No Obligations

by Robert B. Reich

January 2008 Issue

Why companies should forget social responsibility—and why we should let them.

For years, I've preached that corporate social responsibility helps the bottom line. Respect the environment, your employees, and the community, I argued, and they'll not only respect you back; they'll buy your products. Unfortunately, I've never been able to prove it or even find a study to back me up. In fact, most research shows that consumers aren't willing to pay more for a socially responsible product. They want the best deal, period.

And the truth is, that's the way it should be. Companies aren't moral beings. They exist to make money for their shareholders by hanging on to customers. When a firm's top brass go on a social-responsibility offensive, you can be sure it's self-interested: They want to increase their profits by burnishing their public image, cutting costs, or avoiding even more costly regulation.

I've been thinking about this more often lately as a raft of new companies rush to embrace social responsibility. PepsiCo chairman Indra Nooyi recently announced plans to take a Frito-Lay factory off the power grid and run it almost entirely on renewable fuels. Texas Instruments has a new, green semiconductor plant. Even Wal-Mart, long reviled for its paltry pay and pathetic benefits, is getting in on the act. This past fall, C.E.O. Lee Scott unveiled a broad employee health-care package with premiums as low as $5 a month; before that, he revealed plans to install low-energy lighting in Wal-Mart's stores and switch the packaging for its fresh produce to plastics made from environmentally friendly corn sugars.

Like all good top managers, these executives are doing what they're supposed to do according to the current rules of the game. Those low-energy lightbulbs will not only reduce Wal-Mart's carbon dioxide emissions by 35 million pounds a year; they will also save the company (by its own estimation) $2.6 million annually. That new, green packaging turns out to be cheaper than the old. Adopting better health coverage is not just an effort to blunt public criticism about stingy benefits (the same stingy benefits that contribute to the great deals we get as consumers) but is perhaps also a bid to preempt action by several states that have recently threatened to require big employers to provide workers with even more generous health benefits. (See other cost-effective changes made by companies.)

And so it goes. Back in 2005, Kraft Foods announced it would stop marketing certain products to children under the age of 12. The news was hailed as a glowing example of corporate social responsibility, but critics said it was no such thing. A World Health Organization report had already concluded that food advertising directed at children contributes to child obesity, and Congress was considering moves to regulate such advertising. Kraft was most likely trying to stay ahead of the legislation. Alcoa, which is paring its energy use, estimates its efforts are saving it about $100 million a year. McDonald's switch to kinder, gentler slaughtering techniques has helped boost the company's image among consumers.

The companies are simply trying to win, and that's what they're supposed to be doing. Unfortunately, improving the bottom line doesn't always make the public better off, of course. Polluting, stiffing workers on health care, and encouraging kids to eat junk food are often better for profits than taking the opposite approach.

That's why we need government. It's not the job of private enterprise but our representatives in Washington and state capitals to tackle public policy issues. Yet instead of taking the lead, elected officials often allow major corporations to set the agenda through the most effective tool available—money. Every year, companies pour millions of dollars into the system, through political donations and the platoons of lobbyists they deploy to Washington. Wal-Mart has one of the largest corporate political action committees in America. It spent $2.7 million during the 2004 elections and is on the way to contributing even more this time. AT&T's PAC spent $2.65 million during the 2006 elections, and the Altria Group's PAC parted with $1.8 million. (Read about PAC pet causes.)

Consumers and voters who pressure companies into being socially responsible are diverting attention from the harder and more important task of cleaning up democracy so laws can be enacted to reflect what the nation wants of its corporations, beyond profitability. The answer isn't to push companies to be more socially responsible; it's to get corporate money out of politics so we as citizens can decide what the rules of the game should be. Condemning companies for not giving their employees better pay and health benefits may be emotionally gratifying, but it's a sideshow. What we really ought to be doing is condemning large corporations for polluting our democracy.