Tuesday, May 31, 2005

A while ago the Economist ran a special report on corporate social responsibility, or CSR. Their take was the old school line that shareholder value is social value, and that CSR advocates would be wise to ponder the manifest blessings of capitalism in addition to nitpicking about a few companies' or sectors' more malfeasant externalities.

At the time I read the report, I remember thinking that both the Economist and the CSR camp were a bit too extremist. The sole responsibility of companies may well be to return profits to their shareholders, but by no means are pursuing profit and recognizing legitimate social concerns mutually exclusive. Conversely, the idea that companies will always behave irresponsibly unless otherwise prompted seems a bit, well, irresponsible.

I bring this all up because in the latest edition of the Economist, there's a piece on "business and society" by Ian Davis, the worldwide managing director of McKinsey & Company. (Although the title reads "by invitation", my guess is -- if the business news world is anything like the rest of the publishing industry anyway -- that Davis wrote the piece and then asked the Economist to run it.)

Simply put, Davis' article is fantastic. He manages to be both insightful and concise, with the result that his piece is probably the best statement I've come across on what the social role of companies should be. His key point:
Social pressures often indicate the existence of unmet social needs or consumer preferences. Businesses can gain advantage by spotting and supplying these before their competitors.
In other words: there's profit in addressing social concerns. Executives need to realize it's in their interest to anticipate and adapt to social pressure, and (many) CSR proponents need to recognize that capitalism itself is best equipped to deal with its own failings.

There's more to Davis' view than that, of course, but it seems to me to be a rather sensible common ground.

Update: Of course the first news I come across after posting this is the Supreme Court's decision on the Arthur Andersen case. Please rest assured that the timing was coincidental and that I'm not in any way trying to defend Arthur Andersen, let alone Enron.

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