Adam Smith (1776) : Invisible Hand

Milton Friedman(1970) : Profit Maximization

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History

Corporate Environments

• Stakeholders: Shareholders, Employees,

Customers,

Banks, Suppliers, Community, Society,

Government

• Non-Market Forces: Regulations, Legal System,

Regulatory Bodies, NGOs,

Capital Market, SRI

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Limitations of Invisible Hand:

Market Failures

E nvironment: External Costs

S ocial: Justice & Fairness

G overnance: Shareholders

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E nvironment: External Costs

• Total Cost(Social Cost)=

Private Cost + External Cost

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S ocial : Justice & Fairness

• Distribution of Income

• Human Rights

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G overnance: Shareholders

• Primacy: Profits vs Shareholders

• Conflict of Interest: Shareholders &

Management

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CSR

• Value Alignment:

Corporate’s values vs Societal values

• Corporate Strategy:

Long-term Growth & Development

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Benefits of CSR

• Reduction of Conflicts :

Corporation vs Society

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• Risk Management :

bad press, NGO actions, consumer boycott, law suits

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• Waste Reduction :

- BP’s greenhouse reduction program:

$630M in savings and extra revenue

- Du Pont’s chemical reduction program:

Sales of clean-up services generated $1B

revenue/yr

- Dow chemical's energy saving projects(1981-

1993):

204% return on investment

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• Regulatory Protection

• Brand Equity

• Employee Productivity

• Cost of Capital

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What the Data Tell Us

• Corporate Profits

• Stock Price

• Market to Book Ratio:

Stock Market Valuation

Book Value of Co’s Assets

“Good CSR is positively correlated with superior

financial performance.”

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=

•Pollution & Stock Price

- Hamilton’s 1995 Study:

Based on U.S. EPA’s TRI(Toxics Release Inventory)

“Average impact of TRI’s annual data releasing firms was $4.1M of

stock-market values down.”

- Dasgupa, Laplate & Mamingi’s 2001 Study:

In Argentina, Chile, Mexico & Philippines,

“Inferior performance of a firm(filed of a complaint to a

government authority) dropped 5-15% stock price drop.”

“ Superior performance of a firm (meeting expected standards)

raised 20% stock price up.”

- Korean’s 2004 Study:

“A firm listed on Monthly Violation Report by Ministry of

Environment experienced average 9.7% stock price drop.” 14

•Environmental & Financial Performance

- Dowell, Hart & Yeung(DHY) Study: S&P 500, U.S.

“Shows positive correlation between environmental

performance and Market-to-Book ratio.”

•Social Performance and Market-to-Book

- Research by Heal, Fisman & Nair 2008:

“Correlation is high especially among heavy advertisers, ie,

when corporate image and brand equity are important.”

- “Cause Related Marketing is effective.”

EX: Coca Cola, Evian, BT Group, Bono’s Red

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SRI : Investment Returns

* Domini Social Index (1991-2001) DSI S&P500

5 Years 20% 18.4%

10 Years 18.9% 17.4%

* Calpers’ Engagement with 42 Companies(1987 – 1992)

: Outperformed 41% over S&P500

* Pax World Balanced Fund ($1.1B)

: 17th among 293 mutual funds (5 Years: 1996-2001)

* Korean Stock Market

KRX SRI Index KRX SRI KOSPI

2009. 1. 2 – 11. 30 41.8% 35.5%

DJSI Korea DJSI Korea KOSPI

2006. 1. 1 – 2010. 4. 5 37.8% 24.7%

ARK(Value Investing+SRI) ARK KOSPI

2003. 7. 16 – 2010. 5. 4 301.8% 139.89% 16

Strategic Philanthropy

Strategic Philanthropy

Non-ProfitManagement& Governance

Non-ProfitManagement& Governance

Social EntrepreneurshipSocial Entrepreneurship

CorporateSocial

Responsibility

CorporateSocial

ResponsibilityGlobal Poverty,

Emerging Markets

& Int’l Development

Global Poverty,Emerging Markets

&

Int’l Development

Environmental

Sustainability

Environmental

Sustainability

Social Capital MarketSocial Capital Market

Social Blended Value Spectrum Financial

Sustainable DevelopmentSustainable Development

SociallyResponsibleInvestment

SociallyResponsibleInvestment

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