There is a widespread belief that Corporate Social Responsibility (CSR) is a way of managing and reducing risk. But in addition to its celebrated possible benefits, CSR also creates risk. There are many risks involved with and created by CSR.
Since the CSR community likes acronyms, here is a new one: CSRCR, Corporate Social Responsibility Created Risk.
Most sources are content to sing the praises of CSR. Business leaders, the CSR industry and ‘civil society’ speak mostly of the positive effects of CSR. A few may criticize older forms of CSR for not being positive enough. Even after decades of CSR study, there is no identification or definition of the risks created by CSR. AntiCSR.com is the first to define CSR Created Risk.
CSR Created Risk:
The probability that Corporate Social Responsibility (CSR) creates negative consequences for a corporation, in areas of: reputation, financial, agency, legal, regulatory, operational, opportunity cost or governance. Related forms of CSR such as Creating Shared Value, Corporate Sustainability and Corporate Responsibility may also contribute to this risk.
In a world of risk awareness, CSR Created Risk is the most unknown, understated and politically incorrect risk. Those with vested interests in CSR will deny the existence of CSR Created Risk. It is rare for business and economic policies to have only an upside, with no trade-offs or risk. Apparently, CSR is such a policy. Business leaders always stress the many benefits of their CSR programs. They supposedly offer only positive outcomes for the corporation and win-win situations for society as well.
CSR Created Risk is largely internally generated. As a result, it has been long suppressed. Here are just a few outcomes of CSRCR:
CSR Created Risk:
- Insincere or shallow CSR, such as greenwashing, can damage a firm’s reputation.
- Financial profits can be spent on the smoke and mirrors of CSR, for little gain.
- Managers can indulge their personal interests with shareholders’ profits, an agency cost.
- A false confidence in CSR has led some governments to mandate and legislate CSR.
- Business operations can be slowed by the internal bureaucracy created by CSR. Core competencies and less photogenic operations can be ignored.
- Resources spent on CSR could have been spent on profitable opportunities, more employees, research, technology, etc., an opportunity cost.
- CSR practices designed to trick consumers and appease critics can lead to marketing fraud. The two-faced nature of CSR can negatively affect corporate governance.
- Studies have shown that CEOs with a strong CSR record are more likely to act unethically, probably because they accrue moral credits.
- By making the firm appear apologetic, CSR may also embolden a firm’s critics.
- CSR can offend some consumers. After Chiquita avoided Canadian oil, many Canadians boycotted Chiquita’s products.
- Governments can react to the attempted self-regulation of CSR by imposing heavier regulation.
- Partnering with NGOs or CSR groups can expose a firm to the mishaps of the CSR partner.
- CSR Programs can desensitize society and governments to CSR, creating diminishing marginal returns to CSR.
- Fashion risk: companies may be using old CSR language, not keeping up with new buzzwords. “CSR” itself is out of style.
CSR may seem tempting, an easy way to improve brand reputation and increase sales. CEOs love to talk about ‘doing well and doing good.’ But the honey trap contains many risks that businesses are reluctant to acknowledge. From BP to Chiquita, many firms were lured into CSR diversions only to have expensive failures.