UPfront: “Do-good” companies do well

With companies like Enron proving unethical business behaviour doesn’t pay, it’s not surprising to find increasing evidence that the opposite also holds true.

A recent academic study in the United States found what’s been described as “the most concrete evidence yet” that socially responsible behaviour has bottom-line payoff.

Using 2001 list of the 100 “best corporate citizens” and checking their financial performance against remaining companies in the S&P 500, researchers from De Paul University in Chicago found the “best” companies outperformed the rest by “strikingly large” margin.

This, despite the fact that the do-gooders focus encompassed wider range of stakeholders — those with monetary stake in the company were not management’s sole concern.

Performance on the “best” list was judged across seven main stakeholder groups: employers, stockholders, the community, customers, minorities and women, the environment, and overseas stakeholders. When ranked on purely financial performance measures, they averaged 10 percent higher scores than the mean ranking of other S&P companies.

What the study suggests is that companies embracing corporate social responsibility (CSR) principles also demonstrate generally higher standard of management.

Although membership turnover on the 100 “best” list is fairly high (31 companies fell out of the previous year’s top rankings), 49 have now been on it for three years running. Those judged “best in class” for service to specific groups are pioneering management practices. IBM, for instance, has family programmes that involve up to 56 weeks of family leave plus two weeks’ paid leave for new fathers, childcare centres in 58 locations, and adoption aid grants. It also has programme encouraging employment of disabled workers.

A top performer in terms of service to employers is Dallas-based Southwest Airlines, which didn’t break its 31-year no-layoff record when airlines took pasting post September 11. Its creative approach to the crisis instead included cutting fares and expanding into markets others airlines were deserting. The company also had employees volunteering to take pay cuts and forgo profit-sharing to help out.

That the airline has also ranked top in several quality studies provides further indication that managing by multiple, rather than primarily financial performance measures, can actually enhance management practice.

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