The|Intangibles » CSR http://blogs.hillandknowlton.com/boydneil Selected posts from Boyd Neil's blog at http://www.boydneil.com Tue, 23 Nov 2010 20:22:30 +0000 http://wordpress.org/?v=2.9.2 en hourly 1 CSR & the Capital Markets http://www.boydneil.com/blog/2010/9/16/csr-the-capital-markets.html http://www.boydneil.com/blog/2010/9/16/csr-the-capital-markets.html#comments Thu, 16 Sep 2010 13:54:25 +0000 Boyd Neil 417677:4590288:8870745 Discussions about the relevance and influence of corporate social responsibility usually don’t take into account the significance of corporate conduct on capital market decisions, perhaps because it is thought this is the arcane domain of financial analysts and academics.

However, if those of us who believe responsible conduct is an imperative and not just an afterthought to a business strategy, then we should get better at finding and defending the evidence that the capital markets will react to social and environmental behaviour if only to manage risk.

Fortunately, we’ve been given an advantage with two academic papers appearing over the past couple of months which look at the repercussions of CSR on cost of capital and investment strategies. (Thanks Tara, a colleague, for sending them my way!)

Having not read the full studies yet, I can’t tell you whether the findings are  definitive. But the abstracts offered here suggest they may provide some materiel for engagement with the Freidmanites.

The first Does Corporate Social Responsibility Affect the Cost of Capital? jointly authored by four academics, three of whom are based at Canadian universities:

We examine the effect of corporate social responsibility (CSR) on the cost of equity capital for a large sample of U.S. firms. Using several approaches to estimate firms’ ex ante cost of equity, we find that firms with better CSR scores exhibit cheaper equity financing. In particular, our findings suggest that investment in improving responsible employee relations, environmental policies, and product strategies contributes substantially to reducing firms’ cost of equity. Our results also show that participation in two “sin” industries, namely, tobacco and nuclear power, increases firms’ cost of equity. These findings support arguments in the literature that firms with socially responsible practices have higher valuation and lower risk.

The second is a working paper called The Impact of Corporate Social Responsibility on Investment Recommendations by Ioannis Ioannou of London Business School and George Serafeim of Harvard Business School.

Using a large sample of publicly traded US firms over 16 years, we investigate the impact of corporate socially responsible (CSR) strategies on security analysts’ recommendations. Socially responsible firms receive more favorable recommendations in recent years relative to earlier ones, documenting a changing perception of the value of such strategies by the analysts. Moreover, we find that firms with higher visibility receive more favorable recommendations for their CSR strategies and that analysts with more experience, broader CSR awareness or those with more resources at their disposal, are more likely to perceive the value of CSR strategies more favorably. Our results document how CSR strategies can affect value creation in public equity markets through analyst recommendations.

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The Power of Apologies http://www.boydneil.com/blog/2009/10/22/the-power-of-apologies.html http://www.boydneil.com/blog/2009/10/22/the-power-of-apologies.html#comments Thu, 22 Oct 2009 18:50:26 +0000 Boyd Neil 417677:4590288:5582295 Anyone who has followed my posts on apologies will know how important I feel they are as a way to manage reputation in a crisis. (Forgive the self-reference, but two of the most recent posts can be found here and here.)

A colleague in my firm's Seattle office, Drew Arnold, sent me an article from the Oregon Business Journal referencing a June 2009 discussion paper called 'The Power of Apology' from the University of Nottingham's Centre for Decision Research and Experimental Economics.

Here is the paper's abstract:

After an unsatisfactory purchase, many firms are quick to apologize to customers. It is, however, not clear why they should do that. As the apology is costless, it should be regarded as cheap talk and thus ignored by the customer. In this paper, we test in a controlled field experiment whether apologizing influences customers' subsequent behaviour. We find that apologizing yields much better outcomes for the firm than offering monetary compensation."

Based on a study of customers using eBay in Germany, the study found among other results:

  1. "Customers who receive an apology instead of a monetary compensation are more than twice as likely to withdraw a (negative) evaluation."
  2. "When money is offered, a higher purchase price makes it less likely that a customer withdraws his (negative) evaluation. An apology works independent of the level of the purchase price."

Why then can't we assume that the propensity to consider legal action when harm has been caused by an accidental event, even if negligence is involved, just might be mitigated by a genuine (and the key here is the word 'genuine') apology?

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Anyone who has followed my posts on apologies will know how important I feel they are as a way to manage reputation in a crisis. (Forgive the self-reference, but two of the most recent posts can be found here and here.)

A colleague in my firm’s Seattle office, Drew Arnold, sent me an article from the Oregon Business Journal referencing a June 2009 discussion paper called ‘The Power of Apology‘ from the University of Nottingham’s Centre for Decision Research and Experimental Economics.

Here is the paper’s abstract:

After an unsatisfactory purchase, many firms are quick to apologize to customers. It is, however, not clear why they should do that. As the apology is costless, it should be regarded as cheap talk and thus ignored by the customer. In this paper, we test in a controlled field experiment whether apologizing influences customers’ subsequent behaviour. We find that apologizing yields much better outcomes for the firm than offering monetary compensation.”

Based on a study of customers using eBay in Germany, the study found among other results:

  1. “Customers who receive an apology instead of a monetary compensation are more than twice as likely to withdraw a (negative) evaluation.”
  2. “When money is offered, a higher purchase price makes it less likely that a customer withdraws his (negative) evaluation. An apology works independent of the level of the purchase price.”

Why then can’t we assume that the propensity to consider legal action when harm has been caused by an accidental event, even if negligence is involved, just might be mitigated by a genuine (and the key here is the word ‘genuine’) apology?

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