Is corporate social responsibility fiscally responsible?

In the wake of corporate scandals and community hostility to big businesses, some companies are becoming more socially responsible, through community volunteer projects and generous giving to social causes. But observers debate whether corporate good deeds pay off, according to BusinessWeek.

Last year, American corporate giving hit at all-time high of $3.6 billion. Additionally:

Home Depot's 325,000 employees have donated 2 million hours to community service projects.

IBM brings technology to schools and community centres through its 40,000-employee volunteer programme, On Demand Community.

General Electric announced in May that it would invest billions of dollars in environmentally friendly technologies.

As Gen Years (those born between 1977 and 1994) enter the work force, many are demanding more than a pay cheque, and companies are finding that a socially responsible image helps them attract young workers of all skill levels.

However, some argue that Wall Street does not value corporate good deeds. Home Depot's stock, for example, has been hovering around $43 a share, down 35 per cent from its all-time high. Furthermore, when corporate money is spent on social projects, it comes at the expense of research and development.

Economist Milton Friedman argues that the role of business is to generate profits for shareholders. As Adam Smith said in 1776, "I have never known much good done by those who profess to trade for the public good."

Source: Brian Grow, Steve Hamm and Louis Lee, The Debate Over Doing Good, BusinessWeek, August 15, 2005.

For text (subscription required): http://www.businessweek.com/magazine/content/05_33/b3947109_mz017.htm

For more on Economic Issues: Corporations: http://www.ncpa.org/iss/eco/

FMF Policy Bulletin/ 23 August 2005