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Doing Well by Doing Good: The Grand Illusion

California Management Review, Forthcoming

Ross School of Business Paper No. 1141

35 Pages Posted: 21 Apr 2010 Last revised: 31 Aug 2010

Aneel G. Karnani

University of Michigan, Stephen M. Ross School of Business

Date Written: August 1, 2010

Abstract

The idea that companies can 'do well by doing good' has caught the attention of executives, business academics, and public officials. Firms have a corporate social responsibility to achieve some larger social goals, and can do so without a financial sacrifice. This appealing proposition has convinced many people. It is also a fundamentally wrong proposition. If markets are working well, there is no need to appeal to companies to fulfill some vague social responsibility. If there is a market failure, then there is a tradeoff between private profits and public interest; in that case, it is neither desirable nor effective to rely on the goodwill of managers to maximize social welfare. Companies have a responsibility to their shareholders to do well; individual people as citizens have a responsibility to do good. When markets fail, some constraints need to be imposed on free markets. There are four sources of constraints: corporate social responsibility, industry self-regulation, civil society activism, and government regulation.

Keywords: Corporate social responsibility, business and society

JEL Classification: M14, D62

Suggested Citation

Karnani, Aneel G., Doing Well by Doing Good: The Grand Illusion (August 1, 2010). California Management Review, Forthcoming; Ross School of Business Paper No. 1141. Available at SSRN: https://ssrn.com/abstract=1593009

Aneel Karnani (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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