Are corporate sustainability efforts worth it?

A respected management professor says profits should trump public interests, because social welfare will ultimately be served. But for others, sustainability equals innovation.
Written by Heather Clancy, Contributor

Those of you who are accountable for corporate sustainability or social responsibility activities at your company are doubtless aware of an editorial that appeared in the Wall Street Journal maybe two weeks ago with the rather scholarly title, "The Case Against Corporate Social Responsibility."

Written by Aneel Karnani, a professor of strategy at the Stephen M. Ross School of Business at the University of Michigan, the essay suggests that companies don't have a responsibility to act in the public interest. He also argues that the idea that they can profit by doing so is "fundamentally flawed."

Let natural market forces and profit potential dictate the strategic focus of a company, and social interests will ultimately be served as well, Karnani argues. He cites as two big examples the focus of fast-food outlets to include more health-conscious offerings on their menus as well as the effort of automakers to think more about fuel-efficiency. Both just make sense from a business point of view.

"It is the relentless maximization of profits, not a commitment to social responsibility, that has proved to be a boon to the public in these cases. Unfortunately, not all companies take advantage of these opportunities, and in those cases both social welfare and profits suffer. These companies have one of two problems: Their executive are either incompetent or are putting their own interests ahead of the company's long-term financial interests."

He goes on to suggest that executives that focus first on social responsibility and second on the business will sacrifice profits by doing so.

I'm sure you won't be surprised to hear that there are more than 250 responses and comments on this rather provocative article.

Enter a contrary viewpoint from Tim Mohin, the director of corporate responsibility for chip maker Advanced Micro Devices. Mohin's case is pretty simple, and he offers three examples of why he believes Karnani is wrong. They are:

  1. More and more companies are winning with CSR: Mohin believes it represents an opportunity to create new revenue or efficiency opportunities that might otherwise be overlooked.
  2. Smart companies take the long view: If companies act on their own, Mohin asserts, it might negate the need for government legislation.
  3. Companies know CSR impacts brand value and investment: As evidence, Mohin cites the fact that The Reputation Institute cites brand reputation as one of the biggest intangible assets on any company's balance sheet. About 40 percent of reputation relates to a company's social responsibility, it figures.

In my mind, there is one pretty simple reason that every business should have someone charged with understanding and applying a sustainability or social responsibility policy: Our planet's resources are finite. Therefore, the resources available to your business are finite and will therefore cost more in the future.

Electricity is getting more expensive. Water will be next, in case you haven't already noticed. Businesses have a responsibility to manage those costs, don't they? At the very least, I would describe any policy that overlooks environmental considerations as short-sighted. Yes, indeed, I think corporate sustainability and social responsibility are worth the attention of your brightest, most innovative business strategists.

This post was originally published on Smartplanet.com

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