Free Spirit Magazine, March 2012 – What is understood by Corporate Social Responsibility (CSR)? Companies showing CSR aim to take the impact of its actions on ‘stakeholders’, the environment and the society at large into account. The stakeholders can include consumers, employees, communities and all the other members of the public.

There are different schools of thought on CSR. Broadly, they fall into two categories. Some take the view that is what is inherently lacking in a system of free-market capitalism. The position being that private companies exist to produce profits for their shareholders, and this can only happen at the expense of the society at large. These companies should show some corporate social responsibility or else… For them, it is a policy that should be adopted at the expense of profit maximisation for the shareholders, until they get around to getting the government involved to regulate private businesses into behaving well and do what they think needs fixing in the society.

For others though, it is suggested as a strategy to help make a business successful, in other words, to increase profits for its shareholders. In this view, the interests of the society and the private business are fundamentally aligned and it is just prudent to take into account how your actions affect the people you deal with and the society you operate in.

I would argue that the first group does not really believe in corporate social responsibility. They call on businesses to adopt policies that are beneficial to the various stakeholders despite the consequences to their businesses. Since the free market forces businesses to make a profit because those are the ones that survive, this will be to detriment to those companies who engage in adopting CSR policies. They do not really believe in it because to them it is the domain of the government; the government should regulate in order to force companies to be socially responsible. However, that is a contradiction because what one is forced to do does not have any moral significance, and morality pre-supposes choice. Aside from that, force is seldom the best way to induce desirable results, let alone self-motivated behaviour.

    “As an ardent believer in free-market capitalism, I believe
    that the interests of an individual, when properly understood,
    are fundamentally aligned to the interests of others, that is,
    the welfare of the society at large.”

The underlying assumption of the second group, however, is that making a profit and the adoption of the CSR policies are not at odds with each other; it is not a case of either one or the other. In this view, taking the interests then surely you would have sufficient wits to use your talents more productively if you did not have to cover your tracks and worry about
being found out all the time. It impacts the people you deal with too. Who does the cheater surround him with – people who are not smart enough to find out who he really is, or people smarter than himself from whom he can learn? Is he more likely to be an open person, whose intentions others can easily read and rely on, or of the various stakeholders into the account
serves the ultimate goal of making a profit.

Just as ‘pursue happiness’ is not really useful advice for someone who asks for a strategy to achieve happiness, so is ‘maximise profits’ not really useful advice for a company that needs a strategy to make a profit. The answer refers to the question. To answer, these questions should address the ‘how’. Now, there are many theories on how to generate profits. CSR does not really fall into the category of the ‘how to’ strategies. But, is it a useful ingredient to include in a profit maximisation strategy? Yes, it usually is.

As an ardent believer in free-market capitalism, I believe that the interests of an individual, when properly understood, are fundamentally aligned to the interests of others, that is, the welfare of the society at large. For instance, that society is not benefited by people being able to get away with stealing is a viewpoint almost everyone will agree with. However, many think it is in the interest of an individual to steal or deceive if he can get away with it. I do not agree, except in the rare lifeboat type scenarios. If you are one of the few people who is smart enough to get away with stealing without getting caught, of the slippery type of person, whose actions are unpredictable and words are empty? And who is the one more likely to attract honest people to deal with himself?

Companies are nothing more than means by which individuals, as shareholders, use their assets to achieve objectives. A company that wants to attract customers and keep them has to be fair to them; refund their money if the promised service or product is not delivered. A company that wants to keep its staff has to be reasonable to them and has to provide a stimulating working environment. And, a company that wants to build a brand reputation, probably does not enhance it if it dumps its waste untreated in the river. Incorporating so-called ethical aspects in a company’s policies will also surely help increase enthusiasm, pride in their work, and a belief to be contributing to something useful among the employees – it can give a company cohesion and direction. Which social goals are to be prioritised over others is of course a matter of individual opinion, which is exactly why it is preferable to leave this decision to the individual or corporate level, rather than take the one-size-fits-all approach inherent in the government setting the priorities.

The company I lead is active in the corporate services industry. We set up and administer international corporate structures, which often have tax mitigation as an important aim. In recent years, the industry has seen a torrent of verbal abuse, essentially because it makes it more difficult to levy punitive taxes and for governments budgets to grow. Our side of the coin is that by helping people to use the legal mechanisms that exist to minimise tax on income, employment and investment, money flows to where it is best invested, i.e. in low-tax countries with light regulation, and more money stays in the hands of private individuals. For us, that is a lofty social goal to be prioritised.

With more money in the hands of private individuals, it will be more efficiently allocated to generate prosperity, which, since time immemorial, has been the driving force behind improvement in the level of general welfare in the society. The current increased focus, at least the one of the second type, on corporate social responsibility is to be applauded because it helps to focus on the role private enterprises can play in the society, and in a broader sense, on how prosperity and welfare can be increased through the voluntary efforts of individuals and the enterprises they invest in.

Adriaan Strujik is the Managing Director of Freemont Group. Previously engaged with one of the Big Four professional services firms, he holds a master’s degree in business, and is a qualified Trust and Estate Practitioner (TEP). This article first appeared in RAK Free Trade Zone Free Spirit Magazine of March 2012