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Defining Virtue

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Defining Virtue

Post Op-Ed in AFF Brainwash

by Isaac Post | May 21, 2006

David Vogel's The Market for Virtue: The Potential and Limits of Corporate Social Responsibility offers a concise and engaging portrait of how Corporate Social Responsibility (CSR) works in practice and why. Unfortunately, even as Vogel - a professor of business ethics at UC, Berkeley - cautiously praises CSR's accomplishments, he never questions its underlying assumption: that corporations ought to be intentionally and explicitly engaged in social welfare policy. This leads him, in the book's final pages, to broaden his definition of CSR to include political lobbying that seeks to increase government regulation of the economy.

CSR--practices that benefit society in ways that go above and beyond what companies are legally required to do, in Vogel's words--has grown in prominence in recent years. A 2005 U.S. Chamber of Commerce survey found that 81 percent of its members agreed that CSR "needs to be a priority for companies." Much of this enthusiasm for CSR on the part of business is due to the belief that "doing good is good business." But Vogel is skeptical, as he should be.

He points out that a multitude of statistical studies have so far failed to find a consistent correlation between corporate performance, such as profits, and a corporation's embrace of CSR. He also acknowledges a major problem with any statistical study of CSR: is a corporation more profitable because it acts more responsibly, or does it act more responsibly because it is more profitable? So what has driven the business community's embrace of CSR?

Vogel first examines the demand side of the "market for virtue" (the market for socially responsible businesses and products): consumers, workers, and investors. For instance, he discusses the rise of the Socially Responsible Investment fund, a mutual fund consisting of companies that have been screened for various "vices," such as being a defense contractor or producing nuclear power or cigarettes. But the impact of SRI funds on the financial market as a whole is negligible, argues Vogel, not only because of their small size as a proportion of the market, but also because any movement in stock prices due to SRI funds would be an immediate signal to the rest of the market to either buy or sell stock. SRI funds, like individual consumers, are "price takers" in the market: they can never buy or sell enough of a good to impact its market price.

But large multinational firms with highly visible brands--Nike, Shell, GE, McDonald's--can be affected. And they have embraced CSR as a response to the higher costs imposed on them through the negative publicity campaigns of non-government organizations. But while Vogel carefully assesses the impact of this supply-side (corporate) response--which typically takes the form of voluntary codes of conduct dealing with working conditions, the environment and human rights--he offers no similar critique of the NGOs. Given that Vogel acknowledges that NGO activism is the primary driver of the embrace of CSR by the firms he discusses, such an omission is discouraging.

The outline of Vogel's main thesis, however, can now be seen: There is a market for virtuous, socially responsible corporations. But its scope remains limited, both by the functioning of the market (entrepreneurs will always be on the lookout for new profit opportunities) and by governments' cooperation in enforcing--or at least monitoring—corporations' voluntary standards governing their environmental and social impacts on society.

If corporate behavior is to "improve," Vogel argues, then CSR must be fortified: government must step in and create more regulations to force business to supply more "virtue." For example, Vogel applauds the expansion of the Alien Tort Act of 1789 to hold corporations legally accountable "for violating global norms." While this law originally dealt with actions between nations, activist judges have reinterpreted it to cover the actions of individuals. Now, a foreign national can bring a lawsuit in a U.S. federal court against a corporation--as has happened to IBM and Coca-Cola--that violates his civil rights under 'customary' international law. Vogel also calls for the further incorporation of labor and environmental regulations into international trade agreements. Finally, he redefines what it means to be virtuous. In Vogel's world, a business that lobbies the government for increased regulations for all companies--but has not yet adopted those regulations itself--is "arguably more virtuous" than a company that voluntarily adopts such regulations on its own.

In applauding this view of CSR, Vogel turns the economic wisdom of Adam Smith on its head. In Wealth of Nations, Smith wrote, "It is [the individual's] own advantage, indeed, and not that of the society, which he has in view . . . By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." In Market for Virtue, David Vogel grapples intelligently with the practical concerns of CSR. Regrettably, in making his case for the "potential and limits of CSR," Vogel assumes away the underlying insight of the free market that Smith first identified: that by maximizing long-term shareholder value--by pursuing one's self-interest within the confines of the law--corporations are acting responsibly.