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Virtue and the Market

11/19/2005 - 6:30 AM PST

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Corporate Social Responsibility Under the Microscope

BERKELEY, California, NOV. 19, 2005 (Zenit) - Ethics and corporate conduct continue to be hot topics. A book published earlier this year gives a succinct oversight of the main issues involved in the concept of corporate social responsibility.

Written by University of California professor David Vogel, "The Market for Virtue" (Brookings Institution Press) starts off asking what it means, in fact, to be a virtuous company. There is a vast amount of literature on the subject and thousands of diverse policies among companies regarding ethical conduct.

A multitude of matters falls under the heading of corporate social responsibility: working conditions in factories in developing countries; child labor; guaranteeing fair prices for agricultural producers; environmental concerns; and human rights.

Vogel observes that companies can have differing motivations for following virtuous policies. Some can be defensive, to ward off hostile publicity, while others can stem from a genuine commitment to social goals. In any case, he adds: "The supply of corporate virtue is both made possible and constrained by the market."

There is a market for virtue, he notes, but it is limited. From a market perspective, businesses can justify social-responsibility policies, under some circumstances. But there are limits to this, and there is also a large space available for less-responsible competitors.

This is due to the advantages, and limits, of market capitalism. On the positive side, firms are free to innovate and citizens have the possibility to influence corporate practices through their decisions about what to buy and where to invest. On the negative side, because ethical policies are voluntary and companies are subject to market discipline, firms will only follow them when it makes good business sense. So, corporate social responsibility can remedy some problems, but are not a complete solution.

Rising concerns

Concern over ethical questions has risen sharply in recent years due to increasing globalization and economic deregulation. These developments have produced many benefits, but they have also generated dissatisfaction with some of the negative consequences, Vogel says.

Part of this discontent has been focused by non-governmental organizations in campaigns against companies they accuse of unethical practices. And the growth of global brands -- and the new communications technologies -- has made companies more vulnerable to boycotts and negative publicity.

Consumers, Vogel notes, are paying more attention to factors related to social responsibility in their purchases. But he warns that surveys purporting to show large percentages of the population as willing to change their buying habits should be taken with a grain of salt. Brand loyalty remains strong and shoppers are generally reluctant to change well-established habits.

Governments are also getting involved. According to Vogel, since 2000 Britain has had a minister for corporate social responsibility and six European governments require that pension funds consider social practices in making investment decisions.

Businesses, for their part, are cooperating. The World Business Council for Sustainable Development was founded by 170 companies after the 1992 U.N. summit on the environment. And the U.N. Global Compact has attracted more than 1,300 corporate signatures. As well, about 2,000 companies now publish reports on their social or environmental performance, up from around 500 in 1999.

Good business?

Many businesses argue that "good corporate citizenship is also good business," explains Vogel. But there are also critics who maintain that creating wealth for shareholders is the sole function of a company. Vogel rejects this argument, arguing that profit and non-financial goals can be combined.

In fact, he notes, the typical business book on corporate social responsibility emphasizes its links to profitability and concentrates on firms that are financially successful. Moreover, if a company takes the initiative through self-regulation, it can be better placed if and when new government regulations appear. And a more responsible firm faces less risk of consumer boycotts or shareholders unhappy with its practices.

This does not mean, Vogel clarifies, that the more socially responsible firms will reap higher profits. But nor will they necessarily be less profitable for having added ethical objectives to their goals. More than 120 academic studies have analyzed the relationship between ethics and profits, he notes. The results are mixed. Some find a positive relationship, others a negative one, and still others a toss-up.

Vogel comments that it is hard to draw broad conclusions from the studies, in part due to varying analytical ...

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