Should Corporate leaders care about anything but the maximization of profits? Or should CEOs engage in Corporate Social Responsibility (CSR)? Last night these questions were the subject of lively forum at the Jerusalem Institute for Market Studies (JIMS). The debate at JIMS was led by Donald Siegel, Professor of Entrepreneurship at the University of California at Riverside, and David Waldman, Professor of Management at Arizona State University. Professors Siegel and Waldman kicked off the debate by presenting their latest research on CSR and their different definitions of what constitutes a socially responsible leader.

In recent years CSR has received increased attention in both academic and practitioner realms. Siegel and Waldman agree that corporate leaders play a key role in formulating and implementing CSR initiatives, but debate the appropriate drivers of socially responsible decisions and actions undertaken by these leaders. CSR, as defined by Waldman and Siegel, includes not only philanthropic corporate programs but also the willingness to advance goals of groups like employees, suppliers, the local community, non-governmental organizations or broader societal objectives.

Siegel argues that leaders are driven by profit maximizing and that CSR is one component of profit maximizing behavior. The firm's decision to engage in social responsibility is a strategic choice and simply an investment decision that can lead to increased profitability. Companies will decide to become socially responsible, if they anticipate a benefit from these actions above their costs. Siegel points out that reputation enhancement, the ability to charge a premium price for its product, and the recruitment and retainment of high quality workers are examples of the potential benefits of CSR to the firms.

Siegel argues that the best strategic leaders know how to use CSR to the benefit of their shareholders. He reminded the audience of the late Milton Friedman's famous quip on the four ways to spend money; you can spend your own money on yourself, you can spend your own money to purchase goods and services for others (e.g., give a gift), you can spend other people's money on yourself (e.g., on an expense account) and finally you can spend other people's money on other people (e.g., government spending).

In large firms, managers are also spending other's people's money (i.e., shareholders' money) and should be accountable for their actions. Siegel emphasizes that CSR decisions are beneficial to the the firm, shareholders and leads to economic growth only when CSR actions simultaneously enhance profitability. Siegel believes that CSR activities should be purely market and profit-driven - "Managers have the a moral obligation to pursue profit and engage in social responsibility only when there is a clear return to investment."

In contrast, Professor Waldman takes issue with Siegel's one-sided profit maximization only approach and argues that leaders can act more responsibly without large expenditures of corporate funds. Waldman's own empirical research shows that "visionary leaders" with strong moral values tend to be better managers and their employees are more inclined to work harder for the firm. Waldman worries about people in leadership positions who lack a strong moral compass. He claims that the lack of integrity is associated with higher costs, such as lawyer fees, loss of firm reputation, lower employee morale, increased employee turnover and difficulty in recruiting. In short, Waldman argues that strict, calculating profit maximization is too narrow a goal, and that shareholders are increasingly demanding that their firms do more, i.e., they should "do well by doing good."

It is worth noting that both Waldman and Siegel see a path towards reconciliation in their differing views of the socially responsible leader. For example, CSR actions should not be undertaken at the expense of long-term profits which could lead to the disintegration of the firm. Further, they agree that CSR functions at its best in a free-market environment where government regulation is not a threat to their investment decisions.