A Student's Perspective on... Student Perspectives

This past Tuesday, a group of second-year MBA students shared their experiences working in CSR-focused summer internships. Jo Mackness, the new Executive Director of Haas’ Center for Reponsible Business, provided her perspective as well.

One interesting trend Jo mentioned is that CSR is becoming increasingly integrated at many companies: rather than having a “CSR Department”, employees are asked to take social issues into consideration when formulating their strategy. Karen Salvini, who spent the summer working on environmental issues at a large tech firm, found the attitude was that “every job is an eco-job.” Justin Parker worked with a large chemical company on a large-scale development plan in India. Instead of “corporate philanthropy”, where a company puts in a one-time investment, this plan will create a financially viable business, providing much greater long-term impact. To me, the model of creating a financially viable business that also helps people has tremendous potential- if you’re similarly inclined, check out The Fortune at the Bottom of the Pyramid by CK Prahalad.

As someone who shared the skepticism many of us have about business’ commitment to social ventures, it was encouraging to hear there are companies with such strong commitments. There is still a need and place for foundations, however. Charlene Chen worked in business development in Ghana through Good Morning Africa, which provides support for social entrepreneurs. Wellesley Fraser helped education reform in America with Education Pioneers. For those interested in socially responsible business, there are real opportunities around the world, in a variety of capacities, which is pretty exciting. I'm hopeful that as the country and the world deal with the current financial turmoil, companies don't lose track of the importance of CSR.
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Corporate Sustainability: Still Cynical?

So you’re interested in “doing well and doing good,” you want a job that’s financially rewarding, and you’d even like to work for a large company. But, the pragmatist in you realizes this is a tough combination to reconcile. Large, publicly-traded and sustainable? Is this possible, or a paradox? A group of second-year MBA students held an intimate roundtable last Wednesday to share their experiences and tell us, yes, progressive and sustainability-focused companies do exist – it’s a matter of finding the right one!

The panel, entitled “Can Business Really Be Sustainable?,” asked five Haas students and moderator Megha Doshi to recount their experiences working in CSR and sustainability initiatives with multinational companies like Dow Chemical, Brown-Forman, Gap and Nike. A common thread ran through their stories: student is skeptical about the seriousness of large-scale corporate sustainability issues, student takes internship with market-leading company, student slowly sees that companies are starting to “get it” and affecting change. As panelist Mahta Eghbali explained about working for Gap, “I came in as a cynic but [the experience] silenced the cynicism. Some corporations do good work.”

The key phrase for me being “some corporations.” I’ve come fresh from the PR world, working for an agency where clients viewed CSR initiatives as a form of penance for past and future sins. At my firm, the key objective for any CSR initiative was improving brand image (and therefore increase sales), rather than serving some ingrown need to “do good.” And while this still characterizes most companies in the US business landscape, our panelists highlighted the key characteristics needed to find those companies that have gotten religious about making a difference:


1. Family-owned or community-centric. Brown-Forman and Gap are two companies that have strong ties to their founding families. This creates a tighter community, and allows the company to act as a vehicle for the family’s social causes, such as women in developing countries (Gap, Inc.) and responsible drinking practices (Brown-Forman).

2. Senior executive sponsorship for CSR initiatives. Panelist Mira Inbar recounted how executive buy-in at Dow Chemical allowed her project team to develop and pitch a business plan that is now being integrated throughout the company. Jeff Shah found that the leadership at Brown-Forman wanted to be authentic about their corporate social responsibility plans, and not just look as if they were jumping on the green bandwagon. They were thinking strategically, not reactively!


3. A strong belief in the product. The panelists felt that the most responsible companies truly believed in their products, and gave serious thoughts to how their products (and their companies) can make the world a better place. Megha realized that Nike is in midst of an existential discussion about the nature of consumption, and how improving the durability of their shoes might make them less money, but would improve the double-bottom line.


For the socially-minded MBA, there’s a growing field of opportunities to make a difference with large, market-moving companies. After the event, Megha gave the hint that this is just the tip of the iceberg. “More companies are realizing the need for CSR programs that are effective and real. Think of how far they’ve come from 5-10 years ago. It’s only going to get better.”
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Corporate Reputation: Does Being Ethical Matter?

Companies spend huge amounts of money to be 'socially responsible.' Do consumers reward them for it? And how much?

By REMI TRUDEL AND JUNE COTTE
May 12, 2008
http://online.wsj.com/article/SB121018735490274425.html

For corporations, social responsibility has become a big business. Companies spend billions of dollars doing good works -- everything from boosting diversity in their ranks to developing eco-friendly technology -- and then trumpeting those efforts to the public.

But does it pay off?

Many companies hope consumers will pay a premium for products made with higher ethical standards. But most companies plunge in without testing that assumption or some other crucial questions. Will buyers actually reward good corporate behavior by paying more for products -- and will they punish irresponsible behavior by paying less? If so, how much? And just how far does a company really need to go to win people over?

To find out, we conducted a series of experiments. We showed consumers the same products -- coffee and T-shirts -- but told one group the items had been made using high ethical standards and another group that low standards had been used. A control group got no information.

In all of our tests, consumers were willing to pay a slight premium for the ethically made goods. But they went much further in the other direction: They would buy unethically made products only at a steep discount.

What's more, consumer attitudes played a big part in shaping those results. People with high standards for corporate behavior rewarded the ethical companies with bigger premiums and punished the unethical ones with bigger discounts.

Finally, we discovered that companies don't necessarily need to go all-out with social responsibility to win over consumers. If a company invests in even a small degree of ethical production, buyers will reward it just as much as a company that goes much further in its efforts.

Below, we'll look at these tests in more detail. But first, a definition -- and a caveat.

For our purposes, "ethically produced" goods are those manufactured under three conditions. First, the company is considered to have progressive stakeholder relations, such as a commitment to diversity in hiring and consumer safety. Second, it must follow progressive environmental practices, such as using eco-friendly technology. Finally, it must be seen to demonstrate respect for human rights -- no child labor or forced labor in overseas factories, for instance.

Now the warning, which may not come as much of a surprise. Even though we think ethical production can lead to higher sales, not all consumers will be won over by the efforts. Some may prefer a lower price even if they know a product is made unethically.

With that in mind, here's a closer look at our results.

HOW MUCH ARE ETHICS WORTH?

Our first experiment asked two questions. How much more will people pay for an ethically produced product? And how much less are they willing to spend for one they think is unethical?

To test these questions, we gathered a random group of 97 adult coffee drinkers and asked them how much they would pay for a pound of beans from a certain company. We used a brand that's not available in North America, so none of the participants would be familiar with it.

But before the people answered, we asked them to read some information about the company's production standards. One group got positive ethical information, and one group negative; the control group got neutral information, similar to what shoppers would typically know in a store.

After reading about the company and its coffee, the people told us the price they were willing to pay on an 11-point scale, from $5 to $15. The results? The mean price for the ethical group ($9.71 per pound) was significantly higher than that of the control group ($8.31) or the unethical group ($5.89).

Meanwhile, as the numbers show, the unethical group was demanding to pay significantly less for the product than the control group. In fact, the unethical group punished the coffee company's bad behavior more than the ethical group rewarded its good behavior. The unethical group's mean price was $2.42 below the control group's, while the ethical group's mean price was $1.40 above. So, negative information had almost twice the impact of positive information on the participants' willingness to pay.

For companies, the implications of this study -- albeit limited -- are apparent. Efforts to move toward ethical production, and promote that behavior, appear to be a wise investment. In other words, if you act in a socially responsible manner, and advertise that fact, you may be able to charge slightly more for your products.

On the other hand, it appears to be even more important to stay away from goods that are unethically produced. Consumers may still purchase your products, but only at a substantial discount.

HOW ETHICAL DO YOU NEED TO BE?

Our next test looked at degrees of ethical behavior. For instance, are consumers willing to pay more for a product that is 100% ethically produced versus one that is 50% or 25% ethically produced?

To find out, we tested consumers' responses to T-shirts from a fictitious manufacturer. We divided 218 people into five groups and presented them with information about the company and its product. One group was told the shirts were 100% organic cotton, one group 50% and one group 25%. Another group -- the "unethical" one -- was told there was no organic component. The control group got no information.

In addition, all the groups but the control were shown a short paragraph detailing the detrimental effects of nonorganic cotton production on the environment.

Then the participants were asked how much they were willing to pay for the shirts on a 16-point scale, ranging from $15 to $30. As in the first test, we found that people were willing to pay a premium for all levels of ethical production, and they would discount an unethical product more deeply than they would reward an ethical one.

But consumers didn't reward increasing levels of ethical production with increasing price premiums. The 25% organic shirts got a mean price of $20.72 -- not much different from the 50% ($20.44) and 100% ($21.21).

It seems that once companies hit a certain ethical threshold, consumers will reward them by paying higher prices for their products. Any ethical acts past that point might reinforce the company's image, but don't make people willing to pay more. (Of course, if 100% ethical becomes expected among consumers, anything less may be punished.)

WHAT EFFECT DO CONSUMER ATTITUDES HAVE?

In our final experiment, we looked at the attitudes people bring to the table. If consumers expect that companies will behave ethically, will that change how much they reward and punish behavior? What if they expect that companies are just in it for the money, maximizing profits and not taking ethics into account?

Once again, we tested coffee drinkers -- 84 this time -- and split them into groups that received positive, negative and no ethical information about the manufacturer and its methods. But first we measured the people's attitudes toward corporations and labeled them high-expectation or low-expectation.

Once again we found that -- regardless of their expectations -- consumers were willing to pay more for ethical goods than unethical ones, or ones about which they had no information. Likewise, negative information had a much bigger bearing on consumer response than positive information. People punished unethical goods with a bigger discount (about $2 below the control group) than they rewarded ethical ones with premiums (about $1 above the control group).

So, what effect did consumer attitudes have? People with high expectations doled out bigger rewards and punishments than those with low expectations. Those with high expectations were willing to pay a mean of $11.59 per pound for the ethical coffee, versus $9.90 for those with low expectations. And the high-expectations group punished the unethical coffee with a price of $6.92, versus $8.44 for low-expectations consumers.

The lessons are clear. Companies should segment their market and make a particular effort to reach out to buyers with high ethical standards, because those are the customers who can deliver the biggest potential profits on ethically produced goods.
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