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The Globe and Mail

Transcript: The socially responsible corporation? It’s a myth

KARL MOORE – This is Karl Moore of the Desautels Faculty of Management at McGill University, talking management for The Globe and Mail. Today, I am delighted to speak to Timothy Devinney [leadership chair in international business at] Leeds University.

Timothy, you have been looking and studying CSR [corporate social responsibility], a very interesting topic. What are some of your key observations that you have seen most recently?

TIMOTHY DEVINNEY – That work fundamentally showed that the notion of an ethical consumer, one, was a myth, in the sense that there really was no ethical consumer in the general sense, but also that individuals fundamentally were fairly rational and nuanced but reasonably utilitarian in the nature of the decisions that they made.

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They traded off ethics like they would trade off almost any other attribute of a product which, in some ways, was disappointing, but it pointed us into a big issue that we thought was related to corporate social responsibility, which was the question of whether corporations could be socially responsible when you looked at all the components of the value chain or the individuals underlying this – the workers, the investors, and the managers. Whether you could have a socially responsible corporation when, in fact, the natural tendencies of the individuals in the corporation were, in the value chain of the corporation, were themselves not going to be prepared to sacrifice for their conscience, in some sense.

KARL MOORE – So Timothy, what have you found?

TIMOTHY DEVINNEY – In some sense, a confirmation of what we saw with the consumers, that statements about the willingness of workers to sacrifice to work for "good companies" was significantly overstated.

Individuals more or less chose contracts in very rational ways. They did sometimes take into account the social reputation and the corporate reputation of the company, when those things were linked in with the returns they would receive to their own human capital.

When we looked at the investors, we ran a series of very interesting studies on how people would invest in pension funds. We literally gave them pension fund opportunities where there were social issues embedded in the portfolios they could invest in. What we found is they underinvested in social investment funds, even when it was quite irrational for them to do so – they seemed to discount those funds relative to funds that didn't have these components.

When we queried people and we asked them, "Well, why are you doing this?" they were fundamentally looking not at the current returns, but basically believing that ultimately they would be forced to make sacrifices in their dividends and the payouts they would receive in the future, so they were acting fairly rational.

So consistently across all the work we have been doing, we have been finding that this idea that individuals would willingly sacrifice or give up things for, let's say, social benefits which would spill over in these kinds of corporate environments, that basically wasn't true.

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KARL MOORE – That sounds a bit depressing…

TIMOTHY DEVINNEY – It is very depressing, in some sense. You can sort of say that the depressing thing would be that a lot of the kind of what we call the vectors of social responsibility don't really work as effectively as you would think they would.

But if you compare our work with some other work, then one of the things that might follow from this is that if we continue to allow the same decision calculuses to operate, if consumers continue to make decisions in the same way and investors continue to make decisions using the same calculus, it is going to be a very big uphill battle to get these things to integrate into the economic structure as well.

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