The Market for Virtue: The Impact of Corporate Social Responsibility
An Interview with David Vogel
DAVID VOGEL holds the Solomon P. Lee Chair as professor at the Haas School of Business at the University of California, Berkeley. He is the author most recently of The Market For Virtue: The Potential and Limits of Corporate Social Responsibility, which analyzes the forces driving corporate social responsibility initiatives and their impact on business behavior. Among Vogel's other books are Dynamics of Regulatory Change: How Globalization Affects National Regulatory Policies (co-edited with Robert Kagan) and Fluctuating Fortunes: The Political Power of Business in America. He is also editor of California Management Review.
Multinational Monitor: Does investing in corporate social responsibility pay, from a shareholder point of view?
David Vogel: Sometimes it does, sometimes it doesn't; it varies enormously.
There are cases of companies that have gained a competitive advantage from being responsible. But there are also many cases of companies with good records of corporate responsibility that have done very poorly financially. At the same time, there are many companies who have pretty irresponsible records of corporate responsibility that have done very well.
Corporate responsibility is like any business strategy. It makes sense for some companies some of the time. But I think for most companies, most of the time, the financial benefits of being responsible or the financial costs or risks of being irresponsible are overshadowed by other normal business competitive pressures--so that on balance, corporate responsibility most of the time actually makes relatively little difference to financial performance.
The Market For Virtue goes through a fairly extensive literature on this issue.
The share price performance of socially responsible funds is no better or worse than any other investment strategy--some years they do better than the market, some years they do worse than it. Studies that try to demonstrate a positive relationship between corporate responsibility and profitability are flawed in part because it is very difficult to measure corporate responsibility. In addition, even if there was a positive relationship, it could be due to the fact that more profitable firms have more resources to behave more responsibly.
Again, there are lots of examples, which I cite in the book, of very responsible firms which have had lots of difficulties. One thinks of Ben and Jerry's, Marks and Spencer, Levi Strauss, Hewlett-Packard under Carly Fiorina, or Chiquita Banana. One can also cite cases of firms that most people would regard as being irresponsible in many dimensions, firms like Philip Morris or ExxonMobil, which have done extremely well financially over the long-term.
MM: What about the idea that it pays in the long term to invest in social responsibility?
Vogel: I think that is highly unlikely. There are certainly investment opportunities in social responsibility, but if you look at the full range of viable investment opportunities, their relative role and importance remains modest. Socially responsible investments will remain overwhelmingly overshadowed by business opportunities, which have nothing to do with social responsibility. Rather they have to do with marketing research and development, global competition, etc.
MM: Is the inverse true--does it pay to be irresponsible?
Vogel: I don't think the inverse is true either. I don't think that more responsible companies necessarily do less well. In fact, the relationship between corporate responsibility and financial performance is neither positive or negative; in reality there is little relationship between the two.
The good news is that the market does not penalize corporate responsibility. The bad news is that it also doesn't reward it.
The bad news is that the market does not penalize corporate irresponsibility, and the good news is also that it doesn't necessarily reward it. …