CORPORATE SOCIAL RESPONSIBILITY:
Doing Good or Wasting Shareholders’ Money?
by
Baruch Lev
New York University
blev@stern.nyu.edu
July 2013
At a Glance
2
For and against CSR
 What exactly is CSR?
 My approach to CSR: What should, and shouldn’t be
done
 Finally, a lesson for you

Two Opposing Views
3
“There is one, and only one social responsibility of
business—to use its resources and engage in
activities designed to increase its profits.” (Milton
Friedman, Nobel Laureate economist.)
 “In a survey by the Economist Intelligence Unity, only
4% of respondents thought that CSR was ‘a waste of
time and money.’ Clearly, CSR has arrived.” (The
Economist, January 19, 2008).

4

Are the following cases CSR?
 Is
Toyota’s highly successful Prius hybrid car a business
response to GHG emissions (Global Warming), or a clever
business innovation creating huge profits?
 Is Whole Foods, a very successful and profitable food chain,
good business for shareholders, or a social initiative
improving people’s health and the environment?
 Walmart, the world’s larges retailer, announced that it will
eliminate 5% of its packaging material by 2013, saving
trees and energy (and lots of money). Is this CSR?
5
 Is
KPMG, a Big-4 accounting firm, allowing its U.K.
employees to spend half-a-day a month on community
work, a valuable CSR, or a smart strategy to attract
high-quality employees?
 Is U.S. corporations’ $15 Billion a year philanthropic
contributions to civic, health and education purposes CSR,
or, as my research shows, a smart advertising creating
sales and profit growth?
 Is Chevron, a major oil company, spending large amounts
of money on health improvement in Africa (where they
don’t have oil operations) CSR, or a business insurance
against public outrage for oil spills and damage in other
parts of the world?
So, What is CSR?
6
Is it primarily a good business
idea, a la Milton Friedman,
which also has some social
benefits on the side?
A socially beneficial corporate
activity that does not create profits,
perhaps even decreases them,
while benefitting communities,
health, or the environment?
The former is a no-brainer,
but should companies do the latter?
Let’s Look Closely at Friedman’s Argument
7


“Other people’s money.” Corporate resources don’t belong
to managers. They are shareholders’ money. If shareholders
want to do good, they can spend the dividends they receive
on any purpose they wish. Managers shouldn’t spend
shareholders’ money on social purposes.
No expertise. Corporate managers have no training or
expertise in ranking social targets. How can they rationally
choose among fighting diseases, enhancing education,
improving the environment, serving communities, etc.? Aren’t
managers mainly interested in enhancing their own prestige
and political influence through CSR?
Hard to Argue with Friedman’s Logic,
so my Approach to CSR is:
8



If CSR activities enhance sales and earnings (Prius,
Whoel Foods, etc.) (“cause-related philanthropy”)—just
do it.
Money donations unrelated to the business (AT&T’s $100
million to decrease high school dropout, or Freddie
Mac’s—a failed government sponsored mortgage
company—donations to strengthen families) should
better be left to shareholders.
The really beneficial CSR: using the company’s
specialized resources to serve society and the
environment. This cannot be done by shareholders.
Examples of CSR Using
Corporate Specialized Capabilities
9

Cisco systems, the world’s largest internet
equipment producer, initiated in 1997 the
Networking Academy project.
 Web-based,
distance learning free program to train
and certify students world-wide in networking
administration
 About
a million students a year in more than 160
countries are trained by this program, creating highpaying, highly demanded jobs.
 Cisco’s
shareholders could not develop and administer
such a program.
Continued…
10

Home Depot, a large retail chain of construction
material and houseware, partnered with
KaBOOM!, a nonprofit outfit that builds
playgrounds in inner cities.
 Home
Depot contributes funds, products and
employee volunteers, as well as the assistance of
the firm’s accounting and legal staff.
 KaBOOM!
provides expertise in community
relations, and identifying locations for
playgrounds.
Finally, Flying under the Radar:
CSR as Insurance
11


The business upside (potential gain) from CSR is modest at
best. The downside from damage to communities (Union
Carbide in Bhupal, India, 1984) or the environment (BP in
the U.S., 2010) can be huge.
Smart CSR can provide protection—insurance—against
such damages.
Companies that routinely engage in CSR generally consider the
social and environmental impact of their activities more carefully
than other companies.
 CSR activities create social capital—trusted relationships with
government and NGOs—that mitigate the reputational damage
from mishaps.

Lessons for You Dear Students
12



The claims of the benefits of CSR by its highly-paid
advocates (consultants, NGOs) are so exaggerated (“CSR
is the best investment you ever made”) and often
unfounded (“high correlation between CSR and profits”)
that most executives view CSR with great suspicion.
So, when you enter the business world, don’t run around
advocating CSR to everyone. Focus on your job first.
In your spare time, think very carefully about
opportunities to leverage the specialized capabilities of
your company to enhance every specific social or
environmental goals at low costs.
Lessons for You Dear Students
13



Once you identify such an opportunity, build a
comprehensive case—like a business plan—quantifying
the costs and benefits of your proposal.
Share the plan first with your direct boss. If he/she
approves, send it to the CEO. Be prepared that if they
like it, they will ask you to do it.
But before you set out to “correct the world,” make sure
that you positively contribute to your own small “world”
(family, friends).
“If you save one person you save the world.”
- The Jewish Talmud
14