Comments on: Corporate Social Responsibility http://www.yazadjal.com/2005/01/06/corporate-social-responsibility/ Tue, 02 Dec 2008 15:15:26 +0000 http://wordpress.org/?v=2.0.1 by: Quizman http://www.yazadjal.com/2005/01/06/corporate-social-responsibility/#comment-2662 Tue, 30 Nov 1999 00:00:00 +0000 http://www.yazadjal.com/2005/01/06/corporate-social-responsibility/#comment-2662 This is exactly what they teach us in business schools in the US (esp my school U. C. Berkeley). Even the Harvard cases that we used for ethics, maktg and competitive strategy mentioned shareholder value as the foremost objective. The rest is tied to this one basic objective. Thus, Nike's endeavour to avoid bad publicity caused by sweat shops is solely due to its aim of avoiding dilution in shareholder value. I'll give you an example of another case that is an extreme. Merck had developed a cure for river blindness (affects people in remote parts of Africa). The executives felt that there was no market there since they simply would not be able to afford the drug. They had a decision to make; should they produce the drug and risk losses? In the end, they decide to produce the drug and give it away for free! You know why? Because, the execs realized that the Merck scientists worked for a nobler purpose (of finding cures) and that they would be demoralized if the drug was not given to those who needed it most. The execs felt that a demoralized R&D would dilute shareholder value! Now, we also studied exceptions to this rule. There are corporations that are involved in tunnelling capital. {Often happens when promoters own a majority stake *say* 60%) and the rest of the shareholders own teensy amounts) Thus, they took decisions to increase the value of the 60% while not caring about the 40%. This was rampant in Russia during the privatization era. Lots of innocent shareholders got rogered while a few cronies made off with the money. This is exactly what they teach us in business schools in the US (esp my school U. C. Berkeley). Even the Harvard cases that we used for ethics, maktg and competitive strategy mentioned shareholder value as the foremost objective. The rest is tied to this one basic objective. Thus, Nike’s endeavour to avoid bad publicity caused by sweat shops is solely due to its aim of avoiding dilution in shareholder value.

I’ll give you an example of another case that is an extreme. Merck had developed a cure for river blindness (affects people in remote parts of Africa). The executives felt that there was no market there since they simply would not be able to afford the drug. They had a decision to make; should they produce the drug and risk losses?

In the end, they decide to produce the drug and give it away for free! You know why? Because, the execs realized that the Merck scientists worked for a nobler purpose (of finding cures) and that they would be demoralized if the drug was not given to those who needed it most. The execs felt that a demoralized R&D would dilute shareholder value!

Now, we also studied exceptions to this rule. There are corporations that are involved in tunnelling capital. {Often happens when promoters own a majority stake *say* 60%) and the rest of the shareholders own teensy amounts) Thus, they took decisions to increase the value of the 60% while not caring about the 40%. This was rampant in Russia during the privatization era. Lots of innocent shareholders got rogered while a few cronies made off with the money.

]]>