What do economists have to say about CSR?  The leading economists almost universally see CSR in its archaic practice, as a waste.  Milton Friedman, an economist-idol says “The Social Responsibility of Business is to Increase its Profits”.

I now understand why I am such a skeptic of CSR and sustainability and, for that matter, NGOs.  I am an economist.  It is nearly impossible for us, bottom line thinkers, to evaluate, assess, and report that CSR activities are worthwhile for anything more than a promotional activity.  The added value of a company acting responsibly is always offset by the convoluted mess created by adding another department that seemingly takes away direct customer feedback and representation of the company.  In effect, now the customers are thought to have a voice in a company's policies and decisions but in reality the company is the voice and only helps to squash the customer's ability to think for themselves.  

Why else do American's in small towns cry out when Walmart (an American multinational retail corporation) comes to their town and kills small businesses, yet in those towns everyone shops at Walmart.  It isn't because of their CSR department, it is because Walmart so cleverly positioned itself as a small town company (from Arkansas, not New York) and offers the best prices available in the market.  People like cheap.  

If people have a problem with human rights issues or labor laws (or lack of unions, for example), they should voice their opinion by protesting. Instead Walmart comes up with a proactive response that squashes even the most liberal American from even thinking about protesting or organizing people against them. 

There is a website called "walmartsucks.org“ that boycotts and protests their policies.  There are millions who don't buy products at Walmart (I don't like to shop there, but I do on occasion).  

However, there is something that economists couldn't predict.  The corporation as a Keynsian device providing utility by exclusively maximizing profit, the Walmart that everyone loves to hate, the idea that big business is bad for business, is slowly changing.  And how did it change?  People quietly protested and boycotted companies like Walmart for so long that they gradually learned to adjust in order to continue to maximize profits.  

Walmart gave in to Chinese demands for Unions in order to access the world's new largest market.  Walmart became a leader in CSR globally in part because they had to.  Now people are (somewhat) less negative on Walmart as a result of a cultural shift.  Walmart is one of the world's biggest beneficiaries of using CSR to boost their bottom line.  We have to accept giants like Walmart existing and thriving because, in no small part, they have adapted a culture of CSR and responsibility for the people they hire, serve, and impact.  

As for the economist in me, I still vehemently disagree with the way Walmart became a leader in CSR.  They are the largest company in the world, the largest employer in the world, and have the largest reach of any company globally.  It would be an American-sized disaster if they weren't the leader in a simple area like CSR, which at its core is listening to stakeholders and responding to their needs (at least in this case).  

They also spent far too much time and wasted an enormous amount of potential profit in gradually, and bullishly agreeing to terms of acting human.  It is perhaps far too much to ask for a company to act human after all with all of the levels and barriers between corporate headquarters, suppliers, distribution, and the people they "serve".  

In Conclusion

Economists are correct.  CSR is a waste of money and time when it is business as usual.  Company's shouldn't be investing in CSR, reporting, sustainability, etc. without investing first in introspective questioning.  Asking why will most likely result in a variety of responses.  “Everyone else is doing it” will be among the leaders, or at least so and so is doing it.  However, an economist would agree on developing a CSR platform only when a company who replies, sincerely, with data, “this will increase by profitability.” In other words, only if our clients, customers, consumers, stakeholders are willing to stop supporting our business and its activities in equal or greater number to offset the costs of developing such a program, should one exist.

As was the case with Walmart, they fought off the onslaught of negative publicity without wavering from their stance on labor unions until one day they realized they could lose market share if they did not invest heavily in salvaging their image.  CSR worked with Walmart.  

Could “Walmart CSR” Work in the Arab Region?

Actually, what I am trying to say is companies should not be investing in these social areas just because it is a trend and they are told to do so.  In reality, most companies aren't investing in CSR and sustainability because they want to.  They are investing in competing with other companies who are making more profit as a result of their CSR activities.  

And that is the real problem with our business model in the Arab region.  Consumers, though increasingly enlightened, don’t consider the impact of their own purchasing power.  In recent years we have seen boycotts of brands like Coca Cola, Danish cheeses and butters, and Starbucks.  However, of those, only the Coca Cola boycott truly stung.  Now Coca Cola in the Arab region is investing heavily in CSR and responsible marketing in order to regain shares on its chief competitor, Pepsi.  The outcome of this battle, in which Coca Cola dominates Pepsi in nearly all markets except for the Arab region, will determine greatly whether or not CSR can revive the image of a brand here too.

This same rule should be applied for all fast moving consumer goods that are in a good position for positive growth, but suffer from any negative perceptions in the public’s eye.  Unfortunately far too many brands look at recent profits and ignore the changing winds that will affect their future profits.  Companies like Carrefour, so dominate at staving off price gouging by competitors, have fared quite well due primarily to pricing everyday goods low and maintaining good positioning of high margin, high cost imported goods.  However, these same companies are far lacking the Walmart promise, impact, or drive in rebuilding their entire image based on stakeholder’s demands.  

If you recall, at one time all Walmart focused on was if their products were cheap and ignored all other aspects of CSR risk.  They learned, at great cost, and in great haste, that simplistic thinking does not work in the complicated business world of low margin, high turnover goods.  Walmart did learn.  We are not certain if similarly dominant companies of the Arab region will learn in time to save their market share.

Eric Hensel