New Study Indicates Corporate Social Responsibility Not So Profitable

New Study Indicates Corporate Social Responsibility Not So Profitable

Noted Economist Arthur Laffer Says CSR May Hurt -- Not Help-- The Bottom Line

NEW YORK, Jan. 18, 2005 -- Corporate social responsibility (CSR),
hailed by its proponents as being both good for business and good
for the bottom line, may instead have the opposite effect on corporate
profitability, according to a study released today.

The study, "Does Corporate Social Responsibility Enhance Business
Profitability?," was conducted by economists including Arthur Laffer, Ph.D.,
known as "the father of supply-side economics." Dr.Laffer’s study empirically
examines the economic performance of companies among those considered most
socially responsible by Business Ethics magazine.

The companies, which included Procter & Gamble, Intel, Hewlett-Packard and
Southwest Airlines, were selected based on consistently "high" CSR performance,
as defined by their inclusion on the Business Ethics magazine list for the
last five years. Company financial performances were compared with those of
their chief competitors. Criteria noted by Business Ethics for listing on the
BE Top 100 include positive evaluations of companies’ work to serve groups
including women, shareholders, the environment, the community, non-U.S.
stakeholders, employees and customers.

Dr. Laffer’s study was designed to test, using accepted economic theory
and metrics, the argument put forth by some advocates of corporate social
responsibility and socially responsible investing that companies can see a
return on their CSR investment in the form of increased profitability.

"In this analysis of 28 companies that were among the Business Ethics Top
100 Corporate Citizens every year from 2000-2004 we found no significant
positive correlation between CSR and business profitability as determined
by standard measures," the paper’s authors wrote.

Moreover, there are some indications from the study that CSR activities
lead to decreased profitability.

A profitability comparison of compound annual net income growth, net profit
margin and stock price appreciation revealed that "only a minority of the
28 CSR-leading companies in each comparison outperformed their peers," the
study said. "Being a CSR-leading company was negatively or not correlated
with compound annual net income growth, net profit margin and stock price
appreciation."

In addition, the research found, "those who invest exclusively in companies
deemed to be ‘socially responsible’ do not appear to receive financial returns
that are better than those of conventional investors."

An archived audio version of a media roundtable session hosted by
the Competitive Enterprise Institute and CSRwatch.com in which Dr.
Laffer discussed the paper’s findings will be available at
http://www.videonewswire.com/event.asp?id=26617 for 90 days.
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