Suppose that there's a trade-off between profitability and CSR mandates. Why might this be the case? Any CSR initiatives that increased profitability would have already been adopted under normal profit-seeking strategies.
Managers want to think themselves good people and enjoy doing CSR things. They get approbation from others for doing so. They'll get in trouble with shareholders if profitability drops too much, so they won't do the nuttiest things. But they'll take some CSR as consumption.
NBER points to some relevant evidence. From the abstract of Cheng, Hong and Shue's new paper:
We find support for two key predictions of an agency theory of unproductive corporate social responsibility. First, increasing managerial ownership decreases measures of firm goodness. We use the 2003 Dividend Tax Cut to increase after-tax insider ownership. Firms with moderate levels of insider ownership cut goodness by more than firms with low levels (where the tax cut has no effect) and high levels (where agency is less of an issue). Second, increasing monitoring reduces corporate goodness. A regression discontinuity design of close votes around the 50% cut-off finds that passage of shareholder governance proposals leads to slower growth in goodness.In short, the more skin that decision-makers have in the game, the less they go for CSR policies. And the more that those with skin in the game can monitor the decision-makers, the less they go for CSR policies. It's slack in the principal-agent relationship that allows managerial consumption of "do-good" benefits.
Sometimes, we need Larry the Liquidator.
I do so hate it when companies I invest in go in for "Social Responsibility". But, only companies with considerable market power can afford to do it, and they are good companies to invest in. A small conundrum. Sometimes companies do it as an insurance policy - I think - so that if they stuff up, the govt won't hit them too hard. Think Fonterra and its milk in schools - a good thing to have in their back pocket when it comes to subsequent scandels, I think.
ReplyDeleteNot exactly a smoking gun, but if you google both their names this twitter conversation comes up, in which Norman is asked if he's familiar with Keen's work and responds that he is:
ReplyDeletehttps://twitter.com/RusselNorman/status/361240530044207104
haha Mr Eric.. from the sublime [ David Friedman] to the ridiculous Russel Norman.
ReplyDeleteYes there is a reaction away from conventional economics, and we do have that right, but stupidity shoud be left to people like me, not Russell Norman..
There is an arrogance with Green, and Rod Donald had it also.
The horses are not kicking the stables down, we are happy that Cunliffe will take some votes from Green, possibly also from NZ Firrst , the margins will be tight but
whether you like it or not , I think we NZ will re
It is jargon for him to talk to a specific group - he is an ideology like all his fans, they just like to pretend they are trying to have an "honest adult conversation" about issues.
ReplyDeleteCareful! with the 'all his fans' stuff. Some of us are open to voting Green but are also embarrassed by these statements!
Could also be that he's poorly advised and read. The Greens advertised for an economic adviser about a year ago. Perhaps whoever filled that role or whoever drafted the role description is part of the problem.
This excuse only works for the first 20 dumb comments before you should really be taking the hint and thinking more carefully before speaking/tweeting.
"Careful! with the 'all his fans' stuff. Some of us are open to voting Green but are also embarrassed by these statements!"
ReplyDeleteFair call, I would say I am in the same camp as you :)
What can I say, I am more cynical about his intentions. I honestly believe he knows the difference, and that his advisors do as well - but there are a lot of people out there who respond well to "bashing economists" irrespective of whether it is fair or not. And this is what he is doing.
I grew up in an Alliance supporting family that used to go to regional and national conferences. I have no doubt my experiences at these places, and the sorts of things many of the people I used to spend time with have to say about me being an economist, are colouring my view ;)
Got you. And see that this has already played out below. Next time I'll read through the rest of the comments to get the full meaning.
ReplyDeleteHaha Mr Eric, from the sublime [ David Friedman ] to the ridiculous Russell Norman. I think we people have a genuine right to be untrustworthy of conventional economics.
ReplyDeleteBut sheer stupidity should be left in the hands of a few like me , not Russell Norman.
The last few years changed everything. I can remember when you put a tie on to see your Bank Manager, now I send him political updates .
And on that matter the horses are quiet in their stables and not kicking walls down. They know that Cunliffe will eat into the left Green and that NZ Nat will be unaffected .But they are talking about the unwashed 800,000
We heard aso that Winston Peters just took a lurch to the centre right, he found out that old people don’t want devaluation.
Keep it up Eric, this is much funnier than David Farrar
Ironically, Norman's approach to economics in his comments is quite similar to many who dispute anthropogenic climate change. By insinuating that economists (or climatologists) are acting with an ideological agenda in mind, rather than engaging in value-neutral analysis, they can use political tribalism to avoid having to deal with inconveneint facts.
ReplyDelete