Joshua Margolis and Hillary Anger Elfenbein, writing in the January 2008 edition of the Harvard Business Review (subs req. free for the month) on social responsibility inform us that after a meta-survey of 167 surveys over the last 35 years they find that there is a low correlation between doing good and doing well in business sense.

They write:

While doing good doesn’t appear to destroy shareholder value, we found only a very small correlation between corporate behavior and good financial results (the exception being public misdeeds, which had a discernible negative impact). Moreover, the minor correlation that does exist could well be explained by deep pockets – a history of strong financial performance may simply give a company the wherewithal to contribute to society. Indeed, of the various forms social responsibility can take, cash contributions to charities have shown a stronger correlation with success than have socially responsible corporate policies or community projects.

They suggest:

1. Corporate misdeeds are costly to companies – if people find out.
2.  Doing good is unlikely to cost shareholders.
3.  Profitability should not be the primary rationale for corporate social responsibility.

It is interesting to read this.  Now to be sure the HBR headline reads that CSR. However, what I would like to call ‘Sustainable Business’, how does that fare?

Karl Weber writing in the Triple Bottom Line blog makes some important comments.

First of all, the authors say they found no conflict between doing business responsibly and achieving strong financial results. “Doing good,” they say, “is unlikely to cost shareholders.”…After all, if CSR is (in effect) cost-free, why not make an effort to do the right thing? What is the upside to behaving ruthlessly if it is not even rewarded in the marketplace?
…The fact that Margolis and Elfenbein do confirm such a correlation is, of course, welcome to CSR advocates. And without having access to the original study (which doesn’t yet appear to be available online), it’s impossible to know whether specific factors might explain why the correlation is only a small one.

…The authors might argue that no one, including CSR skeptics, is actually in favor of “public misdeeds,” which means that the CSR movement shouldn’t be credited for any positive impact from avoiding them. I’d challenge that logic. If companies that espouse CSR do a better job of avoiding scandalous behavior, that’s not a mere coincidence.

Stopping the negative consequences do connect to corporate financial performance.

To understand whether any specific circumstances create the scenario where CSR is valuable Vinay Nair, a Wharton finance professor and his colleagues at Columbia University studied whether being charitable — such as donating money to medical research or to organizations that promote economic self-sufficiency — helps a company’s financial picture.

Concentrating only on charity they found that “Corporate philanthropy and profits are positively related only in industries with high advertising intensity and high competition,” the researchers say, citing as examples the beverage and retail industries. In low-advertising industries, such as computer chips and business-to-business services — “there is actually a negative association between philanthropy and profits.” Clearly this helped to serve as a differentiation in a competitive industry.

In thier study they excluded good deeds that could also have the effect of boosting a company’s productivity and, in turn, its profits. For instance, a company’s decision to operate an environmentally friendly plant could increase efficiency. Likewise, a company that offers flex time and good maternity leave benefits may reap the benefits of a more loyal and productive workforce. And I think this is where the companies need to concentrate.

Corporate good deeds need to combine business strategy and sustainability to make a difference. Or else, shareholders will be at loss.