Full Citation:  Vogel, David.  The Market for Virtue:  The Potential and Limits of Corporate Social Responsibility.  Washington D.C..  The Brookings Institution,  2005.  Print.

David Vogel is the Solomon Lee Professor of Business Ethics at the Haas School of Business and professor of political science at the University of California, Berkeley.  He is author of several books on politics, business, and environmental regulation.  The Market for Virtue examines the recent accomplishments and limitations of corporate social responsibility (CSR), which Vogel defines as “practices that improve the workplace and benefit society that go above and beyond what companies are legally required to do” (2).

Accomplishments of CSR

Motivated by negative publicity from activists and NGO’s, boycott’s, consumer interest in socially responsible products, pressure from ethical investors, anticipation of future government regulation, and the good intentions of some corporate managers, CSR has become an increasingly significant factor in  business management since the 1990’s. This has benefited workers and society on several fronts.  

A number of boycotts since the 1990’s have successfully pressured companies to change.  Nike was persuaded to improve its labor policies in developing countries; many companies were persuaded to sever relationships with Burma due to human rights abuses by the ruling military regime; some rug importers have restricted use of child labor; mercury has been eliminated from batteries; and tropical wood imports have declined in Europe.  Some companies, such as Patagonia and Seventh Generation, have successfully placed corporate responsibility at the center of their business strategies.  Moreover, some consumers have been willing to pay more for products that carry certified, socially responsible labels such as Rugmark (now GoodWeave), which has reduced use of child labor, or Fair Trade, which has improved working conditions for farmers.  Many firms have signed on to voluntary socially responsible codes of conduct, such as SA8000 and codes developed by  the Fair Labor Association and the Worker Rights Consortium.  The Rainforest Action Network (RAN) successfully pressured Home Depot to stop buying wood products from old growth forests, and by 2004, a host of companies – Lowe’s, Staples, Office Depot, Kinko’s, 3M, IBM, Hallmark, Hewlett-Packard, and many others – agreed to do the same.  Many companies now carry Forest Stewardship Council (FSC) labeled wood products, which are supposed to be sustainably harvested, although RAN has criticized the FSC for compromising its standards.

Limitations of CSR

In 1954, when a shareholder sued Standard Oil for making a gift to Princeton University, the court ruled that corporate responsibility to investors does not preclude managerial discretion for making contributions to the broader society of which the corporation is an integral part.  CSR, to some degree, is lawful.  Nevertheless, Milton Friedman argued that corporations should remain solely responsible to shareholders, maintaining that corporate contributions to society at large are only justified insofar as they benefit investors.  For those who agree, CSR is only justified if it is good for business, that is, if benefiting workers or the environment also benefits return on investment.  Moreover, CSR has become more dependent on this view in an increasingly competitive global environment driven by institutional investors.  Managers are expected to produce positive short-term returns.  Vogel argues that although most publications on CSR maintain that it is good for business, in most cases, they lack legitimate academic research to back this claim.

The Research on CSR and Business Success

Although there are many studies that demonstrate a correlation between CSR and business success, many other studies show a neutral or negative relationship between the two.  Moreover, correlation does not entail causation.  A positive statistical relationship between social responsibility and business success does not demonstrate that ethical corporate behavior is causing a better bottom line.  Rather, the relationship may be reversed.  Businesses that are successful may have more money to spend on socially responsible practices, or a third factor, such as good management practices, may lead to both a better bottom line and improved CSR practices.  

In order for corporate virtue to benefit companies, it must attract consumers, workers or investors.  Although surveys frequently indicate that large percentages of consumers say that they prefer products that are better for workers or the environment, market research that tracks purchasing behavior indicates that far fewer people actually do what they say in this regard.  Studies in Europe and the U.S. indicate that the number of consumers who have changed their behavior by buying more socially or environmentally responsible products falls between 3 and 12 percent of the general population, with the notable exception of northern Europe, where significantly larger numbers are attracted by the Nordic Swan label, which identifies environmentally responsible household products. 

“One study concludes, consumers will only buy a greener product [if] it doesn’t cost more, comes from a brand they know and trust, can be purchased at stores where they already shop, doesn’t require a significant change in habits to use, and has at least the same level of quality, performance, and endurance as the less-green alternative” (49).  In other words, the vast majority of consumers only buy green products under the condition of “other things being equal,” and they rarely are because ethical production usually does add cost to the product.

With respect to the labor market, although many business school graduates indicate on surveys that they would prefer to work for a socially responsible company, we do not have follow-up studies tracking whether CSR actually affects decisions about where to work.   As with consumers, there may be a large gap between what potential employees say and do.  There is no evidence to confirm that businesses without strong CSR reputations have a more difficult time hiring employees, have to pay more to attract them, have lower morale among their employees, or hire less competent employees.  It may simply be that Patagonia attracts one type of worker, and Exxon-Mobile another.

There is also reason to believe that optimistic claims regarding the performance of socially responsible investment (SRI) funds have been exaggerated.  First, the criteria by which companies are chosen vary widely and are often dependent upon information provided by the firms themselves.  With a single exception, there have been no legal penalties imposed on corporations for reporting misleading CSR information.  Many SRI criteria for selection are not made available to the public.  According to a survey completed by Paul Hawken, more than 90% of Fortune 500 companies, including Wal-Mart, Halliburton, and Exxon-Mobile, appear on at least one SRI fund.  Hawken maintains that the breadth of some SRI fund criteria virtually assures that any company can be considered socially responsible.

CSR as a Business Strategy

Vogel argues that CSR is best viewed as a business strategy that will benefit the bottom line in some circumstances, but not others.  There is little evidence to support the notion that unless all businesses pursue socially responsible goals, they will be less successful.

Companies that depend upon widely known brands, such as Nike or Home Depot, are particularly vulnerable to high profile campaigns by activists or NGO’s drawing attention to unethical company behavior.  Other companies, such as Patagonia or Seventh Generation, as well as ethical labels such as Fair Trade or GoodWeave, may succeed by targeting a specific, niche market.  But if it costs more to produce a garment from organic cotton, or to use renewable energy sources, or to pay workers more, these costs must be passed on to the consumer.  So far, because social responsibility does come at a cost, this market is small and will remain so until consumers demonstrate a greater willingness for pay more for socially responsible products.  They have shown little desire to “internalize” costs to society or environment by paying higher prices.  

Many companies can benefit from CSR by attending to “low-hanging fruit,” meaning relatively inexpensive, or even cost-saving, measures that benefit society.  For example, they can reduce greenhouse gas emissions while cutting costs through greater energy efficiency.  Businesses may pressure contractors to abandon child labor if there is plenty of adult labor available and increased productivity from adult labor compensates for the lower cost of child labor.  The benefit to one’s corporate reputation in such cases is purchased at little or no expense to the company.  

Nevertheless – and this is Vogel’s main point – this leaves many circumstances in which companies will not find a compelling business argument for social responsibility.  Raising wages among workers in developing countries and restricting workers hours will continue to be difficult as long as consumers, and therefore companies, shop price first.  Suppliers and subcontractors in developing nations will understand that although it is wise to maintain the appearance of social responsibility, contracts go to factories that produce high quality, low cost products and fulfill orders by ever-shorter deadlines in order to keep up with fashion trends.  As long as China makes it illegal for workers to join labor unions, the right to freedom of association will not be protected by Western firms.

Vogel sums up the limitations of CSR in the following remarks.

“The shortcomings of civil regulation remain substantial:

• Many workers in factories that produce goods for Western manufacturers and retailers are not paid the wages owed to them, work for long hours in poor conditions, and lack freedom of association . . . .
• Living standards have improved for only a small number of workers who produce agricultural commodities for export . . . .
• The rate of tropical deforestation remains significant, and many forests in both developed and developing countries are still managed unsustainably . . . .
• Greenhouse gas emissions from American and European firms continue to increase . . . .
• Many corporate royalty payments continue to benefit primarily corrupt elites . . . .
• Many extractive industry investments continue to be associated with environmental and human rights abuses . . . .” (164)

Government and Politics

Vogel’s persuasive argument that the scope of CSR is limited leads to the conclusion that political solutions are necessary in order to fulfill the promise of widespread ethical business practice.  Some businesses have stepped up their CSR in anticipation of future government regulation, such as a price on carbon, in order to gain a competitive advantage when such regulations are in place.  Businesses that have taken strong voluntary CSR measures would benefit by working with, and pressuring, governments in developing countries to create stronger environmental and human rights standards.  Western governments can help in this regard by incorporating such provisions in trade agreements and giving preferential treatment to countries that strengthen these standards.  If NGO’s and activists recognize the limitations of voluntary CSR, then they should hold corporations accountable not only for their business practices, but also their political support, or lack thereof, for strong environmental and human rights laws.  The definition of corporate responsibility should be expanded beyond voluntary codes of conduct and include a commitment to allow governments to require that all firms act responsibly.