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Assessing Corporate Culture

If you only looked at the headlines of today’s feature in the Wall Street Journal: The Case Against Social Responsibility, you might think that the ire of business ethics professionals would be raised to the level of hysterics. But Professor Aneel Karnani raises a critical point that is at the heart of not only corporate social responsibility, but of business ethics as well.

“In cases where private profits and public interests are aligned, the idea of corporate social responsibility is irrelevant: Companies that simply do everything they can to boost profits will end up increasing social welfare.”

While at first Karnani’s seems provocative. However, the logic is that companies won’t engage in practices that aren’t profitable. Therefore, only when socially responsible practices make business sense and are what the public wants, will companies be acting in a socially responsible manner. But to them, it’s just good business, therefore the “green” labels are mere PR window dressing.

But the heart of Karnani’s argument is exactly at the heart of today’s business ethics issues as well:

When talking about why a company would not do the socially responsible thing, even if it is a profitable avenue, Karnani states:

Unfortunately, not all companies take advantage of such opportunities [of benefiting society while acting in their own interests], and in those cases both social welfare and profits suffer. These companies have one of two problems: Their executives are either incompetent or are putting their own interests ahead of the company’s long-term financial interests. For instance, an executive might be averse to any risk, including the development of new products, that might jeopardize the short-term financial performance of the company and thereby affect his compensation, even if taking that risk would improve the company’s longer-term prospects.

The heart of the argument is that long-term financial interests are in the best interests of both the shareholders and the public. Companies that plan for the future are the ones that see the business benefit of ensuring that their markets and customers will be around the the long-term as well. The problem is not profit per se, the problem is short-term self-interest over long-term corporate interest.