 6
4.1. Risks for a Company ................................................................................................ 6
4.2. Risks for Society ........................................................................................................ 7
4.3. CSR replacing the failing governmental systems ................................................ 7
5. Conclusion ........................................................................................................................ 8
6. References ....................................................................................................................... III
7. Appendix ......................................................................................................................... V
7.1. Discussed Articles .................................................................................................... V

1
1. Introduction
Corporate Social Responsibility can be understood as the responsibility of a company
which is not only wealth creation but as well social problem caused by business or by
any other reason, even further than its economic and legal responsibilities (Melé, 2009).
It is a widely discussed topic and it is becoming more dominant in the daily business
patterns. Nearly every known cooperation advertises their social engagement and is
publishing a sustainability report. Some scholars even state that the ideology of a
capitalistic cooperation with capitalistic values which strives for profit without any
other major concerns, no longer works in society nowadays (Porter & Kramer, 2006)
while Friedman claims that "there is one and only one social responsibility of business–
to use it resources and engage in activities designed to increase its profits so long as it
stays within the rules of the game” (1970, p. 4).
1.1. Purpose of the paper
Most scholars discuss the benefits of the usage of CSR praising the critical view of the
customers towards the company`s effects on the society and the raising responsibility
companies take for their actions. This paper concentrates on the possible risks CSR
actions can implement for the performing business itself but as well for the whole
society. Due to the increasing importance and usage of CSR by companies it is essential
to know not only the benefits but to be completely aware of the potential risks as well.
1.2. Method used
In order to evaluate the risks CSR actions can imply this paper analyses and discusses
six different articles which deal with different aspects of the possible drawbacks of
CSR. Exclusively secondary research is used in the paper.
1
1
A list of the discussed articles can be found in the appendix

2
2. Summary
In the following part of the paper the six different articles will be summarized, stating
the research questions and the main findings of the authors.
In the first discussed article Davis (1973) analyses the merits and drawbacks of CSR
from his perspective at his time. Concluding that the society need to decide if it want
to accept the CSR doctrine.
Henderson (2009) challenges CSR by questioning the use of the triple bottom line. He
argues that businesses are profit oriented and only measures supporting profit
maximization will be included. Any other measurements will not be considered to be
necessary and represent a misguided understanding of business.
By analysing a case-study of whitening-cream in India, Karnani (2007) deals with
critical aspects of CSR managing the gap between public and private welfare. He
points out that large companies only use CSR as a marketing campaign and exploit
social unfortunate populations to their own benefits abusing less developed political
systems.
Focusing on the consumer reactions towards CSR activities Sen and Bhattachar (2001)
conclude in their paper that CSR is only beneficial to companies if the activities are
consumer fitted and might even lead to a competitive disadvantage if done in the
wrong way.
Reich (2008) describes in his report the activities of the largest global players of the US
and their international social behaviour. He challenges the current social and political
system and concludes that the private- as well as the public-sector contribute less to
the public welfare than they claim (Reich, 2008).
Shell’s social behaviour in Nigeria is closely analysed and criticized by Ite (2004),
pointing out the need of a sufficient developed political system in order to achieve
social welfare through CSR activities of businesses.

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3. Analysis
In the following part the six articles are analysed by categorising them into three main
findings.
3.1. Risks for a Company
Many Scholars as Porter and Kramer (2006) argue that CSR provides a competitive
advantage for a company. Davis (1973) and Ite (2004) argue against this statement by
pointing out the risk of losing the doctrine of profit maximization. Davis points out
that CSR actions “do not pay their own way in an economic sense” (1973, p. 315) and
lower the profit of an organization. Henderson (2009) on the other hand defines his
position to CSR as a nugatory social facade to maximize profit and to gain a
competitive advantages within a market-directed economy. Multi-stakeholder
engagement and self-made ethical standards might lower profitability, but economic
institutions use them to generate profit achieved by entrance barriers and to avoid
strict governmental regulations. It is about how to sustain as a firm on the markets
improving the economic performance while the marketing pretends to care about
society. Furthermore Davis argues against the profitability of CSR by mentioning that
the different opinions towards CSR actions “create (…) friction among dissident
parties” (1973, p. 321) which could harm the operational business of the cooperation.
Considering the findings of Karnani (2007) and Reich (2008) the shareholders are
mostly anonymous because of complicated investment and finance structures of
concerns and banks. Consequently they don’t feel responsible for social and
environmental effects which the company creates. They argue that shareholders do
not care about the social benefits their invested money produces and assign their
managers to maximize their own profit. One of the few opportunities for Stakeholders
are to transform their goals into shareholder value shifts. Consequently you have to
“impose unacceptable cost […] on social unacceptable behaviour” (Karnani, 2010, p.
5) for implementing social issues in economy, because as explained before the
shareholder value has remained indispensable.

4
The consumer is seen as an important stakeholder and therefore his reaction to CSR
actions are highly important. Reich (2008) stresses the importance of a company’s
image in today’s society and the high investments in public relations. Consumers
connect products to their own behaviour nevertheless they would not significantly pay
more for social welfare. Companies react to changing critical consumer behaviours
with new strategies of social and environmental measurements to establish a better
customer connectivity on CSR. The reason is not the social virtue a company pursue
but the economic benefits (Reich, 2008). Sen and Bhattachar (2001) argue that the
tackled social problem should affect or attract the main customers of the company in
order to increase their goodwill. Furthermore it is pointed out that negative CSR
activities have a more intensive impact than positive activities have. This indicates that
an enterprise need to plan their CSR activities carefully in order to achieve a positive
effect (Sen & Bhattacharya, 2001). If customers have the impression that a corporation's
CSR efforts “are typically realized at the expense of competitive advantage” (Sen &
Bhattacharya, 2001, p. 239) they may change to a competitor. Therefore a company
needs to communicate the trade-off between their CSR actions and their
competitiveness or they might face a fading customer basis.
3.2. Risks for Society
Not only the performing business might suffer under CSR but maybe even the people
who should have been better off due to the social engagement might face new
problems. In his study about Shell’s activity in Nigeria Ite (2004) stresses the fact that
CSR activities cannot work well if the underlying macro-economy and governmental
system are fragile. Furthermore enterprises must not take the responsibility of a
government to care of health and education but the government must. Davis (1973)
points out other dangerous outcomes of CSR activities. The “Dilution of Business's
Primary Purpose” (p. 319) which could lead to a less productive society and the
increased power of corporations due to their additional social responsibility.
Furthermore a decreased profit of a company due to CSR activities would indirectly

5
affects the society because lower tax-income is achieved by the government.
Additionally it could weaken the “Weakened International Balance of Payments” (p.
319) due to increased prices which could lead to less consumption, increasing unit
labour costs and less employment (Davis, 1973).
Mentioning the exploitation of developing countries, Karnani (2010) oppose the trend
of CSR as a “greenwashing” (p. 3) illusion or as a “cosmetic treatment” (Crook, 2005,
p. 4) when companies talk only about environmental and social issues coinciding with
their own profit goals. Large companies do good arrangements making the society
believe in selflessness of the company, but usually it represents an investment of future
earnings (Reich, 2008).
On site powerful global players trade on worse political requirements like lack of
competences, will and corruption trying to mislead the ethic welfare of cognitive,
normative and moral goals of society by propagating their own philosophy. CSR is not
an effective way to balance business profit and social good, but it is still a chance to
improve the society in less developed countries (Karnani, 2007).
3.3. CSR replacing failing governmental systems
Karnani argues that, as opposed to CSR governmental, regulations motivate
companies to increase their social behaviour effectively. Despite the fact that
governmental measurements are inefficient and some even decrease the social welfare
equally like CSR. This negative result is mainly caused by shortage of specialized
knowledge about complex industry structures and the influence of industrial lobbyism
in politics (Karnani, 2010).
Thinking about the bigger system of society Reich especially points out that the
legislation which should be created by politicians representing the will of the citizens
is augmented disempowered by multinational companies (2008). Industries and
companies create social and environmental standards and company policies as a “false
substitution” (p. 18) of democracy to avoid strict political control by law.

6
Simultaneously industries establish legal grey areas where they can act freely without
breaking any governmental law, while they may harm and exploit the social welfare.
The desired voluntary social reaction of corporations which CSR should evolve is
according to Reich (2008) impossible in the present globalised world of capitalism,
because companies cannot take voluntarily extra costs without losing their market
position. Only through binding regulations by law the effect on social behaviour can
be created effectively in the whole industry for each competitor (Reich, 2008).
In the opinion of Reich the political system regulating the social responsibility in the
society has developed to be a mask for the powerful industrial lobbyism and the
political impact of large companies (2008). CSR lets as much politicians as companies
off the hook. Politicians criticize corporations and industries for doing nothing, but
they do not change the law. “The real democratic process is left to companies and
industries seeking competitive advantage.” (Reich, 2008, p. 56) and it does not follow
the public interests in the way it should.
4. Discussion
In the following lines the author’s different point of views will be compared and
certain weak points of the argumentation will be pointed out.
4.1. Risks for a Company
Davis (1973), Henderson (2009) and Ite (2004) argue that CSR activities may harm the
profitability of business, while Henderson additionally mentions that it can increase
the income due to the improved image of the company. Davis argumentation is barely
based on references or data. Furthermore was the article written in 1973 and its
arguments may not fit the modern context. In their argumentation the three authors
refer to different time scales: Davis and Ite are focusing on the short-term costs while
Henderson considers the long-term profitability of a CSR activity. Therefore they have
a different angle of argumentation.

7
Sen, S. & Bhattacharya (2001) deal with the reaction of the consumer towards CSR and
mention its risks of decreasing the turnover by causing a fading trust of the customer
in the company’s competitive advantage. This point is ignored by Henderson (2009)
who is mainly focusing on the positive effect on the consumer’s opinion of CSR
activities.
4.2. Risks for Society
The danger for the society through CSR activities are mentioned by four of the six
analysed authors. Ite (2004) and Reich (2008) claim the responsibility of the
government must not be lowered due to CSR activities of companies while Davis
(1973) points out that the welfare can suffer from the decreased profit of a business.
This argumentation is challenged by Henderson’s and Reich’s argument that the CSR
activities are only a social facade to increase the profit even more.
Ite’s (2004) findings, that CSR can only be fully effective, is based on the performance
of only one enterprise in only one country and its applicability to other circumstances
is not clear. Karnani (2007) goes a step further by stating that CSR only covers the
unethical, antisocial actions of a business in poor countries.
4.3. CSR replacing the failing governmental systems
Karnani (2007) mentions in his paper the possibility of governmental regulations to
implement CSR more effectively. Reich (2008) as well as Karnani argues against this
statement by saying that politics are highly influenced by lobbyism and therefore
cannot be an efficient independent way.
Reich’s (2008) argumentation is weakened by the fact that he only focuses on the US
market and exclude the possibility that the rest of the world might differ. For example
the willingness to pay a different price for social products differ from culture to
culture. His argumentation might be seen as extreme, questioning the whole political
system, but he bases his arguments on a high quantity of references as well as on his
experience during a career in the US politics as the Secretary of Labour during Bill
Clinton’s term.

8
5. Conclusion
The analysed and discussed articles give different arguments against or at least critical
towards CSR activities of profit-oriented companies. It is argued that CSR activities
can lower the profitability of a company if they are not executed in the right way. CSR
often causes short-term costs which only pays off in the long-term because of a
favourable image in the society and customer binding due to the right implementation.
Even negative effects for the society itself can be caused by CSR because it allows
governments to escape their responsibility to govern the society. Additionally a
reduced social welfare due to mitigated business-profits is possible. On the other hand
good arguments are given for the hypothesis that businesses do not perform CSR
activities out of the deep feeling of social responsibility and the wish to make the world
a better place. Most businesses perform CSR activities in order to increase their profit.
This is not an argument against CSR as long as it, at the same time, increases the social
welfare which is not always the case unfortunately. Conclusively CSR can improve the
social welfare as well as the company’s profits if it is executed in the right way and
circumstances. In order to achieve this a deep knowledge of the possible negative
effects of CSR is essential.
During the research for this paper the numbers of found peer-reviewed articles dealing
with a critical view of CSR were interestingly low, considering the fact that CSR is a
highly discussed topic for years. The critical side of CSR seems to be less popular than
its positive effects. This is totally reasonable because who would not like to believe that
the trend of businesses to care for the social welfare improves the world. But as pointed
out, critical points exist and scholars and governments should enlighten the adverse
side of CSR in more detail in order to optimize the effectiveness of CSR in the future.

III
6. References
Crook, C., 2005. The good company, the movement for social responsibility has won
the battle of ideas. The Economist, 374(8410), pp. 3-4.
Davis, K., 1973. The Case for and against Corporate Social Responsibility. Academy of
Management Journal, 16(2), pp. 312-322.
Friedman, M., 1970. The Social Responsibility of Business is to increase its Profits. The
New York Times Magazine, 13 September.
Henderson, D., 2009. Misguided Corporate Virtue: the Case against CSR, and the ture
Role of Business today. Economic Affairs, 29(4), pp. 11-15.
Ite, U. E., 2004. Multinationals and corporate social responsibility in developing
countries: a case study of Nigeria. Corporate Social Responsibility and Environmental
Management, 11(1), pp. 1-11.
Karnani, A., 2007. Doing Well by Doing Good - Case Study: `Fair & Loevely' Whitening
Cream. Strategic Management Journal, Volume 28, pp. 1351-1357.
Karnani, A., 2010. The Case Against Corporate Social Responsibility. The Wall Street
Journal, 23 August, pp. 1-5.
Melé, D., 2009. Corporate Social Responsibility Theories. In: O. U. Press, ed. The Oxford
Handbook of Corporate Social Responsibility. New York: Oxford University Press Inc., pp.
47-82.
Porter, M. E. & Kramer, M. R., 2006. Strategy & Society: The link between competitive
advantage and CSR. Harvard Business Review, December, pp. 78-92.
Reich, R. B., 2008. The Case Against Corporate Social Responsibility. Goldman School of
Public Policy Working Paper, Volume GSPP08-003.

IV
Sen, S. & Bhattacharya, C. B., 2001. Does Doing good always lead better? Consumer
Reactions to Corporate Social Responsibility. Journal of Marketing Research, 38(2), pp.
225-243.

V
7. Appendix
7.1. Discussed Articles
More articles are cited or referred to in this paper in order to support the paper with a
sufficient academic background, but the following six articles are discussed and
criticized in more detail.
Author & Year
Title
Sen, S. & Bhattacharya, C. B., 2001
Does Doing good always lead better?
Consumer Reactions to Corporate Social
Responsibility
Ite, U. E., 2004.
Multinationals and corporate social
responsibility in developing countries: a
case study of Nigeria
Davis, K., 1973.
The Case for and against Corporate
Social Responsibility
Karnani, A., 2007
Doing well by doing good - case study: ‘Fair
& Lovely’ whitening cream
Henderson, D., 2009
Misguided corporate virtue: the case against
CSR, and the true role of business today
Reich, R., 2008
The case against corporate social
responsibility