January 21, 2005

The Economist Weighs In on Social Responsibility. Unfortunately.

This week's Economist includes a survey of corporate social responsibility. On seeing the news, my reaction was one of both hope and fear: Hope because critics of corporate social responsibility tend to be ideological, and The Economist typically tries to focus on the facts. Fear, because the magazine's snippy black-or-white writing style, while clear and entertaining, risks oversimplification. But hope and fear were replaced by mere disappointment. The survey's a disaster, unfortunately. The magazine's leader, "The Good Company" states "all companies, but especially big ones, are enjoined from every side to worry less about profits and be socially responsible instead." Nonsense. The net profit margin for the S&P 500 over the past four quarters was 8.5%, the highest level seen in over 20 years (source: Baseline). The implication that corporate gadflies are draining away profitability has no basis in fact. It continues "companies at every opportunity now pay elaborate obeisance to the principles of corporate responsibility." Twaddle. Corporate social behavior is, on most dimensions, worse than in the past. Executive compensation as a percentage of sales is at historically high levels, despite no apparent commensurate increase in management competence. Charitable giving accounted for a greater percentage of corporate pretax earnings 15 years ago than it does today. And, of course, there are the scandals. It is extraordinary that, after Enron, Worldcom, Tyco, and Parmalat, otherwise intelligent people can claim the level of corporate social responsibility has gone up. Marc Orlitzky recently published a comprehensive and thoughtful statistical review of the academic work done on corporate responsibility over the past 30 years. The survey does not appear to mention it. A shame, as Orlitzky provides hard evidence that contradicts The Economist's arguments. Speaking of evidence, there's not a lot presented. Looking through the survey, I see no charts (ok, one quadrant chart illustrating a concept). No statistics, no quantitative studies, no detailed presentation of successes and failures. And more straw men than a scarecrow factory. What a shame. The Economist had a chance to write a strong piece on a timely topic, as it did with environmental issues in the early 90's. Instead we get a 22 page op-ed piece. Don't waste your time.