Corporates buy into social issues at their peril - The Centre for Independent Studies

Companies used to avoid sensitive social issues. Any strong stance on hot-button public-policy matters, they feared, could alienate customers and staff. Those days are over. From climate change to reconciliation, chief executives are speaking out in growing numbers on subjects that go beyond issues directly affecting their businesses.

Major law, accounting and investment firms have come out in support of the Uluru Statement. BHP chief Andrew Mackenzie says the Big Australian will push customers to slash their emissions.

Union-backed superannuation funds want to use their investment muscle to force companies to adopt “socially responsible” climate and industrial relations policies that align with agenda of the unions, Labor and even the Greens. Meanwhile, a group of leading company directors is encouraging business to take the lead on Australia becoming a republic.

Nor is this an Australian phenomenon. In the US, the Business Roundtable recently redefined its mission to serve “stakeholders” in addition to the shareholders who own the company.

Business should be seen as a force for good, not merely a generator of fat salaries for fat cats. But should corporates wade into “progressive” social issues that have faint if any connection to true shareholders’ interests and the true business of business?

In an important study, my Centre for Independent Studies colleague Jeremy Sammut points out downsides to what is called corporate social responsibility, or CSR. It risks hurting corporate brands and reputations by embroiling companies in divisive and politically charged issues on which there is no community consensus.

Companies, like sporting codes, should be part of a truly civil society. They should operate as places where all citizens can overcome our political differences and instead come together for genuinely public and inclusive purposes – be it playing games or producing wealth-generating goods and services.

By championing CSR, Sammut says, there is a danger that corporates could alienate their politicised brands from those millions of ordinary people – their customer base – who don’t share so-called progressive views.

Take our federal election. On the eve of May 18, when it looked like the Labor Party would win power, corporate and media elites were ready with a slew of proclamations: costly climate mitigation policies and an Indigenous Voice to Parliament were the wave of the future. The coal-cuddling Scott Morrison was the wrong man for his times.

No doubt corporate Australia wanted to show “leadership” by showing what splendid corporate citizens they were. The problem was that in the privacy of the voting booth “quiet Australians”, as the Prime Minister calls them, thought differently, rejecting identity politics and progressive ideology. As a result, they exposed the cultural divide between ordinary Australians in the outer suburbs and regions and the metropolitan elite who dominate media, politics and business. May 18 burst the insider bubble.

Milton Friedman blasted the very idea of CSR half a century ago. Writing in The New York Times magazine in 1970, the Nobel laureate economist warned: “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception of fraud.”

In a seminal article, “The Social Responsibility of Business is to Increase its Profits”, Friedman said companies should not spend profits on unrelated social causes. That money should go to shareholders – the owners of the companies. Pronouncements about CSR, he added, were the indulgence of “pontificating executives” who were “incredibly shortsighted and muddleheaded in matters that are outside their business”.

The upshot is that society is best served when chief executives make economic investments commensurate with risk and operate safely and responsibly in the public interest. The benefit to the public is an outcome – not a driver – of those business decisions.

When companies lose their focus, they will see the quality of their products diminish: markets have a way of dealing with underperformance. Witness the public backlash against ANZ and GoFundMe over the Israel Folau controversy. Or General Electric’s downward spiral since its chief executive championed climate activism on a Vanity Fair cover. Besides, in our democracy, it’s Parliament on behalf of the voters that make laws.

Captains of industry should promote the broad benefits that flow throughout the community if their businesses succeed. But they should also explain to the public how markets, entrepreneurship and productivity-enhancing reforms will help make our lives more prosperous and secure. Isn’t that a socially responsible cause?

Tom Switzer is executive director of the Centre for Independent Studies and presenter of Between the Lines on ABC’s Radio National.