It is hard to imagine a large company, or even an SME, without a policy on corporate social responsibility (CSR): no longer is it a movement, now it is standard practice. We are told it benefits society, but at its root is image control. Companies choose to engage with charities that advance their own profile, thus incentivising uptake of topical causes. This allows firms to pick high profile issues whilst leaving the state to address the more difficult social crises. This otherwise reasonable situation becomes intricate when you put it in a broader context of tax policy, as it is Ireland’s approach to corporation tax that is the precise reason why a market for CSR exists here.
This cause covers both supply and demand. As the state takes so little out of the economy through taxation, this leaves a funding shortage for social services and hence demand for services remains. Meanwhile, the low tax wedge on company profits leaves these firms with more resources to invest in CSR. Our tax structure sets up a system ripe for CSR, in which corporate philanthropy becomes the indirect privatisation of service-support. This allows companies to pursue CSR activities in the interest of commercial gain. If the activity grows the company’s profile, profit, and market share, our tax system is effectively facilitating companies that can accommodate CSR to push those that can’t out of the market.
There are two problems with this. First, public services should not be funded in the extra-governmental sphere through an unreliable source of revenue. It is inappropriate that our tax system aids this. Second, CSR goes unmonitored. If we want this activity to develop, as our policy choices seem to suggest, then we have a number of options: a CSR levy can be imposed, CSR can become mandatory, or CSR can remain voluntary but reporting can become mandatory.
A compulsory CSR levy is not without precedence: India introduced a 2% levy on large corporations in 2014. For some companies, this levy would become a way of buying the right to be socially irresponsible. In the Irish case, a levy could be seen as an indirect means of raising corporation tax. Under a mandatory CSR system, there would be certainty that all companies are pursuing some socially responsible activities. This system, critics say, harms those companies that already engaged in CSR, as they lose their competitive advantage, and harms those companies not doing CSR, as it imposes a corporate structure on them. In each of these cases, there is a misnomer that CSR is just about funding charities. Instead, CSR is a way of doing business: it is about product development, sales, and employee-engagement. The latter two policy approaches fail to embrace this. Under a system in which CSR remains voluntary but in which reporting is mandatory and monitored by a state institution, effective and ineffective CSR can be distinguished and companies can be engaged with. This system does not harm competitive advantage, as that will remain with those firms engaging in efficient and effective CSR, and neither does it pierce the corporate veil. Such a system would require self-reporting in annual reports and would aid investors, suppliers, consumers, and the state. It would not solve the corporation tax and CSR conundrum, but it would make the current system more transparent.
As our policy approach seems to be to swap a low corporate tax rate for privatised service-support in the form of CSR, it is necessary to talk about how CSR looks and works. That conversation should be about symbiosis and about how we can structure a system that aids cooperation between companies and communities in an effective community-led manner. This is the role of state institutions in a country with a low corporate tax model. In the absence of the option of raising corporate tax, mandatory reporting of CSR activities becomes the only way by which the state can monitor extra-governmental service funding and the image management of large firms. If it were to become a core tenet of corporate reporting, Irish firms would lead the way amongst their international competitors as ethically transparent investment opportunities.