Tearing the clothes off my back

As many of my readers know by now, I am currently working on a “mock” report aimed at changing the CSR policy of TOMS shoes. Therefore, I need to analyze as much information about donations to “third world” countries around the world. Hopefully, we will come across information about the initial impacts caused by these acts of charity, as well as their long-term repercussions. So, without further ado- let’s begin.

Today, we will be examining the article entitled “Used‐Clothing Donations and Apparel Production in Africa”, which was written by Garth Frazer from University of Toronto. While he was doing his research, the author was trying to find at least one possible explanation for the failure of African countries to “step onto the bottom rung of the manufacturing sophistication ladder” (i.e. produce apparel). According to his findings, used‐clothing donations to thrift shops and other organizations in industrialized countries typically end up being sold to consumers in Africa. Since used clothing is initially provided as a donation, it is quite similar to the problems associated with food aid- which always assists consumers, but, most of the time, harms African food producers. Used‐clothing imports are found to have a negative impact on the apparel production in Africa, explaining roughly 40% of the decline in production and 50% of the decline in employment over the period 1981–2000.

Even though I am overjoyed that the article provides such substantial amounts of data for my own research, I find the story itself quite horrifying. The effects caused by charity (purely good-intentions) seem to be causing the African nations to lose the “lion’s share” of their economy and become dependent upon “the kindness of strangers”. This is eerily similar to what Britain was doing to India, before making it an official colony of the empire. First, the British would use their plantations on foreign soil to grow and import raw materials, then they would sell the manufactured fabric back to India at low prices, crippling their economy as a result. Hopefully, we might one day come across research that favors this type of CSR policy, but, for now, the facts don’t appear to be quite so favorable…

Garth Frazer, 2008. “Used-Clothing Donations and Apparel Production in Africa,” Economic Journal, Royal Economic Society, vol. 118(532), pages 1764-1784

Today, we are going to examine an Academy of Management Journal article entitled “Corporate Contributions: Altruistic or For-Profit?”. Of course, from today’s cynical-pragmatic point of view, the answer to this question seems quite obvious. However, it doesn’t hurt to double-check once in a while – at the very least, to reaffirm just how clever and correct we are in our assumptions.

In 1954, the New Jersey Supreme Court upheld a lower court ruling, which granted corporations the right to make contributions to charities, without worrying about shareholder interests. The authors (Louis W. Fry, Gerald D. Keim, and Roger E. Meiners) decided to explore the possible motivations that corporate entities could have for spending a portion of their retained earnings on philanthropy, instead of capital reinvestment. Among other things, the researchers found that small businesses and monopolies tended to give far less than large corporations with plenty of rivals (basically, an oligopoly structure). Moreover, by analyzing a sample of 36 industries, using simple regression analysis and analysis of covariance through multiple regression (ANCOVA), they were able to establish a correlation between the marginal changes in advertising and marginal contribution expenditures.

Most likely, the evidence and conclusions presented in this article won’t shock many readers in our modern times. The fact that a correlation was established between the two factors mentioned above basically means that the corporations in question were trying to “kill two birds with one stone”- by giving to charity the money they would have otherwise spent on commercials while achieving the same result and gaining extra prestige in the process. However, in my opinion, the authors should have been clearer in describing the exact data they were using in their ANCOVA analysis, especially since they had previously established, that different market structures contribute differently to society. Moreover, we need to take into account the fact that the article in question was written in 1982- the techniques companies use to advertise today (with the internet and social media) differ greatly from 40 years ago. Basically, I believe that more research has to be done before any conclusions can be drawn.

Fry, L. W.; Keim, G. D.; Meiners, R. E. (1982). “Corporate Contributions: Altruistic or for Profit?”. The Academy of Management Journal. 25 (1): 94–106.

Not a flock

Throughout this series of blog posts, one can come across an assortment of arguments that might influence a firm’s desire to engage in CSR. However, as I was glossing over everything I had written, I realized that I had failed to take into account a rather important element in the ongoing debate concerning the behavior of the enterprises- the opinions of the very customers who actually buy their products! Do they wholeheartedly pledge their patronage the moment a corporation publicly displays its charitable actions? Or do they retain a degree of scepticism, and make decisions based solely on the quality of the things they purchase? Hopefully, the research done in “Consumer Perceptions of Corporate Social Responsibility in town shopping centres and their influence on shopping evaluations” will help shed some light on the situation.

The authors (H.Oppewal, A.Alexander, and P.Sulliwan) wanted to investigate whether or not the effects of town center CSR actions can influence consumers’ evaluations. It is common knowledge that there is often a symbiotic relationship between retailers and the community (especially in smaller ones). The researchers themselves, quoting their colleagues (Besser and Miller, 2001), wrote that “retailers depend on community patronage for firm revenues and therefore have a direct interest in community development”- thus, they were practically openly declaring that they would definitely find something substantial. After conducting some quantitative research in the form of 200 questionnaires (and ensuring their validity with split-half tests), they obtained results which indicated that CSR actions only have limited effects on shopping centre attractiveness. However, the authors insist that their findings can have an important impact on corporate strategies- assuming that the cumulative pecuniary effects of charity outweigh the costs needed to bring them about.

Anybody who knows me personally can easily guess the reaction I had after reading this paper. I am, in fact, quite skeptical towards any findings procured through questionnaires- even if they are relatively quick to analyze and cheap to implement. The loss of ecological validity (i.e the applicability of the results to real life situations) neutralizes any effort made by researchers in their quest for the truth. Such, I believe, was the case here: the gender representation of their sample was skewed (80% female), and they were using a convenience sample (which means that there was a high chance of a non-response bias). Also I do not like how they chose to conduct their research in a shopping center- even though such establishments contain a variety of brands, their patrons usually just want to find decent products for bargain prices (Prajecus and Olsen, 2004). Finally, it is not quite clear what forms of CSR are being discussed- after all, different people support different causes. All in all, I believe that more research needs to be carried out before anything definite can be said.

Oppewal, H.; Alexander, A.; Sulliwan, P. (2006). “Consumer Perceptions of Corporate Social Responsibility in town shopping centres and their influence on shopping evaluations”. Journal of retailing and consumer services. 13 (4): 263–270.

Toast Ed.

Last time, we discovered that engaging in CSR activities can have at least one serious benefit- reduced penalties from courts of law. Naturally, this got me interested in just how much of an effect this could have when the industries (and the products they produce) are quite controversial, and the target of insatiable criticism. While scrolling through several articles on this topic, I stumbled upon a little research paper entitled: “Smokescreens and beer goggles: How alcohol industry CSM protects the industry”. Of course, I am not against the concept of drinking- it can actually “loosen someone up”, allowing them to stop constantly worrying about being socially acceptable, and reveal their true nature to everyone. However, I personally haven’t had any alcohol in a very long time, but only because it seems to have practically no effect on me, thus making it a rather poor investment (I’m still a fun guy, honest). Regardless, I believe that I am perfectly capable of remaining objective while reviewing this- therefore, let’s begin!

From the very beginning, the authors explain how Corporate Social Marketing (CSM) is one of several initiatives companies can undertake to demonstrate their Corporate Social Responsibility, without any mandates from the government. Immediately afterwards, they express their suspicions about the collective commitment made by leading alcohol brands in 2012 “to build on their long-standing efforts to reduce harmful drinking through the Beer, Wine and Spirits Producers’ Commitments” (http://www.producerscommitments.org/default.aspx). The authors then proceed to introduce their hypothesis: that the “responsible drinking” CSM campaigns improve public knowledge about the assortment of products the industry has to offer, but do not discourage harmful or underage drinking. To support their claim, they bring up various cases resembling those of“Anheuser-Busch”, which spent $19.9 million on ‘responsibility’ advertising between 2001 and 2005, and claimed to be ‘the global industry leader in promoting responsibility’- however, during the same period, “Anheuser-Busch” had also spent $1.6 billion on television product advertising.

Clearly, the authors (Sandra C.Jones, Austin Wyatt, and Mike Danube) believe that they have sufficient evidence to suggest that the CSM activities, which serve to safeguard the industry from “restrictive policies and declining sales”, may, in fact, be detrimental to the community. They are quite persuasive in their arguments. However, I have stated from the very beginning that this is quite a controversial topic- the slightest hint of subjectivity may lead any researcher astray. It should be noted that Sandra Jones works at the Australian Catholic University- which means that there is always a possibility of bias, due to possible ulterior motives and agendas. I personally agree that the products in question do indeed share “the dual characteristics of being harmful and having the potential for the consumer to lose control of their consumption”- however, I also believe that these industries will continue to exist, regardless of our opinion. After all, they are kept afloat by a substantial demand from the world’s population, as well as the tax dollars they contribute- the fact that they are doing anything at all is already a great blessing for us. Whether or not this will make a difference in the long run- only the future will tell.

Jones, Sandra C.; Wyatt, Austin; Daube, Mike (2016-12-01). “Smokescreens and Beer Goggles: How Alcohol Industry CSM Protects the Industry”. Social Marketing Quarterly. 22 (4): 264–279. Retrieved 2018-06-20.

A GET OUT OF JAIL FREE CARD

In the first couple of posts, we analyzed which types of companies engaged in CSR, and whether or not they should even bother doing so. However, there was an apparent shortage of information in regards to the exact benefits a company can expect from such a enacting policy (apart from CSR being a decent substitute for a marketing campaign). Furthermore, one can argue that the publication dates of the papers (the 1970s) might inhibit their applicability to our modern times. Fortunately, both of these issues will not be a problem this time- today, we will be analyzing a 2014 article, entitled “Crime, Punishment and the Halo Effect of Corporate Social Responsibility”.
From the very beginning, the authors (Harrison Hong and Inessa Liskovich, both from Princeton’s Department of Economics) clearly state that there are three reasons for why corporate social responsibility is considered valuable: “product quality signaling, delegated giving, and the halo effect.” However, they then proceed argue how difficult it is to pinpoint the exact impact each of these forces have on a typical consumer, since it is usually a combination of the three. Instead, they chose to focus their efforts on empirically analyzing the possible benefits the “halo effect” can offer firms. Basically, they measured the data they had on 217 cases, where the defendants were charged with violating the Foreign Corrupt Practices Act (FCPA). After several regressions, they discovered that firms with higher “social responsibility scores”, were sentenced to pay a $2.3 million fine or 44% less than the median.
These are, indeed, quite substantial findings- and a valid argument for firms to engage in CSR. Even though prosecutors are supposed to evaluate each individual case based on its own merits, the authors’ findings indicate that courts can be lenient towards the more charitable enterprises. I found this to be quite amusing- the fact that CSR has essentially been turned into a legal bribe. Although, it should be noted that the authors themselves admitted that they found no evidence proving that the contributions of their defendants were made with an impeding criminal trial on the horizon. Regardless, this is one point in favor of CRS!

Hong, Harrison, and Inessa Liskovich. Crime, punishment and the halo effect of corporate social responsibility. No. w21215. National Bureau of Economic Research, 2015.

“To each his own”

Today, we are going to divert from our traditional course of examining material solely from scholarly sources- instead, I will be reviewing an article from the New York Times Magazine, which dates back to September 13, 1970. The reason this piece of writing caught my eye was because it was written by none other than Milton Friedman- a famous economist and Nobel Prize winner. Clearly, a scientist of this caliber can contribute a lot to a discussion concerning CSR.

In this article, Professor Friedman argues that the social responsibility of a business is to generate profits, and not engage in “social affairs”. In order to illustrate this point to the masses, he describes the role of a typical executive, elected by shareholder- whose sole purpose is to increase the revenue of an enterprise he is in charge of. If he were to engage in any form of CSR, in the name of the firm, then he would be doing so with someone else’s money- essentially, according to Friedman’s comparison, he would be like a politician, who is implementing taxes and redistributing them to boost social welfare. Friedman concludes his paper by reminding us that, thanks to the American Revolution, the USA already has government, whose functions include properly estimating the funds needed to keep the majority of the public happy- thus eliminating the problem of “taxation without representation”, that had plagued the colonies so long ago.

The issue raised in Professor Friedman’s argument is intriguing, and reveals a rather interesting point: if firms have the capacity to contribute to social welfare, why don’t they just remove “the middleman” and stop paying taxes altogether? Of course, that would mean that the government would be reduced to a passive political body, whose sole function would be to establish favourable tariffs and trade deals for transcontinental companies- just like many economic globalization specialists have already predicted (Michael Nicholson “Globalization, Weak States, Failed States”, 1999). However, that is a rather radical idea, and pursuing it will only lead us to stray away from our initial objective. Regardless, I personally believe that, although Milton Friedman is right about how everything must carry out its own functions- we discovered during our examination of “Corporate Contributions: Altruistic or For-Profit?”, that if a firm properly employs CSR, it could generate plenty of publicity, thus saving the cooperation money in regards to advertising. Therefore, in my opinion, more research needs to be done, before anything definite can be said on the subject at hand.

Refference
Friedman, Milton (1970-09-13). “The Social Responsibility of Business is to Increase its Profits”. The New York Times Magazine. Retrieved 2018-06-19

Today, we are going to examine an Academy of Management Journal article entitled “Corporate Contributions: Altruistic or For-Profit?”. Of course, from today’s cynical-pragmatic point of view, the answer to this question seems quite obvious. However, it doesn’t hurt to double-check once in a while – at the very least, to reaffirm just how clever and correct we are in our assumptions.

In 1954, the New Jersey Supreme Court upheld a lower court ruling, which granted corporations the right to make contributions to charities, without worrying about shareholder interests. The authors (Louis W. Fry, Gerald D. Keim, and Roger E. Meiners) decided to explore the possible motivations that corporate entities could have for spending a portion of their retained earnings on philanthropy, instead of capital reinvestment. Among other things, the researchers found that small businesses and monopolies tended to give far less than large corporations with plenty of rivals (basically, an oligopoly structure). Moreover, by analyzing a sample of 36 industries, using simple regression analysis and analysis of covariance through multiple regression (ANCOVA), they were able to establish a correlation between the marginal changes in advertising and marginal contribution expenditures.

Most likely, the evidence and conclusions presented in this article won’t shock many readers in our modern times. The fact that a correlation was established between the two factors mentioned above basically means that the corporations in question were trying to “kill two birds with one stone”- by giving to charity the money they would have otherwise spent on commercials while achieving the same result and gaining extra prestige in the process. However, in my opinion, the authors should have been clearer in describing the exact data they were using in their ANCOVA analysis, especially since they had previously established, that different market structures contribute differently to society. Moreover, we need to take into account the fact that the article in question was written in 1982- the techniques companies use to advertise today (with the internet and social media) differ greatly from 40 years ago. Basically, I believe that more research has to be done before any conclusions can be drawn.

Fry, L. W.; Keim, G. D.; Meiners, R. E. (1982). “Corporate Contributions: Altruistic or for Profit?”. The Academy of Management Journal. 25 (1): 94–106.

If someone you care about suddenly starts to talk about how they are planning to “go into business,” your initial reaction will probably be shock, accompanied by an overwhelming fear of the risks involved. Such was the case when I announced to everyone I knew that I was going to pursue a major in Finance. Almost instantly, I was bombarded with warnings, objections, and even counter-offers: “money isn’t everything,” “the competition for jobs will be too large,” “try learning something practical- become a doctor,” etc. Sometimes, I too start to doubt whether or not I had made the right choice. After all, even professional finance majors with more than twenty years of field experience might lose everything in a matter of minutes and end up penniless business owners- assuming that they even managed to accomplish anything in the first place. This is exactly what happened to my own father during the financial crisis of 2008- it only took one month for his firm’s stock value to plummet so low, that he had no choice but to file for bankruptcy. And yet, I know deep down that there is nothing that interests me more than what I am studying now.

I wouldn’t say that choosing finance was some sort of childhood dream of mine- although, most likely, many of us do fantasize about growing up to be rich and powerful. Since I come from a lower middle-class family, I knew that I would have to start earning money for college as soon as possible. I am currently 25 years old, and yet I have already worked at 17 different jobs- including ‘lumberjack’, ‘door-to-door salesman’, ‘hospital assistant’, and ‘crab fisherman’. During these various episodes of my life, I did more than just what was required of me- I studied each respective sector as much as possible in an attempt to understand what responsibilities I would be faced with should I choose to stay and climb up the career ladder. Sadly, none of the prospects piqued my interest in the slightest.

Regardless, on a cloudy morning in 2016, while I was spending the summer in my friend’s backyard (perfect for low living expenses), I found what I wanted to become- a director in a financial firm. However, I would never have expected my source of inspiration for choosing a profession to be a homeless man sorting through a trash bin next to the house. And yet, there he was- Malcolm Sanderson, an unemployed philosophy professor, who, despite his deplorable condition, gave me a cheerful smile and a wave as he stepped aside so I could throw my garbage bag away. I can’t recall exactly who spoke first, but, before I knew it, we were discussing politics and joking about the weathermen- I suppose we looked quite silly, chatting out there in the open as if we were good neighbors. Nonetheless, this became a weekly ritual for both of us.

We discussed a great many topics during these “chance” meetings: Shakespearean plays, Aristotelian ethics, morality, and alcohol were just a few of the more popular ones. However, the conversation that still haunts me to this day was the one we had about the nature of money. I had been planning on giving Malcolm a little cash as a friendly gesture, but the moment he saw those bills, he became so furious that feelings of shame immediately struck me like lightning bolts. Mr. Sanderson had always been a proud man. One wrong decision (to entrust the majority of his life savings to an amateur “businessman”) had cost him his house, his wife, and his job- yet he, apparently, never accepted charity from anyone, choosing instead to wander the streets in search of trash bins.

When Malcolm finally calmed down, he proceeded to lecture me about the concept of money: how it originated in the first place, how it was a physical representation of a person’s life, how every form of creativity and innovation exists today only because someone found the funds to make the dreams of others a reality. “Why not pursue a career with money managing? There is nothing wrong or shameful about it, just make sure you aren’t as bad at it as I was”- this is how Mr. Sanderson chose to conclude his speech that day. We talked for nearly a year after that, before Malcolm stopped coming over for good, much to my disappointment. To this day, I still feel really sorry for him- his entire tragedy could have been avoided, had he simply entrusted his money to a more capable person.

Money truly defines a great deal in our lives. The potential it offers exceeds that of just satisfying our basic wants or our carnal desires. To some, a million dollars represents cars, houses, jewelry, vacations, security- however, very few see the blood, sweat, and lifetimes needed to earn that amount. My dream is to make sure that each sacrifice like that is put to good use. And that is what good finance can accomplish- proper investments, optimizations of expenses, and gains from mistakes made by competitors can all be used to bring about great change and progress, if used effectively.

And that is just what I plan to do.

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