Business
Corporate Responsibility and Profits
I have been doing some research recently on Socially Responsible Investing (SRI). These days, in the banking world, SRI is en vogue. Banks are constantly introducing special investment funds with positive or negative screening criteria. Other forms of SRI are also gaining popularity – as an advocacy mechanism as well as social venture capital.
SRI is related to another illusory idea – Corporate Social Responsibility. The Stanford Social Innovation Review debunked that idea effectively (The Myth Of CSR). But lately, The McKinsey Quarterly has been trying to develop a middle path:
The argument is that business is affected by social issues. Changes in the social, economic, or political context can affect businesses. So businesses would benefit by paying attention to changes in society’s needs and debates
I am not convinced. Inspite of the rhetoric, only a few examples exist beyond the well-known ones:
- Nike’s problems with child labor (1996)
- Shell-Brent Spar (1995)
- Exxon’s Valdez oil spill (1989)
And do even these prove a long-term impact on MNCs? In the period from 1995 to 2005, Nike’s share price went from approximately $55 to $85. That is a 54% return, and several times higher than what the S&P returned.
It is easy to argue that without that child labor controversy, Nike’s market cap might be even higher. But then, perhaps it might have been lower, if the management had worried about changing social trends and not about making money the next quarter. That is like predicting the future, based on nothing more than sweeping beliefs (and wrong ones) about how the world works. The problem today is that the power of an idea, and how forcefully it is put forth, can seem to make it true. The many voices clamoring for CSR, SRI, and anything in between may make us believe, for a moment, that we can save the world and be good. Not likely. Anyway, to be ethical is not the role of business. It is the role of individuals.
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[...] There are other practical considerations to look at as well. For corporates, there is the short-term contradiction between addressing social concerns and maximizing profits. For the philanthropy foundation, however, there is another issue. [...]