In a recent comment to a post, a reader argues that CSR should not be opposed because every dollar spent on CSR eventually comes back to the company. Here are two issues to consider on that comment.
First, if a company invests a dollar to make a dollar at some point in the future, what's the net present value of that investment? It's negative, and the company is destroying economic value. To create value, the dollar investment needs to deliver a return that exceeds the company's cost of capital.
Second, let's assume for the moment that some CSR activities do actually create value. These cases are NOT what the debate is about. Both sides of the debate would favor these types of activity. The debate is really about CSR that decreases shareholder wealth. Shareholder value proponents do NOT oppose all types of CSR - they only oppose CSR that decreases shareholder wealth.
Interesting point about CSR and decreasing shareholder wealth. If you can - is there a particular example or model you would endorse for CSR increasing shareholder wealth?
ReplyDeleteNot sure that there is an example or model that I would "endorse." But, I think there are a fair number of arguments along these lines (especially those that might argue that CSR increases firm reputation, which then allows firms to charge higher prices).
ReplyDeleteThis viewpoint is typically labeled Instrumental Stakeholder Theory. For one example of the instrumental approach, see Porter, M., & Kramer, M. (2002). The Competitive Advantage of Corporate Philanthropy. Harvard Business Review(December), 57-68.
Here's a description of the article:
When it comes to philanthropy, executives increasingly see themselves as caught between critics demanding ever higher levels of "corporate social responsibility" and investors applying pressure to maximize short-term profits. Increasingly, philanthropy is used as a form of public relations or advertising, promoting a company's image through high-profile sponsorships. But there is a more truly strategic way to think about philanthropy. Corporations can use their charitable efforts to improve their competitive context--the quality of the business environment in the locations where they operate. Using philanthropy to enhance competitive context aligns social and economic goals and improves a company's long-term business prospects. Addressing context enables a company not only to give money but also leverage its capabilities and relationships in support of charitable causes. Taking this new direction requires fundamental changes in the way companies approach their contribution programs. Adopting a context-focused approach requires a far more disciplined approach than is prevalent today. But it can make a company's philanthropic activities far more effective.
et's assume for the moment that some CSR activities do actually create value. These cases are NOT what the debate is about.
ReplyDelete