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Is Corporate Social Responsibility a Necessity or a Luxury?
By Steve Schueth

In the May 20, 2009 issue of BusinessWeek, Jack Welch, former Chairman and CEO of General Electric (1981-2001) and his wife Suzy field the following inquiry: 

What do you think about companies being "socially responsible" during these difficult competitive times? Is it a necessity or a luxury? 

This power couple says that corporate social responsibility (CSR) is about 1) philanthropy, 2) public service, and 3) factoring environmental concerns into the manufacturing process. They make the point that a company's primary responsibility is to be profitable, because companies have to make money in order to give it away. In essence, they reply that CSR is a luxury. 

With all due respect to a widely admired, successful, and wealthy (estimated net worth over $700 million) former leader of corporate America, it's obvious to me that Mr. Welch doesn't understand some of the fundamental tenants of social responsibility. 

He ignores the idea that we are all in this together; that we all breathe the same air and drink the same water; that our lives depend on the most sophisticated solar powered recycling system ever created–planet earth. He clings to the short-term thinking that is endemic to and underpins many of the financial problems with which we are currently struggling in the U.S. and around the world. 

His response reminds me of a discussion in a finance class I took in college some 35 years ago. We were talking about where to build a new manufacturing plant. The top two criteria for locating the plant were 1) proximity to a railroad; presumably so the company should ship in raw materials and ship out finished products, and 2) proximity to a river. 

A few years later, the Cuyahoga River in Cleveland caught on fire… and things began to change. 

While not quite so egregious today, the externalization of costs is still a primary strategy for corporate profitability. So, who is harmed and who pays for the environmental degradation, for the healthcare costs, for the loss of natural beauty, and for the fact that fathers can no longer take their sons fishing and actually eat the fish? You guessed it.

Jack Welch once said, "An organization's ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage." Let's hope that the current management team at GE, with their ecomagination strategy, really is a learning organization. 

The good people at GE should be learning that today corporate social responsibility is not just a synonym for feel-good philanthropy. It's about reducing environmental impact, creating a fair and equitable workplace, producing safe and healthy products, and protecting the brand. And, according to Julie Gorte, Senior Vice President of Pax World Mutual Funds, it "includes an awareness that years of reputation-building can be undone be one big mistake."

Mention of a specific company or security in any First Affirmative publication or blog is not a recommendation to buy or sell that security. 

Steve Schueth

Posted: May 27, 2009