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Wednesday, January 30, 2013

Strategic CSR - Conspicuous Virtue

The article in the first url below ties together a few ideas that I have been playing around with for a while now. The first is the primary focus of the article—the concept that unforeseen consequences often undermine the good intentions behind an innovation (see: Strategic CSR – The Jevons Paradox). In this case, the article claims that re-usable shopping bags might be more of a health hazard than an environmental benefit:

“Recent years have seen a raft of bans put in place on plastic bags—Los Angeles and San Francisco both have them, as does China. In their paper, University of Pennsylvania economist Jonathan Klick and the lawyer Joshua Wright decided to look at emergency room admissions for illnesses related to food-borne bacteria before and after San Francisco County imposed its ban in 2007. They found that the problem had increased by more than one fourth, and that deaths had risen by the same amount.”

The cause of the problem is that the bags are re-used and, therefore not sterile/clean, in the way that new plastic or paper bags are clean:

“The issue, it seems, is that the vast majority of shoppers who re-use bags never clean them. … Most people also don’t pay close attention to whether they’re using a bag to carry mesclun greens and apples that they used a week earlier to tote chicken breasts or other raw meat—or for that matter, a dog leash and their soccer cleats.”

The second idea is only briefly referenced at the end of the article—the concept of conspicuous virtue:

“The inconvenience of reusable grocery bags is what give them their power as symbols of green virtue, along with reusable water bottles and hybrid cars.”

The author introduces this point to suggest that re-usable bags will lose their status once their health effects are broadly understood. I find this idea that perception (rather than functional value) drives the consumption of specific goods fascinating. I also suspect it is more widespread throughout the CSR/LOHAS/sustainability community than many of us are willing to admit.

I used to think something similar when I lived in Austin, TX. Shopping at the main Whole Foods store there (Whole Foods’ HQ is in Austin and the store beneath the HQ is the firm’s show store where the firm tries out new innovations before rolling them out firm-wide). Watching a lot of shoppers there, it was hard not to conclude that the value of being seen shopping in Whole Foods was almost as high to consumers as the value of the products they were buying.

This idea also has parallels with what economists call a Veblen good—“a product that is valued and desirable simply for being more expensive.” The 2007 article in the second url below applies this idea to help explain the consumption of CSR goods. The author illustrates his point initially in terms of the Livestrong yellow armband craze that had been sweeping the nation/world at the time:

“More than 60 million have sold since 2004, one of the greatest successes in nonprofit fund-raising history, with the proceeds going to cancer-related causes. No doubt some wear the bands in solidarity, or for inspiration -- but, that said, the wristband conceit was simply ingenious. It allowed people to make a show of their virtue. They could give to a good cause, and they could advertise their caring to everyone else.”

The idea of a Veblen good was introduced by Thorstein Veblen in 1899 in a sociological paper titled ‘Theory of the Leisure Class,’ which introduced the idea of conspicuous consumption. The author in the second article twists this concept to highlight the idea of what he calls conspicuous virtue:

“Conspicuous consumption stays with us today. But increasingly, it seems to me, many consumers are not seeking an outright demonstration of wealth. Instead, they consume to demonstrate their innate goodness. They spend not to suggest the deepness of their pockets but the deepness of their hearts. We inhabit, to update Veblen, an age of conspicuous virtue.”

Conspicuous virtue arises when consumers purchase “virtuous goods,” in part, to demonstrate their individual virtuousness, rather than for the instrumental value of the goods themselves:

“They are virtuous goods. To consume a virtuous good is to make a statement. It is not only to do right, whatever that might mean, but to announce that you are doing so.”

And, finally, I also see parallels with the idea that the level of visibility of something largely determines our reaction to it, and that this phenomenon also has an important application to the debate around sustainability. This was most forcibly brought how during the Deepwater Horizon oil spill, which obviously caused a strong negative reaction, when there is a much more serious and long-lasting form of pollution in the Gulf of Mexico that is routinely ignored. It is caused by the phosphate/nitrogen run-off from fertilizers used in farms all along the Mississippi river. The excess runs off into the river and flows into the Gulf, causing a “dead zone” that is much bigger than the Deepwater Horizon oil spill ever was, but, because we cannot see it, does not cause large complaints. Similarly, we cannot see the build-up of carbon-dioxide (and many other pollutants) in the atmosphere, which I think partially explains, why more people are not more concerned about the problem.

These ideas of visibility and conspicuous consumption driving behavior are interesting, I think, and seem to be equally applicable in relation to CSR issues as elsewhere.

Take care

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The library of CSR Newsletters are archived at:

Paper or Plastic (or Deadly Food-Borne Pathogens)?

Drake Bennett
January 15, 2013
Bloomberg Businessweek

Conspicuous Virtue and the Sustainable Sofa
By Joseph Rago
March 23, 2007
The Wall Street Journal
Late Edition – Final

Monday, January 28, 2013

Strategic CSR - Walmart & Nike

The articles in the two urls below (almost exactly a year apart) offer a contrast in responses to similar events. The article in the first url describes how Nike was able to transform negative perceptions about it as a sweatshop into a market opportunity by fully disclosing details about its supply chain:

“In April 2005, Nike surprised the business community by suddenly releasing its global database of nearly 750 factories worldwide. No laws presently require a company to disclose the identity of its factories or suppliers within global supply chains. Yet, between the early 1990s and 2005, Nike went from denying responsibility for inhumane conditions in its factories to leading other companies in full disclosure — a strategic shift that illustrates how a firm can leverage increased transparency to mitigate risk and add value to the business.”

In contrast, the article in the second url below describes an announcement by Walmart last week in reaction to the Bangladeshi factory fire last year, in which 112 workers died, but who were subsequently found to be making clothes for Walmart (according to the firm, without its knowledge):

“Wal-Mart Stores Inc. is warning suppliers that it is adopting a ‘zero tolerance policy’ for violations of its global sourcing standards, and soon plans to immediately sever ties with anyone who subcontracts work to factories without the retailer's knowledge.”

The contrast is interesting in terms of what it says about best-practice CSR principles in building an ethical supply chain. My understanding of best-practice is that firms should audit suppliers on a regular basis, but seek to work with them when problems are identified, rather than dumping them the moment they do something wrong (see also: Strategic CSR – GAP). Given that many problems occur in the supply chain due to firms embedding the wrong kinds of incentives into their relationships with their suppliers (i.e., incentivizing low-cost, fast-turnaround production, which encourages low pay and lots of overtime, even while asking suppliers to sign codes of conduct that promise to do the opposite), suppliers should not necessarily be punished (at least, not immediately) for code of conduct violations. Rather, an open, transparent relationship should be developed where both sides are honest about what they need and can offer. When something goes wrong, the firm should sit down with the supplier and work out a plan of action with realistic goals over a period of months—kind of like the policy Walmart is rejecting with its recent announcement:

“The tougher new policies replace the Bentonville, Ark., retailer's prior ‘three strikes’ approach to policing suppliers, which gave the suppliers three chances to address problems before being terminated.”

Nike now gets this, but Walmart does not. The firm’s new policy is due to take effect on March 1.

Take care

Instructor Teaching Site:
The library of CSR Newsletters are archived at:

Just Do It: How Nike Turned Disclosure into an Opportunity
January 23, 2012
Network for Business Sustainability

Wal-Mart Toughens Supplier Policies
By Shelly Banjo
January 22, 2013
The Wall Street Journal
Late Edition – Final

Friday, January 25, 2013

Strategic CSR - Bribery

The article in the url below is interesting because it suggests a negative correlation between bribe paying and a firm’s economic performance:

Companies that bribe their way to contracts under-perform for up to three years before and after winning the work for which the bribe was paid , according to new academic research … conducted by Cambridge University Professor Raghavendra Rau.

What is also interesting is that the research reveals an interesting relationship between the status of the bribe receiver, the amount of money involved, and the utility of the bribe:

When high-level government officials are bribed, the value derived from the bribe is close to zero, Rau said. But, conversely paying smaller bribes to lower-level officials is less likely to ensure that a contract is won, according to Rau.

Relating the bribes to economic performance, Rau found that it is worse performing firms that tend to pay:

‘From the point of view of society it’s terrible because the worst kind of companies are winning the contracts, and that amounts to a distortion of resource allocation in an economy,’ Rau said.

The only issue with the data is that they capture actual recorded incidents of bribery and, as such, do not include firms that bribed, but did not get caught. As such, perhaps a more accurate interpretation of the data is that it is the less competent firms that bribe ineffectively, perform poorly, and get caught. There could be a missing variable in the model (incompetent managers) that is really driving the results!

Further details of the study are available on the University of Cambridge’s website:

Have a good weekend.

Instructor Teaching Site:
The library of CSR Newsletters are archived at:

Bribes Provide Companies Few Benefits, Study Finds
By Christopher M. Matthews
November 23, 2012
The Wall Street Journal Blog

Wednesday, January 23, 2013

Strategic CSR - Human life

What is the value of a human life? From a business standpoint, it depends on a number of factors. One of the most important factors is how much longer you are expected to live. The longer you live, the less valuable your life (or, more accurately, your life insurance policy) to a firm that is willing to bet against that life, for a price. Such “bets” emerged within the insurance industry as “viatical settlements” in the 1980s. The term “viatical” originated from:

… the Latin word viaticum (making provisions for a journey), and were specifically those policies belonging to people expected to have less than 24 months to live. … the business has continued to grow: Policies with a total face value of around $10 billion were bought and sold [in 2004], according to the Viatical and Life Settlement Association of America.

As the size of this industry grew, firms began to innovate in terms of the application of this product. An example of a company willing to think progressively on an issue that could have created a lot of negative publicity, ended up with the Prudential being the torchbearer for a practice that quickly became the industry standard:

An example of [a socially responsible corporate] practice is Prudential Insurance’s introduction, in 1990, of viatical settlements—contracts that allow people with AIDS to tap the death benefits in their life insurance policies to pay for medical and related expenses. The move generated so much goodwill that competing insurers soon offered viatical settlements as well. Very quickly, corporate behavior that had seemed radical became business as usual throughout the insurance industry.

The article in the url below provides an update on the viatical settlements industry, which is now known as the “life settlement” industry:

The financial practice originated … as a way to help the terminally ill. In the late 1980s, people infected with AIDS often had little time to live and a great need for money. In response, financial planners established the viatical business. Flyers went up at gay bars and clubs encouraging people to sell their life-insurance policies for quick cash. Some financial planners even trolled hospital wards to find customers.

It didn’t take long, however, for the financial industry to realize that viatical settlements had a much wider application. In theory, anyone with a life insurance policy whose life was due to be cut short, could make use of life settlements:

Rebranded and redefined, the life-settlements business grew swiftly, reaching $12 billion in transactions by 2007. The recession has since walloped the industry, as have well-publicized cases of fraud, in which unscrupulous brokers persuaded people to take out life-insurance policies expressly for the purpose of reselling them a couple of years later. Only $3.8 billion worth of policies changed hands in 2010, but insiders hope that the business will ultimately surpass its previous high. There are $18 trillion worth of active life-insurance policies in the United States alone, and very few people even know that they can sell their policies.

Advocates say that these policies offer a win-win situation for victims, who benefit from an up-front payment at a time when they need it most, but also for investors, who get a healthy return on their initial investment (as long as the recipient does not live too long):

For potential investors, meanwhile, the pitch is that settlements offer a safe harbor. Let the Dow rise, let the Dow fall; a death payout is an uncorrelated asset whose timing bears almost no connection to the mood swings of the market.

Ultimately, however, this industry still has some way to go before it can be considered legitimate:

For all the supposed benefits, settlements still strike many people as creepy. They invert the traditional incentives of life insurance. Insurance companies have always had an interest in you, the policyholder, living as long as possible so that they can collect more premiums. Generally, you also want to live a long time, for obvious reasons. But a settlement means someone hits the jackpot when you die, and the sooner that happens, the more money that person makes.

Take care

Instructor Teaching Site:
The library of CSR Newsletters are archived at:

What’s Your Life Worth? The Strange, Lucrative Market for Other People’s Life-insurance Policies
By James Vlahos
August 12, 2012
The Sunday New York Times

The first quote is from:
By Karen Richardson, ‘Viaticals’ May Draw More Insurers, The Wall Street Journal, May 18, 2005, pC3.

The second quote is from:
Roger Martin, The Virtue Matrix, Harvard Business Review, March 2002, Vol. 80, Issue 3, pp 68-75.

Monday, January 21, 2013

Strategic CSR - Welcome back!

Welcome back to the Strategic CSR Newsletter!
The first Newsletter of the Spring semester is below.
As always, your comments and ideas are welcome.

The article in the url below contains an entertaining look at the “10 worst business moves of 2012,” as determined by MSN Money:

Chalk up some of these dumb moves to an election year, when emotions get riled up and people do things they probably shouldn't. But some of these mistakes go right into the obvious pile: Don't have an affair with a subordinate. Don't lie on your résumé.

While not all related to CSR, what they contain in common is a consistent insensitivity to the needs and concerns of stakeholders, broadly defined. This is the core of the framework that we used to build Strategic CSR and should be the driving concern of all strategy and operations-related decisions taken by firms.

For your amusement and to begin the 2013 CSR Newsletters, therefore, the list features the following firms and their fateful “business decisions”:
  • Apple Maps
  • Hostess CEO cuts everyone’s pay but his own
  • Yahoo! CEO lies on his resume
  • Best Buy CEO has affair with a subordinate
  • Groupon’s board drama
  • J.C. Penney revamps its strategy
  • Hallmark’s works birthday card ever
  • Denny’s Obamacare surcharge
  • Facebook’s IPO
  • Wall Street supporting Scott Brown (against Elizabeth Warren)
Take care

Instructor Teaching Site:
The library of CSR Newsletters are archived at:

10 worst business moves of 2012
By Kim Peterson
December 24, 2012
MSN Money