Beruflich Dokumente
Kultur Dokumente
4
Many of Friedmans objections to looking beyond cash flows ultimately have little to do
with standing and everything to do with the competence of the decision maker. Implicitly,
Friedman accepts that business leaders are both boundedly rational and boundedly moral, which
is an argument for specialization and transparency, but it does not necessarily follow from either
bounded rationality or bounded morality that they are more competent to make financial,
marketing, or operating decisions than they are to make philanthropic contributions.
Consequently, instead of the positive claim that business leaders are inherently
incompetent to make certain classes of decisions, we propose the following normative
conclusion: In arraying alternative projects for consideration, business leaders should be able to
assess all projects (whether they arise primarily from a social responsibility effort or a more
traditional profit-driven basis) based on similar criteria (e.g., the firms mission, management
philosophy, and competencies). To do this they need a strategic frame flexible enough to assess
all kinds of initiatives. In the first part of this article we draw on the economics and strategy
literatures to develop three externality-based frames that managers may use.
Understanding the capabilities necessary to address a particular social problem can assist
management in making a reasoned decision as to the investment modality most likely to produce
a good outcome. However, the strategic frame is only half the battle. They must also have a way
of assessing the potential value associated with these initiatives that is flexible enough to
encompass social and firm benefits and costs. Rigorous examination of the nature, goals, means,
and consequences of organizational initiatives may increase the likelihood that investments will
create value for society and hasten the demise of questionable investments that produce little in
the way of bottom-line benefit or positive gains for society as a whole. With this in mind, in the
5
second part of the article we draw on applied welfare-economics literature to develop a costbenefit analysis structure which can be used to estimate both firm and societal costs and benefits.
6
figuring out what people really want and value, and then catering to those wants and
valuesprovides specific [corporate] guidance and has moral merit.6 In our view, business
leaders produce valuable returns on societal investments when the collectivities they govern
deliver superior customer value, provide superior employment, and contribute tax revenues
now, and in the future.
Yet, most companies feel compelled to make philanthropic investments as well, finding
themselves caught between critics demanding ever higher levels of corporate social
responsibility and investors applying relentless pressure to maximize short-term profits.7 Such
pressures, and the investments they encourage, should be very carefully considered. It is
distinctly possible that corporate social investments often have unintended consequences (i.e.,
costs) that diminish societal welfare. Three circumstances leading to such unintended
consequences come to mind:
(1) Efforts to create superior customer value are diluted by social initiatives;8
(2) Business leaders make social investment decisions inferior to those made by
shareholders, customers, or other members of society, in part because the standard
view of cash flows causes them to assign full value to tax shields;9 and
(3) Social initiatives utilize resources less effectively and efficiently than nonprofit or
government organizations.10
Thus, it is important to consider explicitly whether the investments made by corporate governors
are, from a societal perspective, sound; whether the resources employed by these projects are
being put to their highest and best use.
Moreover, it is important that methodologies employed in the evaluation of corporate
social investments take into account the actual effects of these investments on both the
7
organizations direct constituents and society. It may be the case that, in trying to increase
customer value, product or service suppliers may succeed in such a way as to impose costs on
others which are not completely captured in the businesss financial statements, which actually
exceed the gains to customers and shareholders, and which are, therefore, a drain on society. It is
important to note that the same could be true of initiatives aimed primarily at increasing societal
benefits not directly related to the financial performance of the business. These socially
responsible initiatives could also have unintended costs not borne by the business.
With this in mind, we turn to the economics literature on externalities. Externalities exist
when private costs or benefits do not equal social costs or benefits. Negative externalities occur
when production or consumption imposes uncompensated costs on other parties. Positive
externalities occur when production or consumption yields positive benefits to others without
those paying.11 This literature suggests that the societal value of corporate social behavior can
best be evaluated when both the costs and benefits that accrue to the business and positive and
negative externalities are taken into account.
9
with exercise programs, preventative medical care, and safety features and equipment. Finally,
positive externalities can be created by corporate philanthropy. Positive philanthropic
externality generation is typified by investments in basic research and development, higher
education, and the performing and visual arts.13
10
competitive context where the company and society both benefit because the business brings
unique assets and expertise.15
Its important to remember that what constitutes value to society over and above that
accrued through economic activity is both culturally and temporally conditioned. Take, for
example, the notion of environmental protection. The importance of contributing to this social
value has changed significantly over the past century. Moreover, the relative importance of
environmental quality as a social value varies quite substantially from country to country, even
today. Thus, to a degree, the most important social benefit to focus on has been, and always will
be, in the eye of the beholder. Thus, it is important that managers clarify their own perspective
on this issue when making investments.
From the competitive context perspective, corporate governors considering socially
responsible investments must think about profitability as well as the indirect payoffs to their
social investments (see Figure 1). Porter and Kramer offer the Cisco approach as a prime
example of linking corporate social investment to business competitiveness.
[Figure 1 about here]
Cisco recognizes that a key requirement for their sustained ability to deliver customer
satisfaction is a well-educated work force capable of building, enhancing and supporting their
product offerings. With this in mind, they develop programs designed to improve the education
systems in the societies in which they produce and maintain these products. They accrue some of
the benefits of the improved education of the workforce, but it is unlikely that everyone whose
education is improved goes to work for Cisco. As such, their social investments generate positive
externalities for the society as a whole.
11
We offer two additional approaches to establishing corporate social investment priorities.
The first is motivated by the prescription primum non nocere (i.e., first, do no harm). The second
relies on a resource-based view of the business.16 Each differs from Porter and Kramer17 in
important ways, offering managerial alternatives to setting corporate social investment priorities.
12
customers to reduce their negative effects on the environment, thereby reducing negative
consumption externalities (see www.Patagonia.com).
By definition, the capture of negative externalities will increase costs to the business with
some likely offsets in reduced regulatory compliance, labor, and product liability costs. The
value to society of negative externality reduction will likely take the form of less regulatory
activity, improved environmental quality, and fewer workplace and consumption injuries.
Whether consumers, shareholders, and/or society regard such an allocation of corporate
resources as worth the cost to them, and how it will ultimately affect the businesss ability to
create superior value, is an important consideration when evaluating this approach to corporate
social priorities.
It is also possible that unique/superior competencies of the business may not be relevant
to some negative externality reduction efforts. So, while one might argue that corporate
initiatives designed to abate negative externalities enjoy the moral high ground and some degree
of societal approbation, it is not altogether clear that consumers are willing to reward businesses
for investing in these activities and the competencies they require. As such, the costs to the
business (and ultimately the societal benefits which accrue to the society from a successful
business) may or may not outweigh the negative externality reduction.
A Resource-Based Approach
The resource-based view of a business21 suggests that unique capabilities and
competencies explain how and why businesses succeed.22 This paradigm suggests that sustained
competitive advantage derives from resources and capabilities that are valuable, rare, imperfectly
imitable, and not substitutable.23 Recent empirical studies of one type of negative operating
externality reduction effortpollution abatementuses this resource-based view to demonstrate
13
how particular capabilities affect success.24 We contend that the resource-based view can also be
used to inform our understanding of situations wherein the societal return on corporate social
investments is likely to be the highest. One straightforward way to conceptualize business
competencies was offered by Treacy and Wiersema.25 Operational excellence, customer
intimacy, and product leadership describe three broad strategies and the capabilities and
competencies necessary to attain strategic competitive advantage. As such, managers considering
social investment projects should ask whether they leverage an existing strategic advantage in a
way that enhances their ability to maximize customer satisfaction.
Operational excellence is the provision of reliable products and services at competitive
prices, delivered with minimal difficulty or inconvenience (e.g., Wal-Mart). Clearly, the
competencies that drive operational excellence can also be used to limit (enhance) negative
(positive) marketing, operating, and philanthropic externalities. For example, Wal-Mart recently
generated an initiative to reduce skyrocketing health care costs in the U.S. by greatly reducing
the prices they charge for generic prescription drugs. It is likely that by doing this they will
attract additional customers to their stores to buy prescription drugs, thereby increasing overall
traffic and sales of other products and enhancing operational excellence by increasing scale
economies. At the same time, the policy benefits a highly vulnerable population. Prescription
drug prices forces many customers, especially pensioners on fixed incomes and those with
limited or no health insurance, to choose between medication and other necessities. By foregoing
their prescriptions, Wal-Marts customers increased the threat they would become seriously ill
and impose large, uncompensated burdens on the health care system and, thereby, the rest of us.
Importantly, pensioners and those with limited or no health insurance are among Wal-Marts
14
largest target markets. Moreover, it is likely that this policy has reinforced the loyalty of WalMarts existing customer base as well as increasing Wal-Marts market penetration.
Businesses which rely on operational excellence as a core competence are typically
among the largest, most successful businesses in the industries in which they operate. Big
businesses that significantly reduce negative operating externalities can generate important
positive externalities through multiplier effects. For instance, when Wal-Mart instituted their
prescription drug policy a large competitor, Target, immediately matched their prices.26 Of
course, this is merely price competition in action, but price competition is the classic, best
understood example of how business behavior can produce a substantial positive spilloverin
this case, both a price effect and an income effect.
Customer intimacy involves segmenting and targeting markets and then tailoring
offerings to match the demands of those market niches exactly. Customer intimacy is based on a
thorough understanding of how to construct the marketing mix to provide value to the target
market. Businesses that take a resource-based approach and that are dependent on a customer
intimacy advantage often use a lifetime value of the customer perspective, which identifies a
select group of customers with whom they want to build a value-laden relationship based on a
series of interactions. Customer-intimate businesses are arguably in the best position to shape
products, messages, pricing, and distribution in a manner compatible with reducing (creating)
negative (positive) consumption, especially inter-temporal marketing externalities. For example,
Hewlett-Packard reinforces its image as a caring, ethical company when it rewards consumers
who recycle inkjet cartridges.27 Customer intimacy efforts may also take the form of generating
positive consumption externalities beyond their own immediate product line. For instance, Novo
Nordisk, a major supplier of diabetes medications, also confronts the psychological aspects of
15
the disease and actively communicates how reducing food intake can reduce the likelihood of
diabetes.28
It is important to note that managers who practice this form of social investment often
adversely affect immediate economic results. By promoting recycling, Hewlett Packard has
made it easier for independent inkjet cartridge recyclers to take their customers. By promoting
preventative measures for diabetes, Novo Nordisk may reduce the growth of the diabetes
population and, consequently, their pool of customers. Nevertheless, customer intimacy
businesses using the resource-based approach are leveraging their core resource to build longterm value relationships with their core customers by influencing their customers behavior for
societys benefit.
Product leadership means offering customers leading-edge products and services that
consistently enhance the customers use or application of the product, making rivals goods
obsolete (e.g., Nike). As noted earlier, research and development activities may be a source of
positive or negative externalities. One of the key capabilities associated with product leadership
is a superior research and development function. Thus, businesses focused on product leadership
are particularly well suited to pursuing initiatives focused on generating (minimizing) positive
(negative) philanthropic externalities associated with basic research and development. The work
of Russo and Fouts suggests investments in technologies that reduce environmental damage can,
in fact, have a positive effect on long-run financial performance.29
In adopting the resource-based view of social initiatives, we drop the requirement of
inimitability. That is, to make meaningful contributions to society, it is not necessary for a
business to acquire unique capabilities, which can be imitated only at great cost. In fact, the
opposite may well be true. For instance, when clothing retailers such as J.C. Penney, The Gap,
16
and Nike decided to reduce child labor through consistent monitoring of their contract
manufacturers in emerging markets, many other contract manufacturers and retailers followed
suit.30 All that is required to benefit from taking the first move along these lines is a slight
comparative advantage.31
To summarize, the resource-based approach to making corporate social investments
focuses managerial attention on the businesss competencies to identify ways to maximize
customer satisfaction, while achieving other aims desired by society. As such, their initial
emphasis should go to customer satisfaction. This differs from Porter and Kramer, who conclude
that mangers should seek to identify those negative externality reduction or positive externality
creation opportunities best suited to enhance the core competencies of their businesses. 32 While it
is likely that the opportunities which best utilize the competencies of their businesses will be
both beneficial to society and profitable, projects should be identified by evaluating and selecting
social problems that put a businesss capabilities to their highest and best use. Thus, businesses
exhibiting operational excellence might be expected to address operating externalities;
businesses in possession of customer intimacy might be expected to address consumption
externalities; and businesses engaged in product leadership might be expected to address
philanthropic externalities.
However, the danger for these businesses is they may underestimate the effect of utilizing
resources for social initiatives that are diverted from customer satisfaction efforts, thereby
diluting the social benefits of this aspect of the businesses operations. With this in mind, we
now turn to the evaluation of socially responsible actions.
17
18
first recommendation should, at this point, be somewhat obvious. Any evaluation of a businesss
proposed social investment should include:
some measure of how much the investment contributes to satisfying customers and how
much it contributes to society in terms of generating positive cash flows. These, in turn,
generate positive returns to society in terms of dividends, job quality, taxes paid, etc.
(business benefits);
some measure of how much it reduces the use of societal resources it utilizes to satisfy
customers (negative externality reduction);
some measure of the benefits the business generates through its investment that accrue to
the broader society as opposed to the business (positive externalities); and
some measure of the costs the business incurs in generating all the above benefits
(business costs).
While establishing a methodology incorporating the above may seem daunting, in
actuality the rules for performing this kind of assessment are highly codified and can be found in
any good text on social benefit-cost or applied social-welfare analysis.35,36 Indeed, conceptually,
the standard capital-budgeting approach used in corporate finance to assess projects using
discounted net cash flows is merely a special case of the more general approach to social benefitcost analysis. Typically, both consist of the following steps:
1.
Decide whose benefits and costs count, and how much. This is typically referred to as
determining standing. Who has standing? Shareholders? Customers? Future customers?
Employees? Future employees? The local community? The state? The nation?
This is the main place where social benefit cost analysis is different from ordinary cash
19
shareholders and, to some degree, customers. However, if one is to consider the broader effects
on society a conscious decision must be made about what entities in society have standing;
hence, the confusion in the CSR literature on whether firms should care only about shareholders,
or other stakeholders as well. We will return to this topic later. However, this is ultimately a
decision which begins with deciding which of the strategic frames discussed in the previous
section a firm is going to adopt.
2.
potentially infinite. As such, analysts must narrow down the group to a reasonable subset. This
selection process should also be based on one of the philosophies discussed in the previous
section.
3.
If we undertake this project, what things will change which are likely to affect the benefits and
costs accrued by those entities which have standing?
4.
Predict quantitative consequences over the life of the project for the people affected.
This is the hardest part of any project analysis. The exercise usually comes down to
answering the following kinds of questions: What assumptions are we making? What would have
to be true for each assumption to be valid? Which of these assumptions seem wrong or suspect?
Could the prediction be correct even if the assumptions turned out to be wrong? How might one
quickly and inexpensively gather some data to test the reasonableness of the underlying
assumptions? These are the same kinds of things managers have to do all the time in capital
budgeting systems. Thus, it is curious that typically hard-headed financial managers have
20
decided that instead of doing rigorous analysis, simply investing in social initiatives is, without
regard to its actual impact, good. But, if Societal ROI is to improve we must build better social
management systems, while evolving a new set of metrics upon which to assess our progress.37
5.
difficult and imprecise process in any capital budgeting decision. Often the most important
benefits are the most difficult to measure. Fortunately, we have plug values that will suffice in
many important situations.38
6.
opportunity cost of capital for business. The one thing to bear in mind here is that if analysts are
using real benefits and costs they must also use a real rather than a nominal discount rate.
7.
8.
9.
rule is strictly correct only where projects are reversible at no cost or where the project is a nowor-never choice, as is often the case with marketing initiatives. Otherwise, we would want to
know if the initiative would have greater value if it were deferred than it has right now. In that
case, real options analysis is more appropriate.40
21
to revisit the question of standing. What entities should be considered in the calculation of costs
and benefits?
In its pure form, benefit-cost analysis emphasizes the Kaldor-Hicks (K-H) criterion42:
benefits and costs are summed across all groups with standing; the identities or characteristics of
the individuals who receive the benefits or bear the costs do not matter. This implicitly suggests
that all benefits and costs resulting from the marketing, operating, and philanthropic projects
considered by business leaders should be assigned the same weight (i.e., a dollar is a dollar).
Certainly, one could argue that position is also wrongthat the distribution of gains and
losses matters, especially where a businesss direct constituencies, either current or future, are
concerned, and that their gains and losses should be weighed more highly than those to
individuals that have a more distant or tangential relationship to the business. If one wishes to
begin prioritizing entities, then the strategic frames discussed in the previous section may be a
convenient guide.
Another way to do this would be to assess alternative projects lexicographically: using
social benefit-cost analysis to identify all those projects that are socially viable and then using
NPV cash flow analysis to identify the most profitable alternative from the set of socially viable
projects. Of course, one could make an equally persuasive case for performing these tests in
reverse order: commercial viability, then social benefit-cost analysis. The problem is the choice
of projects will often depend upon the order in which the tests are performed.
A more consistent way of assessing projects would account for the fact that policies and
programs affect groups differently by assigning different quantitative weights to the benefits and
costs accruing to them. Indeed, benefit-cost analysts often assign potential consequences and
measurement indicators to various groups based on the policy or program in question (e.g.,
22
consumers, producers, taxpayers; high-income (HI) persons vs. low-income (LI) persons, etc.).
This is most commonly done for programs that are intended to have a redistributive effect, where
benefits and costs accruing to LI individuals are assigned a weight greater than 1. Obviously, this
rationale for distributional weighting is limited to situations where LI persons are helped or hurt
by a program more than other income groups.
Under the K-H criterion, where all members with standing are weighted equally, many
programs that redistribute from HI persons to LI persons would not pass the K-H test. Such
programs can only by justified if the benefits to the LI persons receive a greater weight.
Distributional weights are simply a weighting (a numerical value) attached to groups that shows
the value placed on each dollar paid or received by the group, so that
NPV = 1M [Wj btj c tj /(1+r)t]
Wj = weight on group j
M = number of groups
btj = benefits to group j in period t
c tj = costs to group j in period t
r = real discount rate
Business leaders could use the same approach in their assessment of alternative projects,
in which case only the identities of the advantaged and disadvantaged groups would differ.
Where would the weights come from? Managerial judgment is one obvious answer. Then
one could test those judgments by identifying exemplary projectsthose that are believed to be
outstanding on all countsand performing a retrospective cost benefit analysis on those projects.
Then one could perform a breakeven analysis to estimate the implicit weights that actually
obtained in these cases.
23
24
Many of these same critics said that Wal-Mart has the influence and size to force other
retailers to offer lower prices for drugs. While it is a good first step, it is clearly as much a
public relations effort as a substantive change, said Ron Pollack, the executive director of
Families USA, a Washington consumer group that has often criticized Wal-Marts health care
offerings.45
Without consciously measuring these effects, Wal-Mart is incapable of effectively
responding to these complaints. While they may be trying to measure the effects on prescription
sales in their pharmacy, can they calculate the reduction in uncompensated health care costs if
one more person can afford their prescriptions? How many other people will be able to afford
their prescriptions, because Target is matching Wal-Marts actions?
One could even take it one step farther. Recently, Wal-Mart has begun to offer in-store
health care services for routine illnesses at a much lower cost than the price of a traditional
doctor visit. Does the combination of the in-store medical services with the lower prescription
price reduce the uncompensated costs of emergency room visits by uninsured patients? If so, by
how much? How much does this save society?
Conclusion
As Margolis and Walsh argue, If corporate responses to social misery are evaluated only
in terms of their instrumental benefits for the business and its shareholders, we will never learn
about their impact on society.46 We suggest that the starting point for choosing, designing,
implementing, and understanding the impact of corporate social initiatives is an accurate
assessment of the reason for the investment being contemplated by the business (i.e., improved
business performance through operational improvements and/or increased customer satisfaction,
25
increased benefits to other societal stakeholders through decreasing negative externalities or
generating positive externalities).
Next, we suggest that management must be clear as to the type and proportion of benefits
it wants to generate for the business and society. In this regard, it has a number of options. It can
work on social problems whose mitigation will enhance the long-term competitiveness of the
business. It can work to mitigate harm associated with its operations, consumption of its
products, or its philanthropy. It can choose to address social problems most compatible with its
competencies. Or, it can attempt some combination of all three. In doing so, we suggest that a
clear understanding of the competencies and resources available to address a particular social
problem will assist management in making a reasoned decision as to the investment modality
most likely to produce the best outcome.
Finally, we argue that by incorporating well understood benefit-cost techniques into
traditional capital budgeting processes, management has the opportunity to both strategically
utilize corporate social initiatives and better track their efficacy. Current discussions of corporate
social initiatives often assume that consumers (and ultimately shareholders) find such efforts
valuable and that societal good is being done.47 It is our hope that the discussion presented here
of how to evaluate these efforts will assist management in their efforts to assess and rank the
consequences of corporate social investments for shareholders, employees, customers and
society at large.48 Rigorous examination of the nature, goals, and effects of corporate social
initiatives may hasten the demise of questionable social investments that produce little in the way
of profitability or gains for the rest of society.
26
Notes
1
Rethinking the Social Responsibility of Business: A Reason Debate Featuring Milton Friedman, Whole Foods
John Mackey, and Cypress Semiconductors T.J. Rodgers, Reason, October, 2005, p. 12.
2
M. Friedman, Capitalism and Freedom (Chicago, IL: University of Chicago Press, 1962), p. 133.
3
Note that we didnt say merely rhetorical. Effective organizational leadership depends on sound rhetoric. We
believe that training in rhetoric and casuistic reasoning ought to be central to training for management.
4
K.R. Andrews, Can the Corporation Be Made Moral? Harvard Business Review, 51/3 (1973): 57-64; S.P. Sethi,
Dimensions of Corporate Social Responsibility: An Analytical Framework, California Management Review, 17/3
(1975): 58-64; A.B. Carroll, A Three-Dimensional Conceptual Model of Corporate Performance, Academy of
Management Review, 4/4 (1979): 497-505.
5
C. Hunt and E. Auster, Proactive Environmental Management: Avoiding the Toxic Trap, Sloan Management
Review, 31/2 (1990): 7-18; M.E. Drumwright, Company Advertising with a Social Dimension: The Role of
Noneconomic Criteria, Journal of Marketing, 60/4 (1996): 71-87; M.V. Russo and P.A. Fouts, A Resource-Based
Perspective on Corporate Environmental Performance, Academy of Management Journal, 40/3 (1997): 534-559; P.
Christmann, Effects of Best Practices of Environmental Management on Cost Advantage: The Role of
Complementary Assets, Academy of Management Journal, 43/4 (2000): 663-680; S. Sen and C.B. Bhattachaarya,
Does Doing Good Always Lead To Doing Better? Consumer Reaction to Corporate Social Responsibility, Journal
of Marketing Research, 38/2 (2001): 225-244; M.E. Porter and M.R. Kramer, The Competitive Advantage of
Corporate Philanthropy, Harvard Business Review, 80/12 (2002): 56-68.
6
T. Levitt, The Marketing Imagination (New York, NY: The Free Press, 1986), pp. 5-7.
7
Porter and Kramer, op. cit., p. 56.
8
Porter and Kramer, op. cit.
9
Friedman, op. cit.
10
C.W. Letts, W.P. Ryan, and A. Grossman, High Performance Nonprofit Organizations: Managing Upstream for
Greater Impact (New York, NY: John Wiley & Sons, 1999).
11
P.A. Samuelson and W.D. Nordhaus, Economics, 16th ed. (Boston, MA: Irwin/McGraw-Hill, 1998), p. 745.
12
See R.H. Coase, The Problem of Social Cost, Journal of Law and Economics, 3 (1960): 1-44; A.C. Pigou, The
Economics of Welfare (London: Macmillan, 1960); and T. Scitovsky, Externalities, Welfare and Competition
(Homewood, IL: Richard D. Irwin, 1971).
13
Of course, that business leaders treat taxes paid as a cost, rather than as a social benefit, is also a kind of
externality. It is one that does not matter, however, unless treating taxes paid as a cost leads them to make
marketing, operating, or philanthropic decisions that they would not otherwise make (see I. Diewert, D.A.
Lawrence, and F. Thompson, The Marginal Costs of Taxation and Regulation, in F. Thompson and M. Green,
eds., Handbook of Public Finance [New York, NY: Dekker, 1998], pp. 135-173). Furthermore, depending on tax
design and their behavioral responses to them, these externalities could be positive as well as negative, although
most of the examples that come to mind are negative. A more important class of externalities are inter-temporal
ones, where business leaders take account of the consequences of their decisions for their current constituents, but
deny standing to future constituents. We leave the effects of these externalities to future work.
14
Porter and Kramer, op.cit.
15
Porter and Kramer, op. cit., p. 4.
16
E.T. Penrose, The Theory of the Growth of the Firm (New York, NY: Wiley, 1959); C.K. Prahalad and G. Hamel,
The Core Competencies of the Corporation, Harvard Business Review, 90/3 (1990): 79-91; J. Barney, Business
Resources and Sustained Competitive Advantage, Journal of Management, 17/1 (1991): 99-120; D.J. Teece, G.
Pisano, and A. Shuen, Dynamic Capabilities and Strategic Management, Strategic Management Journal, 18/7
(1997): 509-533.
17
Porter and Kramer, op. cit.
18
D.J. Ringold, The Morality of Markets, Marketing, and the Corporate Purpose, in J.N. Sheth and R.S. Sisodia, eds.,
Does Marketing Need Reform? (Armonk, NY: M.E. Sharp, 2006), pp. 64-68.
19
P. Heyne, The Economic Way of Thinking (Upper Saddle River, NJ: Prentice Hall, 1996).
20
Porter and Kramer, op. cit.
21
Penrose, op. cit.
27
22
Prahalad and Hamel, op. cit.; Barney, op. cit.; Teece, Pisano, and Shuen, op. cit.
Barney, op. cit.
24
C. Nehrt, Timing and Intensity Effects of Environmental Investments, Strategic Management Journal, 17/7
(1996): 535-547; W.Q. Judge Jr. and T.J. Douglas, Performance Implications of Incorporating Natural
Environmental Issues into the Strategic Planning Process: An Empirical Assessment, Journal of Management
Studies, 35/2 (1998): 241-261; S.B. Graves and S.A. Waddock, Beyond Built to Last: Stakeholder Relations in
Built to Last Companies, Business and Society Review, 105/4 (2000): 393-418.
25
M. Treacy and F. Wiersema, Customer Intimacy and Other Value Disciplines, Harvard Business Review, 71/1
(1993): 84-93.
26
J. Frederick, Trading Blows, Target and Wal-Mart Roll Out $4 Generic Offers Nationwide, Drug Store News,
December 11, 2006: 3, 14.
27
D. Tapscott and D. Ticoll, The Naked Corporation: How the Age of Transparency Will Revolutionize Business
(New York, NY: Free Press, 2003).
28
Ibid.
29
Russo and Fouts, op. cit.
30
N. Miller, Broadcast Interview, NewsNight, CNN, December 9, 2004.
31
This is consistent with some resource-based views, which argue that strict inimitability is not a necessary
condition for resource-based advantage. See M. Fiol, Revisiting an Identity-Based View of Sustainable
Competitive Advantage, Journal of Management, 17/1 (2001): 191-211.
32
Porter and Kramer, op. cit.
33
J.D. Margolis and J.P. Walsh, Misery Loves Companies: Rethinking Social Initiatives by Business,
Administrative Science Quarterly, 48/2 (2003): 268-305.
34
Ibid.
35
See A. Boardman, D. Greenberg, A. Vining, and D. Weimer, Cost-Benefit Analysis: Concepts and Practice, 3rd
ed. (Upper Saddle River, NJ: Pearson Prentice-Hall, 2006).
36
This was not so even in the recent past. We think that many of the criticisms previously made of cost-benefit
analysis in general reflected tendentious flaws in specific studies. Most of these flaws have been identified and
repaired. See K.J. Arrow, M.L. Cropper, G.C. Eads, R.W. Hahn, L.B. Lave, R.G. Noll, P.R. Portney, M. Russell, R.
Schmalensee, V.K. Smith, and R.N. Stavins, Is There a Role for Benefit-Cost Analysis in Environmental, Health,
and Safety Regulation? Science, June 14 1996, 272 (5268):1571-1573.
37
J. Emerson, The Blended Value Proposition: Integrating Social and Financial Returns, California Management
Review, 45/1 (2003): 35-51; at p. 38.
38
See Boardman, Greenberg, Vining, and Weimer, op. cit., pp 403-440.
39
Boardman, Greenberg, Vining, and Weimer, op. cit., pp. 8-23.
40
A.K. Dixit and R.S. Pindyck, Investment under Uncertainty (Princeton, NJ: Princeton University Press, 1994);
S.E. Bodily, Real Options, Darden Case No. UVA-QA-0639 (2006).
41
See, for examples, Boardman, Greenberg, Vining, and Weimer, op. cit.; E.J. Mishan and E. Quah, Cost Benefit
Analysis, 5th ed. (London: Routledge, 2007).
42
Under Pareto efficiency, an outcome is more efficient if at least one person is made better off and nobody is made
worse off. This seems a reasonable way to determine whether an outcome is efficient or not. However, in practice it
is almost impossible to make any large change such as an economic policy change without making at least one
person worse off. Under ideal conditions, exchanges are Pareto efficient since individuals would not voluntarily
enter into them unless they were mutually beneficial.
Using Kaldor-Hicks efficiency, an outcome is more efficient if those that are made better off could in theory
compensate those that are made worse off and lead to a Pareto optimal outcome. Thus, a more efficient outcome
can, in fact, leave some people worse off.
43
E. Bardach, A Practical Guide for Policy Analysis (New York, NY: Chatham House Publishers, 2000).
44
E.g., A. Belkaoui, The Impact of the Disclosure of the Environmental Effects of Organizational Behavior on the
Market, Financial Management, 5/4 (1976): 26-31; W.G. Blacconiere and W.D. Northcut, Environmental
Information and Market Reactions to Environmental Legislation, Journal of Accounting, Auditing and Finance,
12/2 (1997): 149-178.
45
Relief for Some but Maybe Not Many in Wal-Mart Plan for $4 Generic Drugs, accessed online May 27, 2007,
from
<www.nytimes.com/2006/09/22/business/22generic.html?ex=1180324800&en=2bb9253a259e56ee&ei=5070>.
46
Margolis and Walsh, op. cit., p. 282.
23
28
47
D.J. Ringold, Corporate Societal Marketing: A Different View, in D. Scammon, M. Mason, and R. Mayer, eds.,
Marketing and Public Policy: Research Reaching New Heights (Chicago, IL: American Marketing Association,
2004), pp 71-72.
48
Porter and Kramer, op. cit.; Emerson, op. cit.
29
TABLE 1.
Operating
Positive
Externality Generation
Applied R&D
Pollution abatement
Infrastructure development
Occupational health and
safety improvements
Consumption
Exercise programs
Enhancement of drug
regimen compliance
Philanthropic
Employee training
Preventative medicine
Programs to foster
responsible alcoholic
beverage consumption
Basic R&D
Basic R&D
30
FIGURE 1.
Firm Success
Identify Requirements to
Generate Competitive Advantage
Positive
Externalities
Resource-Based Approach
Firm Success
Identify Societal Issues to Which
Resources Can Be Effectively
Employed
Negative Externality
Reduction and/or
Positive Externalities