The theory of corporate social responsibility (CSR) holds that the primary responsibility of a corporation is to benefit society, i.e., companies should always act in the best interests of stakeholders and not just be accountable to their shareholders. In making their decisions, companies cannot simply maximize income, they must consider the costs to stakeholders.
The sloppiness of CSR theory is problematic but rarely discussed in academic literature. The definition of a stakeholder is imprecise and fluid. Customers are one form of a stakeholder, and socially responsible companies are scolded when they harm or fail to respond to customers. We netted a nice little subprime mess when we threatened banks and mortgage companies with discrimination charges for not making more loans to low-income customers.
However, not all customers are created equal in the world of CSR. Smith & Wesson’s parent company settled up with class-action anti-gun litigants who demanded millions for health-care costs from gun injuries. Smith & Wesson won the accolades of the CSR community for parting ways with those other nasty gun manufacturers and addressing the greater social good. The accolades were as short-lived as the company’s profits. Hell hath no fury like a Smith & Wesson customer who perceives a company that will not fight for the Second Amendment. Smith & Wesson lost so many customers that the parent sold it at a loss.
CSR theory does not provide a resolution when stakeholder interests are at odds, i.e., in a world of many stakeholders with varying demands, which stakeholder wins? Time Warner was besieged with customer and public policy experts’ demands for a recall of Ice-T’s famous “Cop Killer†song (on his “Body Count†CD).. However, recording artists (other stakeholders) demanded that Time Warner back artistic expression and threatened to leave its stable of stars if it caved to other less worthy stakeholders. Enter the Time Warner shareholders, including the public pension funds that covered “cops.†Police officers and their pension managers showed up at Time Warner’s annual meeting and supported a recall through their spokesperson, Charlton Heston, then-head of the NRA. Trouble is afoot when Moses shows up as a stakeholder at your annual meeting. The CD sold really well, Time Warner garnered a lot of free advertising, and Ice-T ended up playing a “cop†in a television series. The end result of that stakeholder/shareholder division was a mess and results contra to everyone’s intent and best interests.
           Perhaps the greatest flaw in CSR/stakeholder theory is its application only to companies. Indeed, it applies only to large companies because, after all, no one expects local businesses to do anything but stay in business by earning money. Non-business organizations are immune from the demands of CSR. That’s a pity for just as a corporation cannot have a conscience, ala Sir Alfred Coke, neither for example, can a union. Unions need the tenets of CSR. Without such a social conscience and accountability to stakeholders, we end up with societal problems such as our auto industry. As a National Review writer put it, the auto companies build cars for a hobby; they are running a pension plan. Actually, we as taxpayers are now building cars as a hobby, subsidizing their sales, and running a pension plan until Toyota and Hyundai corner the market or the last UAW worker is gone, with the former more likely to come first what with the fabulous health care plans of the UAW. Â
           Unions should adhere to the doctrine of social responsibility, the same demand they use to corner companies. Unions should consider their stakeholders because union demands and decisions are, like companies, also driven by a desire to maximize income through increased wages, benefits, and pensions. Stakeholders for public employee unions would be us taxpayers. If teacher unions had been forced to consider the impact of their demands on stakeholder/taxpayers, the near-universal budget deficits at the state level might have been averted. CSR Teacher unions would weigh the costs and consequences to their student stakeholders before striking. Imagine the emotional CSR arguments that pit “the children†against greedy teachers who demand pensions sans contributions. If the teacher unions in Wisconsin had just been forced to consider the cost of their strike in terms of damage to the marble at the state capitol building, they would have had a $7.5 million figure in the con column on their strike.
           The CSR theory has never offered much to companies in its flawed assumption battle between social good and companies. Ironically, the good-of-the-whole CSR approach to running any organization ultimately destroys the benefactor. Oddly, public sector unions may be on the verge of accomplishing the same thing with their benefactor states because they were indifferent to their own stakeholders.
