CSR and Sustainability

Three quick takeaways on how CSR improves business value

In my earlier post this week I interviewed Alex Edmans of Wharton and London Business School, about his research on the links between CSR and business value.
A friend asked Alex for three simple takeaways for the busy executive. He kindly sent some. They are below, and provide a handy at-a-glance assessment.

The longer interview is here

Three key points to remember about the latest research on the business case for CSR:
1.     
Employee
welfare is positively related to firm value. While the idea that
“companies do better if their workers are happier” is seemingly
intuitive, this idea
is contrary to traditional ways of managing workers, which holds that a
dollar paid to workers is a dollar taken away from shareholders. Human
resource departments are not just cost centres, but a positive source of
value creation.
2.     
CSR
can improve firm value. Traditional thought is that considering other
stakeholders (e.g. employees, customers, the environment) is at the
expense of shareholders.
Thus, socially responsible investing should underperform traditional
investing, since responsible companies are distracted from the bottom
line. My paper suggests that there need be no tension between CSR and
profit.

3.     
The
market does not fully value intangibles such as stakeholder capital.
The Best Companies lists are highly public, and I don’t start
calculating returns
until a month after each list is published. Thus, if the market were
efficient, the stock prices of the companies listed in (say) April 2012
should rise as soon as the list is published, and so I should not earn
superior returns by buying the firms in May
2012. My results suggest that the market doesn’t immediately recognise
the benefits of stakeholder capital. As a result, we need to move beyond
evaluating managers according to short-term performance to encourage
them to consider the long-run health of their
firms – and society. 
A slightly fuller (but still brief) non-technical summary of Alex’s paper can also be found here.

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Upcoming Innovation Forum events in 2014:
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