Doing Well by Doing Good?

March 24, 2011 at 7:45 PM Leave a comment

At the WSJ’s Market Watch blog, we find a not entirely convincing report claiming that two recent studies prove corporate social responsibility increases profits.

The first supporting evidence is a recent survey of 5,000 members of the informed public, which the research firm Edelman defined as “college-educated folks with incomes in the top quartile for their age.”

When asked what was most important for a company’s reputation, nearly two-thirds of those Edelman interviewed cited “transparent and honest business practices.” Half said that a highly regarded company needed to be a “good corporate citizen.” Meanwhile, only 39% mentioned financial returns to investors as important to a firm’s reputation.

Anyone who knows college-educated folks with incomes in the top quartile for their age knows they’re not about to tell some stranger on the phone that they don’t care about corporate social responsibility. But this tells us little about where they actually spend their money.

A bit more convincing is a study by three economists published by Texas A&M Corpus Christi, claiming a “‘statistically significant positive relationship’ between companies that do good and those that do well.”

The authors compared the firms’ financial performances with those of 120 companies that were not members of the [Dow Jones Sustainability Index]. They found that firms that had embraced corporate social responsibility had higher gross profit margins and higher returns on assets than those that didn’t.

To explain the socially conscious businesses’ economic success, the economists cited elevated levels of loyalty and trust among their customers, especially those deemed “morally conscious.”

Could it be that more profitable companies can better afford social consciousness, with the profits causing the consciousness rather than vice versa?

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Entry filed under: Corporate Philanthropy & CSR.

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