Corporate Social Responsibility: hijacking democracy?

Robert Reich at the Economist Free Exchange revisits an argument I first heard from David Henderson almost a decade ago:

THE current tempest over whether Toyota is hypocritical in selling the Prius while at the same time signing up with Ford, GM, and Chrysler in opposing a Senate bill mandating higher fuel mileage standards illustrates the dilemma of so-called "corporate social responsibility." Toyota isn't being hypocritical at all. Toyota isn't even a person. The company exists to maximize shareholder value [...]

Presumably Toyota invented the Prius to fulfill an important and potentially growing market niche in cars that consumed less energy. As such, it was being neither socially responsible nor irresponsible; it was simply responding to market demands. In making a political decision to join with the Big Three in opposing higher fuel standards, Toyota was also acting as a profit-maximiser [...]

The problem is that Toyota, and other companies that venture into politics, are undermining the democratic process. Most people are not just consumers and investors. They're also citizens, who have citizen values—including saving the planet from global warming. Toyota has every right to respond to the part of our heads that correspond to consumer and investor values, but companies have no ethical grounds for entering into the democratic realm which should be reserved for citizen values. If corporate social responsibility means anything at all, it should mean refraining from corrupting the political process.

There are three issues here:

1) Given that they are the shareholders's agents, are CEOs justified in straying from the goal of profit maximisation?

2) Companies (and the rich in general) have a much louder 'voice' (through their ability to fund political campaigns, control of the media, better information and contacts etc) when it comes to government policy and setting social priorities. Where should we draw the line? Would it be acceptable, say, for the big auto-makers to collude to decrease emissions? Do companies have the right to have their own social policies when they do not have a democratic mandate?

3) What is the effect of corporate social responsibility and related activities (e.g. charity) on the equilibrium level of public good provision? In other words, and to turn the question as it is usually posed on its head, does private giving crowd out public spending?

My answer on this last one is most probably yes; more here.


  1. KHyde Says:

    Readers who'll be in the NYC area on WED., NOV. 14 may be interested in hearing Toyota chairman Fujio Cho speak at a noontime event at Japan Society.
    James McDonald, CEO of Rockefeller & Co., will preside.

    The luncheon is sold out but seats still available for the lecture 1-2 pm;