Corporate social and financial performance
While companies’ charitable activities often get favorable publicity, studies on the relationship between corporate social responsibility and financial performance haven’t allowed broad conclusions to be drawn.
A 2003 study in Organization Studies, “Corporate Social and Financial Performance: A Meta-Analysis,” looked at 52 studies on a range of industries and activities, and overall found a positive association between corporate responsibility and financial performance.
The researchers, who were based at the University of New South Wales, University of Sydney and University of Iowa, conclude that:
- The relationship between corporate social responsibility and financial performance was universally positive, varying between highly positive and moderately positive.
- Socially responsible practices such as minority hiring and managerial principles had a greater effect on financial performance than environmental responsibility.
- Social responsibility and financial performance affect each other in a “virtuous cycle”: successful firms spend more because they can, but such spending helps them become more successful.
- Because markets do not penalize companies for being socially responsible, it is compatible with maximizing shareholder value and thus can be pursued by managers.
While the authors found that there is a “halo effect” — successful firms can be seen as being more socially responsible than less successful ones even if they’re not — it does not distort the results of the study. In conclusion, they write: “Corporate virtue in the form of social and, to a lesser extent, environmental responsibility is rewarding in more ways than one.”
Tags: economy, metastudy
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Read the issue-related New York Times article titled "Companies Add Chief Sustainability Officers."
- If you were to rewrite the article based on knowledge of the study, what key changes would you make?
Read the full study titled "Corporate Social and Financial Performance: A Meta-Analysis" (PDF).
- Summarize the study in fewer than 40 words.
- Express the study's key term(s) in language a lay audience can understand.
- Evaluate the study's limitations. (For example: Do the results conflict with those of other reliable studies? Are there weaknesses in the study's data or research design?)
- Write a lead (or headline or nut graph) based on the study.
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