The Wall Street Journal recently published a provocative commentary from Dr. Aneel Karnani, associate professor of strategy at the University of Michigan. In it, Dr. Karnani argues that the idea that companies have a duty to act responsibly in the public interest – and will profit by doing so – is fundamentally flawed.

Karnani's point is that CSR is irrelevant when a company's interest in generating profits is aligned with the public interest. Companies need no encouragement when doing good means doing well. In situations where private interest is at odds with public interest, companies are unlikely to act against shareholder interests.

The solution, according to Dr. Karnani is government regulation. With all its faults, he contends that regulation is still more effective than any CSR campaign. The only sure way to influence corporate behaviour is to impose an unacceptable cost through regulation, taxes, fines, and public humiliation on socially unacceptable corporate behaviour.

Our view is that Dr. Karnani mischaracterizes CSR and misses its role in innovation. Where regulation has failed, CSR is:

  • Helping companies police themselves - tough new voluntary standards, from food safety to forestry, forged in extensive, public negotiation among business and NGOs, fill in where governments have failed to act. These standards increasingly serve as precursors to regulation that key constituencies can accept.
  • Pushing companies to be accountable for their impact on emerging issues and challenges. The CSR movement has been the driving force behind the private sector's acceptance of its role in addressing climate change, human rights, and economic development. More companies publicly report on their impact, and even advocate for tougher regulation. The benefit to shareholders is vastly improved risk management. Ask BP how important that is.
  • Redefining what is material – those issues that can make a major difference to an organisation's performance. Material information provides the basis for stakeholders and management to make sound judgements and take action about the things that matter to them. Nestlé's approach to shared value, Dow's commitment to sustainability, P&G's bet on "future friendly" products, and IBM's Smarter Planet have all grown out of new interactions among stakeholders CSR helped drive.
  • Encouraging constructive collaboration on major problems among business, government, and non-profit. In the recent past we've seen examples such as the World Commission on Dams - the first ever independent review of the costs and benefits of large dams. We've seen government, business, and civil society create technologies to improve the productivity of poor farmers. We've seen creative approaches to enhance access to information and communication technologies in the developing world.

Although we agree that regulation is part of the solution, it is only part of the solution. The complex and far-reaching nature of the challenges facing society requires contributions from business, government, and NGOs. CSR is not enough unless it stands for "Collective Shared Responsibility".

What's your view?