Posted by: Nathaniel | October 22, 2008

“CSR Doesn’t Pay?” You’re asking the wrong question.

A few days ago, Haas professor David Vogel posted an article titled “CSR Doesn’t Pay” on Forbes.com. The main jist of the article is that corporate social responsibility practices aren’t being rewarded in higher economic profits. This was the thesis of research released by a couple of Harvard Business School profs earlier this year as well. The problem with it these arguments isn’t that they while they might be right from a pure profit-maximization perspective, that perspective might just be part of the problem.

Vogel writes: “The belief that corporate responsibility “pays” is a seductive one: Who would not want to live in a world in which corporate virtue is rewarded and corporate irresponsibility punished? Unfortunately, the evidence for these rewards and punishment is rather weak.”

This is an interesting premise, and explains why most CSR budgets are housed in corporate marketing departments. The truth however, is that social value is both a part of and apart from economic value. One of the most pernicious myths of CSR efforts is that you can increase the human rights, salaries, benefits, economic sustainability of production, etc. and still have consumers pay the exact same price as something produced with borderline-slave labor. Its often not the case.

The real question is: if you give consumers a choice between two goods of equal quality and convenience but which have a dramatically different social and environmental footprint, are they willing to pay a higher price and how much different? Perhaps even more, how many of them are willing to pay something different.

Where I think Vogel errs is in looking at where things are now versus where things are going:

Part of the reason why CSR does not necessarily pay is that only a handful or consumers know or care about the environmental or social records of more than a handful of firms. “Ethical” products are a niche market: Virtually all goods and services continue to be purchased on the basis of price, convenience and quality.

Maybe right now. As Jeff Swartz of Timberland articulated on this blog, consumers respond to outputs – the quality and convenience of the product – not inputs – like the ethical production process, even if those inputs matter. What’s more, convenience remains a major issue. As I wrote about in this post on fair trade company Alter Eco, getting retailers to place socially-focused brands on the shelves is still a difficult task.

But I wonder what happens as more and more socially-focused companies are able to offer a product of comparable or higher quality to their competitors and are increasingly able to get their products in front of consumers? Forget a tipping point in any one industry – will there be a moment when consumers start to wonder why they don’t have a choice for the ethical, environmentally sustainable version of whatever it is they want to by? The way I (and frankly, a bunch of entrepreneurs) see it, every product that doesn’t have a version with a socially-branded option is a market gap and an opportunity.

We could be wrong, but the increased media attention on these products, more young people looking for jobs that have a positive social impact, the fact that socially responsible investing is growing far faster than the rate of the total assets under management, and the dramatic example of a Wall Stree crash caused largely by profit maximization with no focus on social impact suggests the timing might be right for a new conversation.

For more, check out the blog feed and other discussions at the Social Capital Markets conference, where this was THE underlying theme.

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Responses

  1. CSR is a demanding niche that is slowly becoming a market trend. This is the way to reach the advertising-resistant dollars of the young and single.

    The problem from the business end is that implementation is critical. It’s not enough to recycle; You need to publish your post-consumer content. It’s not enough to be socially or environmentally responsible; You need to do both. It’s not enough to create an image; You have to implement a real value system. That’s why the marketing department can’t handle CSR, because it’s not about image.

    Create a top to bottom corporate culture of social responsibility then you have some tools for the marketing department. As it stands socially responsibility in one area is the surest way to draw attention to failings in others. It’s no wonder that business is shy about that market. There needs to be a path towards CSR so that implementation can be incremental.


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