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Wednesday, September 12, 2012

The Olympic Spirit and Corporate Social Responsibility

The Olympic badminton event stirred up controversy after eight players were disqualified for throwing matches. It sparked a debate on what sportsmanship and the Olympic spirit are really about.
When I read the news, I noticed a striking analogy between the disqualification incident and corporate social responsibility. I’ll explore the issue in this article.

Disqualification of Badminton Players

To put in subpar efforts and lose a match deliberately can be interpreted as part of a strategy to win the competition. In fact, this practice isnt exclusive to badminton players.

In soccer, teams may throw the final group match in order to avoid tough opponents too early in the knockout round. Besides, teams that have already qualified for the next round often field a team of substitutes, in order to rest the best players and groom the young ones.

Though its a reasonable strategy for the badminton players, spectators were understandably upset about the low quality of the match. They booed the athletes off the court. An investigation followed, which ultimately led to the disqualification.

It’s a huge disappointment for the athletes, who spent years training to compete in the Olympics. In my view, the Organizing Committee is the real party at the fault. They shouldnt choose a competition format that gives players the incentive to lose.

Playing by the Rules

The badminton players played by the rules when they threw matches, and similarly most corporations abide by the law when they try to maximize profits. Free market enthusiasts believe that legal requirements are the only moral obligation companies have to fulfill.

Milton Friedman famously wrote that “the sole purpose of business is to increase its profits.” The idea is that corporations already help with social causes when they pay taxes, and they help the community by creating job opportunities and developing the workforce. At the same time, a firm ought to maximize profits and shareholder value in order to be responsible to its owners. Its only obligation to society is to obey the law.

Besides, any transaction that takes place must leave both the buyer and seller better off. Otherwise at least one party won’t agree to the trade. The argument goes that, unless externality exists, firms fulfill social responsibility simply by running the business, because every transaction they make increases social welfare.

Corporate Social Responsibility

However, many people seem to think that it isnt enough for multinational corporations to merely follow the regulations. Theyre often blamed for the huge profits they earn, even though profits can be thought of as a testimony to the quality products/services they offer and the positive impact theyve made. Sometimes, theyre even blamed for widening income inequality and creating different kinds of social problems.

Increasingly, our society expects businesses to act justly and fairly and help solve social problems. While we can debate all we want whether firms/athletes have the moral obligation to do more than what the laws/rules require, capitalism means they have to be responsive to what the public wants.

Income, popularity and influence all depend on public support. If the public thinks youre not doing the right thing, it can hurt you even when you can defend your actions on moral grounds. Thats why weve seen more and more firms engaging in various socially responsible activities, from energy saving and pollution reduction to volunteer work and charity donations.

Hypocrisy or What?

So, are corporations hypocritical to improve brand image by performing social deeds? Maybe, but I don’t see what is bad about it. If the public can pressure firms to strive for the greater good, that’s in everyone’s interest. What is dangerous is when the public only considers product features but doesnt care about what firms do behind the scenes.

Consumers need to understand that what they buy and where they buy from have the power to influence what firms do. If we want the private sector to contribute more to social welfare, this message of ethical consumption needs to be promoted. 

Questions: What do you think about corporate social responsibility? 
(Entry 3 of 3 in the Lessons from the 2012 Olympics series) 

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