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Social responsibility: Does it pay?

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in Leaders & Managers

Corporate social responsibility “pays.” Demonstrate concern for the environment, human rights and employee welfare, and your firm will grow profitable. Right?

Not quite, says David Vogel, a business school professor and author of The Market for Virtue: The Potential and Limits of Corporate Social Responsibility.

The evidence showing a connection between corporate virtue and profit is weak, he says.

“Managers should try to act more responsibly. But they should not expect the market to necessarily reward them—or punish their less responsible competitors,” says Vogel.

Starbucks is a prime example. The company has a strong reputation for its generous labor policies and a commitment to the welfare of coffee growers in developing countries.

Yet its shares have recently declined nearly 50%. That has nothing to do with its giving, but with the firm’s overexpansion and consumers’ reluctance to pay $4 for a cup of coffee.

Other such icons, including Whole Foods and Timberland, also have fared poorly in the marketplace.

The good news for firms with stellar performances in social responsibility? They haven’t performed any worse than their competitors. For most firms, though, social responsibility is largely irrelevant to profitability.

— Adapted from “CSR Doesn’t Pay,” David Vogel, Forbes.

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