Corporate
Social
Responsibility
CSR
•
•
•
•
•
•
•
•
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Business Ethics
Legal compliance
Philanthropy and community investment
Environmental management
Sustainability
Human and animal rights
Workers’ rights and welfare
Market relations
Corporate governance
What is Sustainability?
“Sustainable development is development
that meets the needs of the present
without compromising the ability of
future generations to meet their own
needs.
- The Brundtland Commission,
1987
Percentage of private companies
citing factor as important
government pressure
investor relations
saving the planet
tax relief
building brand
cost management
Recruitment/retention
0
20
40
60
80
Relevance Lost
The Rise and Fall of
Management Accounting
Tom Johnson & Robert Kaplan
“The record of the past eighty years certainly
suggests that giant enterprises are capable
of efficient and acceptable behavior.” - 1987
Some Questions about CSR
• Do you agree with the Brundtland Commission
definition of sustainability? Can you offer an
alternative definition that you prefer?
• Do you agree with the quote from Relevance
Lost? Why or why not?
• Is the goal of achieving sustainable business
practices compatible with the goal of
maximizing profits.
• Do you think corporate business strategies can
accommodate multiple long-run objectives? If
so, can you cite examples?
What is Sustainability?
“Sustainable development is development
that meets the needs of the present
without compromising the ability of
future generations to meet their own
needs.
- The Brundtland Commission,
1987
What is Sustainability?
“It contains within it two key concepts: the
concept of ‘needs’, in particular the essential
needs of the world’s poor, to which overriding
priority should be given; and the idea of
limitations imposed by the state of technology
and social organization on the environment’s
ability to meet present and future needs.”
- The Brundtland Commission,
1987
Some Questions about CSR
• Do you agree with the Brundtland Commission
definition of sustainability? Can you offer an
alternative definition that you prefer?
• Do you agree with the quote from Relevance
Lost? Why or why not?
• Is the goal of achieving sustainable business
practices compatible with the goal of
maximizing profits.
• Do you think corporate business strategies can
accommodate multiple long-run objectives? If
so, can you cite examples?
Relevance Lost
The Rise and Fall of
Management Accounting
Tom Johnson & Robert Kaplan
“The record of the past eighty years certainly
suggests that giant enterprises are capable
of efficient and acceptable behavior.” - 1987
Some Questions about CSR
• Do you agree with the Brundtland Commission
definition of sustainability? Can you offer an
alternative definition that you prefer?
• Do you agree with the quote from Relevance
Lost? Why or why not?
• Is the goal of achieving sustainable business
practices compatible with the goal of
maximizing profits.
• Do you think corporate business strategies can
accommodate multiple long-run objectives? If
so, can you cite examples?
Sustainable Timber Practices?
2010s
2060s
2020s
2030s
2070s
2080s
2040s
2090s
2050s
2110s
Where is the value of the company?
The first twenty years
80%
The last eighty years
20%
Some Questions about CSR
• Do you agree with the Brundtland Commission
definition of sustainability? Can you offer an
alternative definition that you prefer?
• Do you agree with the quote from Relevance
Lost? Why or why not?
• Is the goal of achieving sustainable business
practices compatible with the goal of
maximizing profits.
• Do you think corporate business strategies can
accommodate multiple long-run objectives? If
so, can you cite examples?
Who Needs Multiple Objectives?
• Educators and Students
• City governments
• The National Forest Service and Park
Service
• Middle management
• Factory workers
Examples of Multiple Objectives in
the Corporate World
•
•
•
•
•
TIAA-CREF Social Choice Fund
Working Assets Long Distance
Credit Cards with a Mission
Credit Unions
Corporate Charitable Giving
How does Corporate Social
Responsibility fit in?
• Socially-responsible • Socially-responsible
behavior is a means
behavior is an ultimate
to an end.
corporate objective.
How does Corporate Social
Responsibility fit in?
• Socially-responsible • Socially-responsible
behavior is an ultimate
behavior is a means
corporate objective.
to an end.
• It coexists with other
objectives, like
generating profits and
obeying laws.
Accounting Theory
Economics
Finance
Financial
Accounting
Managerial
Accounting
“When we model the
behavior of firms, we
will want to describe
the objective as profit
maximization and the
constraints as
technological
constraints and
market constraints.”
“Success is usually judged by value:
Shareholders are made better off by any
decision which increases the value of their
stake in the firm.”
The Financial
Accounting
Paradigm in the
U.S.
“General purpose external
financial reporting is directed
toward the common interest of
various potential users in the
ability of an enterprise to
generate favorable cash
flows.”
“Thus, the objectives in this
Statement are focused on
information for investment and
credit decisions.”
The Financial Accounting
Paradigm Worldwide
“Now, because of the U.S. work in the 1970s
and 1980s, the fundamental foundations of
accounting worldwide are based on the
conceptual bases laid down in the USA.”
Sir David Tweedie
Testimony to U.S. Senate
2002
“Management
accounting measures,
analyzes, and reports
financial and
nonfinancial
information that helps
managers make
decisions to fulfill the
goals of an
organization.”
“There are perceived or real limitations, imposed by U.S.
corporate law, to what managers can do in the name of
corporate social responsibility. These limitations derive
from case law that defines management’s fiduciary
responsibility to shareholders.”
How does Corporate Social
Responsibility fit in?
• Socially-responsible • Socially-responsible
behavior is a means
behavior is an ultimate
to an end.
corporate objective.
• It saves costs in the
long run.
• It wins customers and
earns customer
loyalty.
Percentage of private companies
citing factor as important
government pressure
investor relations
saving the planet
tax relief
building brand
cost management
Recruitment/retention
0
20
40
60
80
Nike Corporate
Responsibility Report
“Corporate responsibility must evolve
from being seen as an unwanted cost to
being recognized as an intrinsic part of a
healthy business model, an investment that
creates competitive advantage and helps a
company achieve profitable, sustainable
growth.”
How does Corporate Social
Responsibility fit in?
• Socially-responsible • Socially-responsible
behavior is an ultimate
behavior is a means
corporate objective.
to an end.
• It coexists with other
• It saves costs in the
objectives, like
generating profits and
long run.
obeying laws.
• It wins customers
and earns customer
loyalty.
The Moskowitz Prize
• The only global award recognizing outstanding
quantitative research in the field of socially
responsible investing (SRI).
• Launched by the Social Investment Forum (an SRI
trade association), but now housed in the Haas
School of Business (U Cal., Berkeley).
• Awarded annually since 1996.
• Awarded for
– practical significance to practitioners of SRI;
– appropriateness and rigor of quantitative methods;
– novelty of results.
• Sponsored by approximately six investment firms.
Key studies on social investing:
Russo and Fouts (1997)* (a Moskowitz prize winner):
Finds that, after adjusting for everything imaginable,
companies with better environmental records appear
to have better-than-average returns on assets.
McWilliams and Siegel (1999) Finds that many event
studies of socially responsible investing have been
marred by statistical errors. Their analysis forced a
reassessment of many studies reporting returns to
social variables, and put authors of future event
studies on notice that considerable care must be
exercised in the use of this methodology.
Dibartolomeo and Kurtz (1999) Dibartolomeo does not
agree that there might be an SRI effect at work. His
model finds no unexplained performance.
Teoh, Welch, and Wazzan (1999) (a Moskowitz prize
winner): Finds that the South Africa boycott, the
largest shareholder boycott to date, had minimal
impact on South African securities and securities of
U.S. companies doing business in South Africa.
Bauer, Koedijk, and Otten (2002) (a Moskowitz prize
winner): Measures the risk-adjusted performance of
103 German, U.S., and U.K. screened mutual funds
for the 1990-2001 time period, and finds no significant
differences between their returns and those of
unscreened funds.
Orlitzky, Schmidt, and Rynes (2003) (a Moskowitz prize
winner): Performs a meta-analysis of past studies of
corporate social performance, and finds a statistically
significant positive association with corporate financial
performance.
Hong and Kacperczyk (2006) Shows that tobacco
stocks have outperformed market averages for
decades, and demonstrate that this is true even after
accounting for market risk, size, and valuation effects.
Edmans (2007) (a Moskowitz Prize winner): Finds
that stocks of firms on Fortune magazine's '100
Best Companies to Work For' list outperformed
market averages, even after accounting for market
risk, size, momentum, and style effects.
But wait a minute …
• If commitment to CSR improves financial
performance, what is there to talk about?
– Were companies too “dumb” to realize that
energy conservation reduces costs?
• At the most fundamental level, economic
theory indicates that financial incentives
cannot be sufficient to induce a commitment
to CSR.
– Negative externalities and the tragedy of the
commons
• So what drives the empirical results?
The TIAA-CREF
Social Choice Fund
• McDonald’s
1.0%
The TIAA-CREF
Social Choice Fund
• McDonald’s
• Hershey Co.
1.0%
0.1%
Hershey, like other major chocolate
firms, signed the Harkin-Engel
protocol and maintains it is working.
"The protocol's value is seen in
measurable progress on the
ground," says Kirk Saville, a
Hershey spokesman. "It has
created greater community
awareness of child welfare issues
and increased incomes for family
farms and access to education."
But Hershey has no direct role in
implementing reforms in Ivory
Coast. Instead, the protocol
required the industry to create a
foundation to oversee certification.
That body is the International
Cocoa Initiative, headquartered in
Geneva and funded by the
chocolate industry to the tune of
about $2 million a year.
The foundation began its work in Ivory Coast in 2003,
and it claims to have six pilot projects underway there.
"We are doing high quality, scalable work," says Peter
McAllister, ICI's executive director. "We've not yet had a
significant effect, but it's a journey." He is unfazed about
the looming July 2008 deadline: "We don't see it as
ending in 2008. Our process works, and we're
committed for the long term."
But the foundation has only one staff member in Ivory
Coast, Robale Kagohi, and his activities appear limited.
The TIAA-CREF
Social Choice Fund
• McDonald’s
• Hershey Co.
• Caterpillar
1.0%
0.1%
0.4%
The TIAA-CREF
Social Choice Fund
•
•
•
•
McDonald’s
Hershey Co.
Caterpillar
The GAP
1.0%
0.1%
0.4%
0.1%
'The reality is that most major retail
firms are in the same game, cutting
costs and not considering the
consequences. They should know by
now what outsourcing to India means.’
The TIAA-CREF
Social Choice Fund
•
•
•
•
•
McDonald’s
Hershey Co.
Caterpillar
The GAP
FedEx
1.0%
0.1%
0.4%
0.1%
0.4%
“We do have a fiduciary
responsibility to our
shareholders”
- FedEx Management
“Many major initiatives
simply aren’t money-savers”
How does Corporate Social
Responsibility fit in?
• Socially-responsible • Socially-responsible
behavior is an ultimate
behavior is a means
corporate objective.
to an end.
• It coexists with other
• It saves costs in the
objectives, like
generating profits and
long run.
obeying laws.
• It wins customers
and earns customer
loyalty.
Reputation Incentives
• César Chávez and the Lettuce Boycott
• Apartheid in South Africa
• Sweatshops in the shoe industry
• But what about child slave labor in the
chocolate industry?
Harvard Business Professor
Lynn Sharp Paine
Recent attempts to make an economic case
for corporate attention to human rights …
have a shoehorned quality.
It strains credulity to suggest that Nike
would have benefited financially from
requiring its suppliers to meet higher
standards at the inception of its then-novel
overseas manufacturing program …
How does Corporate Social
Responsibility fit in?
• Socially-responsible • Socially-responsible
behavior is an ultimate
behavior is a means
corporate objective.
to an end.
• It coexists with other
• It saves costs in the
objectives, like
generating profits and
long run.
obeying laws.
• It wins customers
and earns customer
loyalty.
Figure 1: Corporate Sustainability Model
Inputs
Processes
External
Context
Sustainability
strategy
Internal
Context
Business
Context
Human &
Financial
Resources
Leadership
Sustainability
structure
Outputs
Sustainability performance
Outcomes
Stake-holder
reactions
(may be both
an output and
outcome)
Sustainability
systems,
programs and
actions
Marc Epstein, Strategic Finance, January 2008
Long-term
corporate
financial
performance
Figure 1: Corporate Sustainability Model
Inputs
Processes
External
Context
Sustainability
strategy
Internal
Context
Business
Context
Human &
Financial
Resources
Leadership
Sustainability
structure
Outputs
Sustainability performance
Outcomes
Stake-holder
reactions
(may be both
an output and
outcome)
Sustainability
systems,
programs and
actions
Marc Epstein, Strategic Finance, January 2008
Long-term
corporate
financial
performance
William Nordhaus
Professor of Economics
Yale University
A Review of the Stern
Review on the Economics
of Climate Change
Pure Rate of Social Time Preference
(Time Discount Rate)
2097
2067
2037
2007
A Paradigm of Stewardship
“Accounting is not necessarily confined to the
situation of measuring gains and losses.”
“Accounting reports serve a great number of
purposes.” “Accountability is the real basis for
financial reports.”
“It is basically a means of meeting the
requirement that custody and management of
property carries with it an obligation to account for
it.”
Vatter, 1950
“That scientists do not
usually ask or debate
what makes a particular
problem or solution
legitimate … [may]
indicate that neither the
question nor the answer
is felt to be relevant to
their research.”