Friday, January 25, 2008

The CEO's Mom

The Economist magazine's special section on corporate social responsibility was kinda unenlightened. Today I sent this letter to the editor:

SIR - Your January 19 Special Report confused corporate social responsibility (CSR) with philanthropy. As the example illustrated, giving away money is to a great extent the job of corporate foundations. The foundation is governed separately from the profit-making entity and does not relieve the latter of responsibility for good behavior in its own sphere.

Executives don’t need “a broader understanding of the world in which they operate” in order to effect CSR. They just need to do what their mothers told them: Clean up their own messes, and refrain from taking what belongs to other people.

Before corporations think about doing good, they should stop doing bad. Every oil spill cleaned at public expense, every bribe for a permit to wipe out a village and dig a mine, disappoints a mother somewhere. If Mom is an economist, she calls these acts “externalities.”

You claim jobs and wealth created by corporations outweigh these negative externalities. Good to know we’ll have cash in our pockets as carbon emissions-driven climate change ends civilization!

You did zero in on the bottom line of CSR: The sovereign charters a corporation in return for an expected social benefit. It is easy at this pass to imagine voters demanding either performance or revocation of charters. Charterless companies, like rusty freighters, will then shop for flags of convenience. We shall see what customers buy from companies chartered in third-world backwaters.

San Diego

The writers missed the main point: State governments are lax in specifying and enforcing the terms of corporate charters, and corporations spend quite a penny to preserve that state of affairs. The governments, for their part, are addicted to the taxes and fees that flow from having a business incorporated locally, and they're aware that if they refuse a charter, the corporation can shop around other states and countries.

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