Is CSR good or bad for business? That question was at the center of the debate that took place last week in New York as part of the COMMIT! Forum. Usually, at such conferences you have the chance to hear only one side – the one supporting CSR, naturally. This made the debate not just one of the highlights of this conference, but also a great delight to anyone interested in better understanding the value of CSR.
Two teams were on the stage. On one side, the ‘bad guys’ as the debate moderator, John Harwood, CNBC’s chief Washington correspondent jokingly called them, included Dr. Aneel Karnani of the Michigan Ross School of Business and Garry Sullivan, a portfolio manager of the Vice Fund, which invests in tobacco, gaming, alcohol and defense companies. The ‘good guys,’ on the other side of the stage included Paul Herman, Chief Executive and Chief Investment Officer of HIP Investor Inc. of and Dr. Vinay Nair, founder and managing principal of Ada Investment Management and an adjunct associate professor at Columbia Business School.
Harwood presented the topic – Resolved: When companies expend resources on corporate responsibility and sustainability, they destroy economic value. As an Oxford-style debate, the two sides were given equal time to present their case, followed by follow-up questions and opportunities for rebuttal. The first one to present its case was Prof. Karnani from the bad guys. His presentation mainly reflected the points he made last year in his famously Wall Street Journal Op-Ed “The Case Against Corporate Social Responsibility.” Prof. Karnani opened saying he believes CSR has become a new religion, telling the audience that “there is no god,” and that we should all convert back to the fundamental concepts of shareholder value and market regulation.
In short, Prof. Karnani’s case is that CSR is either irrelevant when private profits and public welfare are aligned, or ineffective when both elements are in conflict. In some cases, he sees CSR as dangerous as it might delay or pre-empt more effective measures, such as regulation, to address social problems. His teammate Sullivan brought the example of GE and its famous Ecomagination Initiative. He pointed out that investors who put their money on GE when Ecomagination was launched have lost almost 45% of their money in the last six years, while the S&P and he Dow Jones indexes generated positive 16% and 31% returns respectively.
The point Sullivan was trying to make is that Jack Welsh, which was as far as you can be from being green, made shareholders a lot of money when he was GE CEO, while his successor, Jeffrey Immelt, an admired green business leader, has generated only loses to his shareholders. In other words – green is not necessarily green and sometimes is more likely to be red. To those who still didn’t get it, Sullivan added that “in a kumbaya moment when everybody joins in for a group hug, the first thing you should do is check for your wallet.”
The ‘good guys’ team’s presentation didn’t remind me of a kumbaya moment at all. It was more like a blitz of CSR-supporting facts and graphs. It was interesting to see that although both of the good guy team members talked about advantages for integrating sustainability in business such as minimizing risks, greater ability to generate higher growth rate, better positioning to take advantage of opportunities in developing countries and better management of valuable intangibles, such as brands, IP and employees, a large part of their presentation was dedicated to returns. It might be because Both Dr. Vinay Nair and Paul Herman practice socially responsible investment in their firms or because it is considered the soft belly of CSR, as demonstrated by the other team. No matter the reason, returns (as well as risks) ruled the conversation.
The ‘good guys’ gave couple of examples to contradict claims brought by the other team about the incapability of green funds to beat the markets, such as Portfolio 21 mutual fund, which focuses on eco-efficient firms and performed better that the S&P 500 index in the last decade.
So why do we see cases like GE and other green companies that underperform their not-so-green competitors? The good guys told us that markets don’t always value sustainability in real time and it might take the markets 15-20 years to learn to show this value. It might sound like bad news but actually it’s not so bad considering that sustainable investors, like pension funds, are often long-term investors.
Both Vinay and Herman emphasized the idea that the durability of profits (how long they last) is more important than short term gains. Sustainability, they claim, increases the durability of companies’ profits, because it helps them to minimize their exposure to litigation for example, and therefore helps to increase shareholder value.
The audience was clearly in favor ‘good guys’ which is not very surprising, but both teams actually made good points. I hope we will see more of these debates in the future because if we want to ensure everyone gets the business case for CSR it’s important to understand the arguments of both sides, and not hear the same people preaching the same choir again and again. So thank you to the organizers, CR Magazine, for what I hope was not a one life-time experience.
Raz Godelnik is the co-founder and CEO of Eco-Libris, a green company working to green up the book industry in the digital age. He is also an adjunct professor in the University of Delaware’s Alfred Lerner College of Business and Economics.