The Corporate Wax Nose

The European Commission has shelved the results of its largest-ever research project on corporate social responsibility. What happened?

A fountain of noble intentions and good deeds, Corporate Social Responsibility (CSR) has long been advertised as a sure-fire way to improve and extend the benefits of capitalism for society. But does it actually deliver on that goal? Judging by the results of recent research the answer is no, even if many followers of CSR seem unprepared to grapple with those findings.

Claims about the virtues of CSR have been heard for decades, but by the middle of the 2000s—and wishing to get beyond the earnest outputs of corporate communications departments—many people had begun to ask what it actually delivered. So in 2007, the European Parliament passed a resolution that expressed a certain impatience with CSR as something that sounded good but seemed to lack substance.

It insisted that the “debate on CSR has approached the point where emphasis should be shifted from ‘processes’ to ‘outcomes,’ leading to a measurable and transparent contribution from business in combating social exclusion and environmental degradation in Europe and around the world.”

The European Commission subsequently invited research proposals to investigate these outcomes, leading in 2010 to the launch of what was called the IMPACT Project (“Impact Measurement and Performance Analysis of CSR”). The project was placed in the hands of a European consortium of 17 knowledge-based institutes—most of them in business schools, which are hardly hotbeds of anti-corporate sentiment.   

Costing more than three million Euros, the IMPACT Project cast its research net widely, surveying more than 5,000 firms of different sizes. Its methodology included econometric analyses, case studies, and a Delphi survey of over 500 experts in CSR and specific sectors of business. Nothing on the scale and sophistication of this investigation had ever been carried out before.

The key research question was this: “What benefits and impacts does CSR actually bring beyond company borders to the economy and society at large?” After three years of work on this question, the research consortium published an Executive Summary that contained the following headline conclusion:

“There is little empirical evidence which explains the concrete impacts of CSR activities and programmes on the organizational performance of companies, the wider economy, or the social and environmental fabric of Europe, its nations and regions. By implication, the aggregate CSR activities of European companies in the past decade have not made a significant contribution to the achievement of the broader policy goals of the European Union.”

In other words, there was no credible evidence that CSR had made a positive difference to economies or societies in the region. Moreover, the researchers discounted the likelihood that more systematic evidence-gathering would allow for greater optimism about CSR’s benefits: “[W]here outcomes and impacts are measured,” they concluded, “there is no convincing evidence that there are significant improvements over time large enough to create change and reach major policy goals.”    

These results poured cold water on the notion that CSR is an adequate way of realizing public goals. Business informants evidently have few illusions about this conclusion, for as stated in the Executive Summary of the study: “Although companies perceive CSR as important for doing business, it is not perceived as being a relevant public policy area that effectively tackles specific issues.” A critical factor is that CSR remains a matter of largely voluntary compliance; it cannot effectively substitute for public law and regulations and the means to enforce them.

The researchers hoped that their findings would “signal a watershed moment in our approach to CSR”—a reasonable expectation given that their results posed an existential challenge to the field and blew a large hole below its waterline. The project’s original Executive Summary suggested that CSR as practiced could be consigned to the “history bin.” But this was not to be.  In the intervening years CSR has not been put out with the trash. On the contrary, it was the unwelcome findings of the study that got binned. 

The launch of the IMPACT Project’s findings in 2013 was barely noted in the public media, and the research was almost completely ignored by the many websites that are devoted to CSR. A couple of German think-tanks drew attention to one of the study’s key messages—that to achieve public goals, CSR’s non-mandatory approach is inadequate. Otherwise, disinterest prevailed.  There was virtually no discussion or policy uptake of the study’s findings.

Three years later, on a Danish website focused on CSR, one of the study’s key leaders is quoted as saying this: “[the research] did not change anything on national policy level. And on EU level, the study was never really recognized or discussed. 

Today, the IMPACT Project’s website has been largely dismantled, stripped of its Executive Summary and all of the supporting research. The European Commission has posted a replacement Final Report Summary which is a watered-down version of the original. Gone is the suggestion that CSR should be binned. Nevertheless, buried deep inside this revised summary is the following conclusion: “Current CSR activities mostly only lead to small changes of corporate performance and impacts. Such are not enough to reach policy goals and create change.”

The Commission’s massive probe of CSR is not, of course, the end of the story. The supposedly-beneficial effects of good corporate citizenship continue to get lots of publicity, but until recently a crucial question about CSR has been left largely unaddressed, namely: do companies who claim to be good corporate citizens pay their taxes as they should? Given the unrelenting influence of corporate lobbying over tax laws, corporate cheerleading for race-to-the-bottom tax competition, and the systematic avoidance and evasion of taxes, this issue has been termed the “next frontier” for CSR. 

At the point where tax behaviour and CSR intersect, a new study has begun to tackle the following question: “Do Socially Responsible Firms Pay More Taxes?” Using a sample of over 5,500 US firms from the period 2006-2011, a University of Oregon research team has found a consistently negative relationship between CSR activity levels (largely self-reported) and the payment of corporate taxes.

Hence, for corporations and other stakeholders (namely governments trying to attract investment) “the payment of taxes is not viewed as an important socially responsible activity.”   Reinforcing this finding is the discovery of a strong positive correlation between the CSR activity levels of corporations and their support of lobbying to lower their taxes. In short, CSR seems to be a shrewd way for firms to avoid paying their fair share, a distraction that can offset the threat of a negative public image. When claims start being made about good corporate citizenship, warning lights should start flashing. As the writer Ralph Waldo Emerson once said, “the louder he talked of his honor, the faster we counted our spoons.”

In conclusion, there’s a lot of evidence that Corporate Social Responsibility is what the Dutch call a ‘wax nose’—a phony contrivance that’s used to beguile us or delude us completely. More than a flashy ornament, it serves as camouflage.  As aspiring  icons of CSR continue to fall from grace—HSBC, Wells Fargo, Volkswagen, Mitsubishi, Unilever and so many others—a rising tide of earnest CSR reports helps to cover the smell of corporate malfeasance.

Serious research efforts like that of the IMPACT Project may expose CSR’s essential vacuity, but because their findings are ignored it marches forward unperturbed. The dogs may bark but the caravan continues. The show must go on. Wax noses to the front.

David Sogge works as an independent researcher and writer based in Amsterdam, where he is affiliated with the Transnational Institute. He writes for OpenDemocracy and many other publications. This post first appeared on OpenDemocracy.

Credit: www.picserver.com.  CC BY-SA 3.0 NY.

For more on CSR see - Paying a ‘Fair Share’: Multinational Corporations’ Perspectives on Taxation