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Investment analysts start to value responsible businesses, a rethink at Google, and do stakeholders really make a difference?
Investor apathy. Long has the disfavour of capital markets signalled the death knell of an aggressive corporate responsibility strategy. When it came to corporate social responsibility, either investors simply didn’t “get it”, or they did, and didn’t like it. Whichever, nothing topped the relentless emphasis on quarterly results. Investors are obsessed with the short term. Sustainability looks, by definition, to the long term. And never the twain shall meet.
So the theory went. A new study from Harvard University Business School suggests that the icecaps separating investors from sustainability could be melting. Using a 16-year sample of stock trading data, the researchers demonstrate a shift in the recommendations of security analysts in respect of corporate responsibility. Earlier, they simply ignored companies’ efforts. In the odd case, they even marked the firms down for increasing costs at the perceived expense of competitiveness. Recent years, however, have witnessed socially responsible investments receiving more favourable recommendations.
The trend is undoubtedly good news. But the investor-awakening is far from universal. It tends to be sell-side analysts with “more years of firm-specific experience” and more awareness of corporate responsibility that give the issue credence. Those with more resources at their disposal are also quicker to recognise the upside.
The young bucks on Wall Street, in contrast, are showing little sign of enlightenment. Nor are companies weighted equally. CSR strategies are considered most “value-creating” among companies with higher visibility. But be warned: the logic works the other way too: the bigger the company, the more “value-destructing” sell-side analysts judge CSR risks.
“The Impact of Corporate Social Responsibility on Investment Recommendations”, Ioannis Ioannou and George Serafeim, Harvard Business School, Working Paper 11-017, August 2010.
It was supposed to change the world. It hasn’t quite worked out that way. Five years after search engine Google set up DotOrg with nearly $1bn in seed funding, the powers that be in Googleplex had a rethink. The marauding giant of “Googley” philanthropy has had its wings clipped and its budgets tightened. So what happened?
This fascinating article charts the story, elaborating on how and why it all went wrong. The summary in brief: Larry Page and Sergey Brin, the company’s founders, went public in 2004 and made their billions. A small chunk of that (roughly $170m a year) went into a charitable mega-plan that was eventually supposed to “eclipse Google itself”.
Located within the company, DotOrg would tap corporate resources and engineering whizzes to engineer for-profit and non-profit solutions to the world’s most pressing problems. Some innovative plans were hatched (eg RechargeIt, a data-collection device to build the case for plug-in hybrids), but no “breakthrough app” came along.
DotOrg’s first problem was one of focus. Google wanted to do anything and everything. Public health, global development, climate change, you name it. In short, it overstretched. Second was management. Decisions came slowly and objectives shifted. A third problem centred on structure. Operating in a save-the-world silo, DotOrgers didn’t interact with Googlers as planned. The more DotOrg grew, the greater distance came between it and the company.
A strategic review, which concluded last year, has left DotOrg with new marching orders: more focus, fewer projects; more product development and fewer grants. It has a new structure too. DotOrgers now sit with functional teams through the company, “grabbing thinking” from the project floor. Both steps should help it leverage Google’s flair for technological wizardry and deliver gadgets that are not just clever, but world-enhancing too.
“Do No Evil”, Suzie Boss, Social Innovation Review, autumn 2010.
Every large company knows it should do it. Every corporate responsibility or sustainability professional says it helps with decision-making. But how does stakeholder engagement actually influence what a company chooses to do or not to do?
In answer to that question, the authors of this paper plough through six years of survey data from the Business in the Community corporate responsibility index. The findings underline the time and energy companies now give to engaging their stakeholders. But the case for such stakeholder engagement feeding into decisions is harder to make. Too often stakeholder dialogue comes after the event. The decision made, interested parties are invited to critique and comment. Only in a limited number of cases is the ideas whiteboard genuinely empty and meaningfully open to stakeholder scribbles.
Attitudes are beginning to change. Companies are increasingly talking of stakeholder engagement as “opportunity-related collaboration”, not just risk identification, the research suggests. That is positive. Sustainable solutions require joined-up thinking. For that to happen, decision-making must become more “democratised”. The quicker stakeholder engagement processes reflect that, the better for everybody.
“Stakeholder Governance”, Erik Hansen and Heiko Spitzeck, Occasional Paper, Doughty Centre for Corporate Responsibility, September 2010.
Professor David Vogel is winner of the Aspen Institute’s Faculty Pioneer Award for Lifetime Achievement for his work on corporate responsibility. Vogel holds the Solomon P Lee chair in business ethics at Haas business school, Berkley University, US.
Campus-based student group Net Impact is teaming up with the World Environment Centre to assess the sustainability skills that companies require of MBA grads. The joint investigation will provide recommendations for future curriculum development.