By Jerilyn Klein Bier
Resolved: That when companies expend resources on corporate responsibility and sustainability they destroy economic value.
Agree? Disagree? Confused?
This resolution was argued last week during an Oxford-style debate at Commit!Forum 2011, a New York City gathering of socially responsible corporate leaders presented by Corporate Responsibility magazine and NYSE Euronext. Here's a very quick look:
Affirmative (the argument against corporate responsibility)
Dr. Aneel Karnani, associate professor of strategy at the University of Michigan's Stephen M. Ross School of Business, described "doing well by doing good" as a "grand illusion," and said corporate social responsibility (CSR) can be irrelevant, ineffective and even dangerous.
Karnani posited that when private profits and public welfare are aligned, this is simply good management and CSR is irrelevant even though companies might play it up. Companies that are neither profitable not virtuous may also be motivated to do something good for society in their quest for profits. But if companies must sacrifice profits to help the public, they'll just talk about it (i.e., greenwashing) and action will only be driven by government intervention.
Gerry Sullivan, portfolio manager of the Vice Fund (VICEX)--which seeks to invest in well-performing stocks of tobacco, alcohol, gaming and weapons/defense companies because it believes these industries tend to thrive regardless of the economy of a whole--said companies must advocate for the shareholder and not just for the stakeholder. Greenwashing, he argued, ends up being part of the marketing but doesn't end up in the financials.
Hewlett-Packard might be a responsible corporate citizen, but its stock price is a disaster and it has fired three chief executives in recent years, Karnani said. In that vein, Sullivan pointed to General Electric, whose stock value plummeted between the May 2005 implementation of its ecomagination initiative and August 2011. Meanwhile, the S&P 500 and Dow Jones Industrial Average rose during this period.
Negative (the argument for corporate responsibility)
Sustainability can enhance shareholder value, argued both R. Paul Herman, founder and CEO of investment advisor and portfolio manager HIP Investor Inc., and Dr. Vinay Nair, founder and managing principal of Ada Investment Management and an adjunct associate professor at Columbia University's graduate school of business.
Sustainable business practices and decision-making can lead to higher profits and cash flows through stronger brand and greater pricing power, greater operational efficiencies, more efficient use of resources, and enhanced ability to attract, retain and motivate employees. In turn, this can boost stock prices.
Customers aren't the only ones who want to "do good" in their purchases--investors do, as well. Herman cited a 2008-2009 survey by Cone, a Boston-based public relations and marketing firm, that found 66% of investors see "doing good" as a positive indicator and 19% refuse to invest in companies not "doing good".
And Nair noted that investors are focusing on the durability of profits and the growth rates for the sustainability sector of some industries such as the organic part of the food industry, hybrids in automotive, the renewable side of energy, and the green side of the building materials industry. He added that companies going public today have a higher multiple if they have higher safety standards.