Posted by on November 27, 2019 5:00 pm
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By Philip Todd, George Mason University

 

Criticism and praise of corporate executives’ actions has nearly surpassed baseball as America’s favorite pastime. Since Starbucks made clear its positions on President Trump in 2017 or Hobby Lobby made a decision to take a stand against abortion in 2013, customers have either idolized or demonized these brands for the positions they take on the various social issues. While the we may deem corporations responsible or irresponsible based on how well they fit our own social agenda, let’s not forget the true motivator behind corporate social activism, which is still, as for every other activity a firm engages in: profit.

 

Corporate social responsibility, which is defined as corporate positions aimed at improving society and the environment regardless of its effects on profits, have drawn many criticisms from both the right and the left. Tom Borelli, a conservative columnist, wrote in Forbes that Howard Schultz, CEO of Starbucks, prioritized his own political interest above his shareholder and customer interests when he criticized the president prompting a trending #boycottstarbucks on Twitter.

 

Similarly, Matthew Stewart, a contributor to Harvard Business Review, argued that the Supreme Court decision granting personhood to Hobby Lobby, and therefore, protecting its rights to religious liberty, will end up incentivizing corporations to pursue less profitable options to appease societal demands. Though many have grown increasingly frustrated with the partisan nature of corporate social activism, it is important to recognize that the organization’s customers play the key role in demanding this grandstanding.

 

The corporation, just like for its products or services, identifies its customers’ preferences to build an image that caters best to these customers. Though hidden under the guise of an ‘enlightened morality’ a corporation’s social responsibility, is no more than a consumer demanded product. Understanding the political and social positions taken by Chick Fil A, Starbucks, Hobby Lobby, and Target is simply a means of understanding their customer base.

 

Criticisms of corporate social responsibility stem from two major premises. The first is a view that corporations have a concentrated ability to influence public opinion. This premise has overstated the power and influence of corporations and understated the convictions of individuals. If corporations could influence customers without consequence, then social or political statements would not affect company revenue.  However, according to research published in the Harvard Business Review, political and social positions from a corporation have significant effects on revenue, largely dependent on political party.

 

Researchers polled a group of Apple’s customers about their intent to buy Apple products. With one segment they stated Tim Cook’s position on discrimination against LGBTQ individuals while to other segments they provided no statement at all. The survey found that those aware of Cook’s activism were significantly more likely to buy Apple products in the near future than the control group. This example illustrates Apple’s customers prior-held preference in favor of LGBTQ rights, not Apple’s ability to manipulate customer preferences.

 

The second criticism of corporate social responsibility states that firms that showcase their social or political ideology, either by statement or donation, commit a disservice to their shareholders by alienating customers. The Harvard Business Review’s study shows that Apple customers have an overwhelming preference towards LGBTQ activism. Considering that activism for LGBTQ causes would significantly increase customers’ intent to purchase over the customers whose intent would decrease, Apple then has a duty to make this move in the interest of its shareholders. Harvard Business Review highlighted Delta’s banning of transport of big-game hunting trophies as an example of profitable corporate activism. The ban substantially increased Democrat favorability while only minimally alienating Republican favorability. This suggests that it some cases, being apolitical can be detrimental to company profits.

 

As Milton Friedman argued in Capitalism and Freedom: “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.” Given that the actions taken in the name of corporate social responsibility today usually positively affect revenue, firms, whether we like it or not, are acting in the best interest of their shareholders. Corporate Social responsibility is what shareholders and customers want.

 

 


Phillip Todd is a second-year MA student in economics at George Mason Univesity.