Do Investors Price Social Responsibility?

Abstract

In the past few decades society has placed increasing demands on managers of firms to change corporate policy and to make decisions in ways that are deemed socially responsible by society. The scope of activities under the corporate social responsibility umbrella has in cluded environmental issues, the involvement of women and minorities in management, investing in South Africa, pollution control, ethical treatment of animals, nuclear testing and other related issues. Society's demands in these areas have inspired (and in some cases even coerced) both managers of corporations and portfolio managers of investment funds to respond. Many of the leading mutual fund investment companies now offer funds that are ethically screened. The Society Investment Forum reports that the value of socially responsible investment funds exceeded $600 billion by the end of 1991. A new stock index, the Domini 400 Social Index, has been constructed to measure the performance of the stocks of 400 corporations that have passed multiple social screens. Coupled with the demand for increasing corporate social re sponsibility, there has been a move away from the traditional view that managers make decisions that are in their common shareholders' best interests to a stakeholder concept where managers make decisions for and serve a much broader group of claim-holders than just share holders. Joichi Aoi, Chairman of the Board at Toshiba Corporation, has argued that today's managers need to broaden their perspective beyond the traditional shareholder thinking: