NEW YORK, Jan. 18, 2005 – Corporate social responsibility (CSR), hailed by its proponents as being both good for business and good for the bottom line, may instead have the opposite effect on corporate profitability, according to a study released today.

The study, “Does Corporate Social Responsibility Enhance Business Profitability?,” was conducted by economists including Arthur Laffer, Ph.D., known as “the father of supply-side economics.” Dr.Laffer’s study empirically examines the economic performance of companies among those considered most socially responsible by Business Ethics magazine. 

The companies, which included Procter & Gamble, Intel, Hewlett-Packard and Southwest Airlines, were selected based on consistently “high” CSR performance, as defined by their inclusion on the Business Ethics magazine list for the last five years. Company financial performances were compared with those of their chief competitors.
Criteria noted by Business Ethics for listing on the BE Top 100 include positive evaluations of companies’ work to serve groups including women, shareholders, the environment, the community, non-U.S. stakeholders, employees and customers. 

Dr. Laffer’s study was designed to test, using accepted economic theory and metrics, the argument put forth by some advocates of corporate social responsibility and socially responsible investing that companies can see a return on their CSR investment in the form of increased profitability. 

“In this analysis of 28 companies that were among the Business Ethics Top 100 Corporate Citizens every year from 2000-2004 we found no significant positive correlation between CSR and business profitability as determined by standard measures,” the paper’s authors wrote.

Moreover, there are some indications from the study that CSR activities lead to decreased profitability. 

A profitability comparison of compound annual net income growth, net profit margin and stock price appreciation revealed that “only a minority of the 28 CSR-leading companies in each comparison outperformed their peers,” the study said. “Being a CSR-leading company was negatively or not correlated with compound annual net income growth, net profit margin and stock price appreciation.” 

In addition, the research found, “those who invest exclusively in companies deemed to be ‘socially responsible’ do not appear to receive financial returns that are better than those of conventional investors.”

An archived audio version of a media roundtable session hosted by the Competitive Enterprise Institute and CSRwatch.com in which Dr. Laffer discussed the paper’s findings will be available at http://www.videonewswire.com/event.asp?id=26617 for 90 days.

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