Special Report

The Permanent Shakedown Left

It says it wants "corporate social responsibility." Free-market groups gathered last week to say that would be irresponsible.

By 11.9.05

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Business for Social Responsibility, a major promoter of the movement for "corporate social responsibility," held its annual meeting last week in Washington, D.C. The meeting brought together corporate insiders and activist outsiders who agreed on one thing: corporations are too greedy for profits and should be forced to accept the rightful demands of labor unions, women, minorities, and environmentalists. That's the definition of corporate social responsibility, or CSR. But this year, the cozy schmooze-fest did not go unchallenged. Free market-oriented groups hosted a counter-conference, "CSR Reconsidered," in which speakers, including yours truly, systematically dismantled the premises, methods, and outcomes of the movement.

What does corporate social responsibility mean and who can be against it? Essentially, the term is little more than nice-sounding rhetoric. Since responsibility involves obligations to other people, what kind of responsibility isn't "social"? Furthermore, by suggesting that corporations need to learn how to become responsible, the advocates of CSR push the idea that profit-seeking is irresponsible. Never mind that when corporations earn profits they produce goods and services people want, create jobs, and generate capital for new investments. CSR's rhetoric of responsibility ignores the real achievement of the business firm and masks a leftist agenda of government regulation and wealth redistribution.

To refute CSR's advocates, financial advisor James Glassman quoted economist Milton Friedman: "There is one and only one social responsibility of business -- to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game." Glassman explained why the Left embraces corporate social responsibility: "It is having a hard time achieving its goals through the political process." Activists can't win at the ballot box, so now they are going straight to corporate boardrooms. And they are making headway there, said Glassman, because corporations "think that by pandering to radicals they can co-opt them. But radicals see it as weakness."

Fred Smith, president of the Competitive Enterprise Institute, explained why corporate executives appear at confabs like the Business for Social Responsibility meeting. CSR, he said, was "a confused response to a serious problem -- political predation." Political activists and their allies in Congress and in state legislatures see corporations as ripe for the plucking. Too often, business leaders act defensively. By conceding that they have done something wrong -- and won't do it again -- they hope to get the activists and politicians off their backs.

IT WON'T WORK. Companies like Toyota have twisted themselves into knots trying to placate Jesse Jackson to prevent false allegations of racism, observed Peter Flaherty, president of the National Legal and Policy Center. Paul Driessen of the Congress on Racial Equality noted that poor countries benefiting from economic development are continually stymied by Western activists who put environmental ideology ahead of fighting poverty and curing disease. And in the U.S., labor unions use their pension fund assets to advance a purely political agenda, said American Enterprise Institute researcher Bryan O'Keefe -- even if a lower rate of return on investment hurts their own members.

Can CSR help a company's bottom line? Economist Wayne Weingarten analyzed the CSR index compiled by Business Ethics magazine, which looked at 28 prominent companies known to be CSR supporters. He found that CSR was "negatively or not correlated with compound annual net income growth, net profit margin, and stock price appreciation." I also looked at how Business Ethics magazine rates companies. In the category of "total return to shareholders," 48 of 100 companies had negative returns in 2005. The companies were compensated with high scores in such categories as "diversity," environment, and human rights. Pity the shareholder.

I also examined the charitable giving of the CSR companies highly rated by Business Ethics. Only 16 of the 39 companies that had corporate foundations gave to what might be called "political advocacy" organizations, and much of that giving was small and consisted of "matching gifts." Even some conservative groups (the Heritage Foundation, Citizens Against Government Waste) received gifts. But lots of corporate foundation giving went to groups that are no friends of corporations -- environmentalist groups like the Natural Resources Defense Council, Greenpeace, Defenders of Wildlife, the Union of Concerned Scientists, Earthjustice, Environmental Defense, and so on. There also were grants to the ACLU, ACORN, Planned Parenthood, and Human Rights Campaign, groups that look to government solutions to social problems rather than to the market. For instance, the Prudential Foundation, the corporate foundation of the financial services giant, has made a grant of $665,000 to the Children's Defense Fund, a group well-known for demanding welfare state entitlement programs.

When I looked at giving by the corporations that are members of Business for Social Responsibility, I found the same trend. Only 40 companies had charitable foundations, but 23 gave to advocacy groups. Again, the giving tilted heavily to the left, especially to environmental groups.

I also looked into the private foundations that contribute to Business for Social Responsibility (BSR). My list reads like a who's who of big foundations that support big government: The Ford Foundation, Joyce Foundation, David and Lucile Packard Foundation, and the (Ted) Turner Foundation, among others. BSR also receives government grants from the EPA, State Department, and the U.S. Agency for International Development.

WHAT'S TO BE done? Take the moral high ground, urged Ed Hudgins of the Objectivist Center, who reminded the participants that CSR relies on government coercion not individual conscience. And fight back, said Nick Nichols, author of Rules for Corporate Warriors. He observed that corporations are accountable to their shareholders, who should demand that activists reveal to whom they are accountable (answer: usually only themselves).

Conference coordinator Steve Milloy and his business partner Thomas Borelli have an even better idea. They have started a mutual fund that will challenge the anti-corporate activists at shareholder meetings. The Free Enterprise Action Fund is the "first mutual fund to seek long-term capital appreciation through investment and advocacy that promotes the American system of free enterprise." Milloy noted that the Fund recently successfully urged JP Morgan Chase management to reject activist attempts to have the company support global warming regulation.

The battle against the corporate social responsibility movement won't be won easily. Business for Social Responsibility got Paul Wolfowitz to be the keynote speaker at its conference and Congress is currently demanding that oil companies "be responsible" in pricing winter heating bills. It may be a long time before the public understands that the role of the corporation isn't political or philanthropic -- it's to make a profit.

David Hogberg is a senior research analyst at the Capital Research Center. He also hosts his own website, Hog Haven.

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David Hogberg is a senior fellow at the National Center for Public Policy Research.  Follow David Hogberg on Twitter.