Is it true that social and environmental resposiblity goes hand in hand with superior financial performance? According to an article titled "Holy Grail Found", the anwers is an emphatic yes. The article states that two "meta-studies" (studies of studies) were performed and have concluded that a "statistically significant association between corporate social performance and financial performance exists, which varies 'from highly positive to modestly positive.'"
So what does this mean? If a company wants to be superior does it have to focus on being socially and environmentally responsible? Maybe superior financial performance is enhanced because of other factors such as good management, product differentiation, or low cost. Perhaps companies that do well financially just have more resources to invest into being socially responsible. Whatever the case, what is a company that wants to out-perform competitors supposed to do? Focus more on the environment, and use its resources in that manner? Maybe resources could be better distributed to society by other means. What do you think?
3 comments:
This is very cool.
Unfortunately, the author of the article (not Lana) isn't very neutral.
We have talked about this in class a little - economics (and business in general) are non-experimental. You just can run a company one way, and then go back and run it a different way past the same events to see which is better. This makes analyzing statistics in business much harder than other fields.
In this case, what the meta-studies have uncovered is a correlation between social responsibility and financial success for corporations. Unfortunately, without an experiment it is very hard to figure out whether social responsibility causes financial success (say, because people want to put their money somewhere that feels good), or that financial success causes social responsibility (say, because people who make money want to do good). The problem is that the author of the article assumes the former, even though it could be either one. That isn't a "holy grail".
Dr. Tufte said:
"In this case, what the meta-studies have uncovered is a correlation between social responsibility and financial success for corporations. Unfortunately, without an experiment it is very hard to figure out whether social responsibility causes financial success (say, because people want to put their money somewhere that feels good), or that financial success causes social responsibility (say, because people who make money want to do good). The problem is that the author of the article assumes the former, even though it could be either one."
I always have to remind myself that correlation doesn't necessarily mean causation. There could be another factor in these companies that is related to both financial success and social responsibility that explains this situation.
Agreed.
I also thought revisiting this that exploring social responsibility could be a sign that management is on the ball enough to think about more issues and therefore may be managing better. The flip side is they might just be flighty too.
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