| Misery Loves Companies; Article Review | |
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| Tweet Topic Started: Aug 1 2012, 02:48 AM (67 Views) | |
| jjboiler5 | Aug 1 2012, 02:48 AM Post #1 |
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“Misery Loves Companies: Rethinking Social Initiatives by Business” (2003) By Joshua D. Margolis & James P. Walsh, Administrative Science Quarterly Article Review by John Jeanguenat Corporate Social Initiatives and Financial Performance Economic theory has long instructed corporate managers to focus on one goal above all else: Maximize shareholders’ wealth. Reaching this goal demands managers establish initiatives and make decisions that result in shareholder profit. Meanwhile, companies are faced with pressure from NGOs and select investors to be responsive to social problems. Assuming corporations follow economic theory outlined above, the question Margolis and Walsh tackle in the article is: What value do corporate social initiatives offer shareholders and how do they align with economic theory? Do Corporate Social Initiatives Add Value? The authors explain, “The aim has largely been to demonstrate that corporate attention to human misery is perfectly consistent with maximizing wealth…in the words of United Nations’ Secretary General Kofi Annan, ‘a happy convergence between shareholder want and what is best for millions of people the world over.’” Empirical research in the article seeks to evaluate the connection between corporate social performance (CSP) and corporate financial performance (CFP). This is the key relationship required to determine whether corporate social initiatives add value to the firm and align with the principles of economic theory. The article presents 127 studies evaluating the relationship between CSP and CFP. An analysis of the studies suggests a positive association between CSP and CFP; however, the authors write, “a closer look at this research suggest that it opens as many questions as it answers about the role of the firm in society.” This leaves a gap in the quest to show corporate social initiatives are consistent with maximizing shareholder value. Connected Capitalism The questions and theories presented in this article remind me of a concept former Coca-Cola chairman and CEO Neville Isdell presented in “Inside Coca-Cola”: Connected Capitalism. This idea describes the important relationship between corporations, government and not-for-profits, and the responsibilities of each. Isdell writes, “A business is not by definition a philanthropic entity, nor should it be, but striving in its own interest to be a generator of long-term sustainable profits.” For Coca-Cola, an important component of generating sustainable profits is preserving water, a key ingredient in its soft drink products. European Coke bottler CCHBC has contributed funds and worked to preserve the Danube River, which runs through most countries in the CCHBC territory. These efforts benefit societies that rely on the river for water – a life-sustaining product – and help CCHBC consume less of the finite natural resource it needs to generate Coca-Cola products and profits. Isdell concludes, “In the complex economy of the future, business interest and society’s interests will become more closely aligned. Capitalism will have to be connected or it will not survive.” If the Shoe Fits Based on concepts presented in the article, “Inside Coca-Cola,” and class discussions, there are cases when CSP benefits CFP and creates value for shareholders. These cases, such as CCHBC’s Danube River preservation, are consistent with economic theory principles. Corporations should seek social initiatives that also add value shareholders. That being said, corporations should not participate in social initiatives for the sake of being socially responsible. It is critical for corporations to evaluate social initiatives and maintain consistent standards for determining “fit.” There are many cases of misery that are the responsibility of government and not-for-profit organizations – those entities can best serve the needs of those social cases. Edited by jjboiler5, Aug 1 2012, 02:49 AM.
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