CSR AND FREE MARKET ECONOMY

SHAMSUL GHANI
(feedback@pgeconomist.com)
Oct 4 - 10, 20
10

The idea of CSR is essentially linked to the concept of philanthropy - an attitude to give away selflessly. Those who receive favors hardly ask questions or strive to see beyond the intrinsic value of what they are getting. The global corporate culture has undergone momentous transition during recent times. The power of big corporations and their top-earner CEOs has increased manifolds.

Gone are the days when shareholders influenced the decision making of companies. Today, the omnipotent CEO, not the board of directors, sets the course of business operations that are essentially aimed at maximising corporate profits. Alan Greenspan describes this transition in the following words:

"As financial institutions evolved over the twentieth century, shareholding became a matter of investment, not active ownership. If a shareholder did not like the way a company was managed, he sold his stock. Only rarely was the management of reasonably profitable corporations challenged. Imperceptibly, corporate governance moved from shareholder control to control by the CEO. Aside from the outspoken concern of a few academics, the change occurred quietly and largely by default. As shareholders became ever less engaged, the CEOs began to recommend slates of directors to shareholders, who were soon rubber-stamping them."

As absolute power corrupts absolutely, the corrupt breed of CEOs became engaged in siphoning off company profits to their individual bank accounts through legal means of salaries, bonuses, perks etc. The original CSR concept took the back seat. No one questioned the ruthless power of free market economy that played the major role in manifold augmentation of corporate profits. The giveaways were overly publicised hardly allowing anyone to think of the social crimes such corporations and their CEOs had openly committed while amassing corporate wealth. John Perkins, the renegade US economist and author of Hoodwinked, sums up this situation in the following words:

"It is impossible, of course, to comprehend philanthropists' true motives, which range from assuaging their own feelings of guilt, to duping the public into believing in their inherent sense of compassion, to genuinely desiring to do good. However, from a purely economic perspective, philanthropy is inefficient. A person who has accumulated billions of dollars and in doing so has caused others to lose their jobs, closed the doors of small businesses, or ravaged the environment, and then donates a small percentage of his fortune to correcting those problems or to the arts, would have served the world far better by making fewer profits while increasing employment, supporting small businesses, and insisting that his executives practice good environmental stewardship."

The new breed of CEOs has risen to stardom thanks to the vicious and exploitative economic model of free market economy by emerging as a young team of billionaires. The legendary tales of their wealth and philanthropic engagements have impressed the youth worldwide. John Perkins has endeavored to look beyond the glittering description of their wealth and deep into the giveaway stories. He describes this breed as 'modern robber barons' while giving an account of their corporate social responsibility. Stephen Allen Schwarzman hails from the territory of JP Morgan, a US company that pioneered mergers, acquisitions and consolidations to destroy small businesses and competition. After graduating from Yale University, Schwarzman went to Harvard Business School. At the age of 31, he became the managing director of Lehman Brothers. His annual income was estimated to be around $400 million besides a net worth of $7 billion. He openly enjoyed a lavish lifestyle. Lehman Brothers was forced to wind up during the recent financial crisis. Lawrence Ellison of Oracle Corporation, the world's largest business software company, is known for displaying his wealthy acquisitions that include racing boats, private vessels, rare cars, planes and real estate. He donated $100 million to a foundation that turned out to be his own. Moreover, the donation was given in settlement of an insider deal lawsuit. He committed to Harvard University a donation of $115 million but failed to honor his words.

Microsoft CEO Bill Gates is a living legend in the modern corporate world. Designated a 'centibillionaire' as early as in 1999, he not only amassed huge wealth but also generously parted with it for philanthropic reasons. His family donated $30 billion in charity by 2008. But Gates carries a stigma of being a spineless competitor who destroyed countless small businesses and startups while traveling on the road to success. Hundreds of lawsuits accusing Microsoft of blocking competition, promoting monopoly, and violating the Sherman Antitrust Act were filed in and outside the United States. European Union, deciding a case against Microsoft levied a fine of $613 million, highest in the EU judicial history. The foundation run by Gates and his wife Melinda has also been accused of investing its endowment in companies known for increasing poverty in third world countries. The stated objective of the foundation being reduction in poverty, its making of investment in pharmaceutical companies that refuse to sell medicines to the poor at reasonable prices has rightly attracted criticism. Investments are also found made in corporations that add to environmental degradation. In response to such criticism, the foundation argued that its objective was to maximize foundation profits rather than to judge corporations.

Jon Perkins writes, "Gates and Ellison have become the household names. But perhaps no one is more famous among corporate executives and MBA students than Jack Welch, the former chairman and CEO of General Electric and a person often cited as a shining star for today's enlightened businessperson." Ironically, Jack Welch was called 'Neutron Jack' with an allusion to the neutron bomb developed to kill people and keep buildings intact. During a short period of five years from 1980 to 1985 - Jack Welch reduced the employee strength from 410,000 to 299,000. To increase his bonuses and net worth, he put 111,000 workers out of job.

To sum up, corporate social responsibility is measured by the business ethics forming base of a particular economic model and the behavior and objectives of those at the helm of corporate bodies. What we come across these days are sporadic acts of philanthropy, not CSR. After all, the corporate objectives revolve around the single goal of profit maximisation. This goal is in direct conflict with the concept of CSR which demands consistent reinvestment in the society where the corporate body exists and operates.