Socially responsible companies, lower profits, ethics

Science Daily/Florida Atlantic University, 6/6/17. "Is 'doing good' bad for a company's bottom line? Yes, says study."

Profit and lifeline

....  "We found that emphasizing Corporate Social Responsibility is not good for shareholders," said David Javakhadze, Ph.D., assistant professor of finance, who investigated the relationship between CSR and efficiency with which firms allocate their capital resources. "If you're an investor you should think twice before you invest in those firms that emphasize CSR."
For the purpose of the study, CSR is defined as strategies that appear to foster some social good, including programs that benefit community engagement, diversity, the environment, human rights and employee relations. The study, published in the Journal of Corporate Finance, found that focusing on CSR strategies imposes costs on firms in the form of foregone investment opportunities that in the long run leads to losses for their shareholders.

"It's not only about money; it's about time," said Javakhadze, who co-authored the paper with doctoral student Avishek Bhandari. "If I'm a CEO I should be focusing on finding growth opportunities. If instead I spend my time and my energy to find CSR initiatives it diverts my time and my energy to something else, not focusing on building shareholder wealth."

While companies around the world have adopted CSR strategies, a trend that has gained traction in recent years, it hasn't always been popular. As the economist Milton Friedman said of CSR back in 1970, "a corporation's responsibility is to make as much money for the stockholders as possible."
"Most firms don't have unlimited resources," Javakhadze said. "If you invest in socially responsible activities then you won't have enough resources to invest in more profitable projects, which is not good. It might be good for society. It might be good for managers. But it is not good for shareholders."  Read more.

Related article. Ragan.com/news and ideas for communicators/Kevin J. Allen, 6/6/17, "CSR poll: Consumers prefer brands that support their ideals." "  Corporate social responsibility has become a necessity for organizations of all sizes. CSR is no longer just a matter of collecting canned goods at Christmas or of employees’ volunteering at a soup kitchen or passing around a donations envelope following a natural disaster. Not only do consumers expect the companies they patronize to have a social conscience, they’re expecting businesses to be at the vanguard in solving pressing societal problems. For example, a just-released study from Cone Communications found that 63 percent of Americans hope that businesses—not individuals or government—will take the lead in driving social and environmental change. That number is higher (at 71 percent) among millennials, who think businesses ought to drive change. Check out Cone Communications’ full 2017 CSR study here. 

Note photograph/graphics. Lifeline and profit (fish) illustration by Christoph Niemann from The New Yorker/James Surowiecki, 8/4/14, Companies with Benefits."  Light bulb from 123RF on the related Ragan.com article. Mission/Problem/Family graphic image from Boundless.com/Ethics training/marketing.

Posted by Kathy Meeh