By Tracy L Slater
Carroll, A.B., Lipartito, K.J., Post, J.E., Werhane, P. H., & Goodpaster, K.E. (2012). Corporate Responsibility: The American Experience, Cambridge University Press.
Since the dawn of capitalism, nations have struggled to solve “the corporate dilemma.” On one hand, corporations–capitalism’s dominant organizational form–have proven effective mechanisms for producing wealth, meeting consumer needs, and building industries that employ millions. On the other hand, they often impose costly negative externalities on workers, communities, and the natural environment. Corporate responsibility is the “third way” between self-interest and government regulation to address this dilemma.
But to whom do corporations owe a responsibility? For what? And how are those responsibilities, once defined, to be met?
These questions have haunted capitalism throughout the twentieth and twenty-first centuries, both in the US and abroad. Although today constructive corporate citizenship is a hallmark of many leading companies, no single-volume history exists of the concept and practice of corporate responsibility. In his new book, Boston University School of Management’s James E. Post, the John F. Smith Professor in Management, aims to fill this gap. Along with a team of four senior scholars and nearly a dozen research aides, Post and his co-authors have published Corporate Responsibility: The American Experience, from Cambridge University Press.
The story behind the rise of corporate citizenship
This book tells the story of how corporate responsibility emerged as both an idea and practice in the modern firm. Says Bill George, former chairman and CEO of Medtronics and current faculty member at Harvard Business School, the work is “brilliantly researched and beautifully written.” It also a offers gallery of nearly 100 pictures, most in color, featuring seminal moments in the history of corporate citizenship.
“Brilliantly researched and beautifully written“ – Bill George, Former Chairman & CEO, Medtronics; Professor, Management Practice, Harvard Business School
“Our vision, and our hope,” says Post, “was to create a compelling historical narrative of how corporate responsibility emerged as a concept and became part of the American business psyche. It is an idea that has had a significant and enduring influence on both corporate rhetoric and behavior. Now, we offer the story of how business practice has changed as our nation (and the world) evolved, social pressures built, and companies were challenged to respond and then anticipate where these transformations would lead.”
This is no whitewash of business practice, Post explains. The book candidly covers examples of labor violence, such as the slaughter of dozens of miners, women, and children in Ludlow, Colorado in the infamous Shirtwaist Triangle factory fire; sweatshop conditions in modern factories; and the recent Occupy Wall Street movement. But it also offers inspiring stories as well, such as J. Irwin Miller’s leadership in civil rights as CEO of Cummins Engine Company; Bill Norris’ commitment to radical social innovation in Minneapolis as CEO of Control Data; General Mills’ 150 years of corporate volunteerism and community philanthropy; and the role of women as crusaders, activists, and critical contributors to industrial development and family-friendly and fair workplace policies.
Boston University’s heritage in creating corporate, and social, value
New England companies have often been in the vanguard of corporate citizenship. Post explains that “locally, many Boston University alumni will remember the role of Boston businesses in school desegregation; Polaroid’s withdrawal from the South Africa of apartheid days; and Aaron Feuerstein’s bold commitment to continue paying workers who were unemployed as a result of the great Malden Mills fire in Lawrence, Massachusetts in December 1995.” Progressive human relations practices remain a hallmark of many local companies, Post points out: Ben and Jerry’s, Seventh Generation, Tom’s of Maine, and other New England-bred models of social entrepreneurship.
While belief in corporate responsibility is part of America’s cultural fabric, it is also part of Boston University’s heritage. The founding dean of the School of Management, which in 2013 celebrates its 100th year of classes, was Everett W. Lord: an activist for child labor protection, a believer in professional education, and author of The Fundamentals of Business Ethics. The book, published in 1926, challenges students and business leaders alike to view ethics and integrity as the keys to personal success. To Dean Lord and his successors, the purpose of business has always been “service to society.”
About James E. Post
James E. Post teaches in the Markets, Public Policy & Law department in the School of Management, and has been involved in conceptual and practical debates over these issues in many forums since joining the Boston University School of Management faculty in 1974. He criticized companies that engaged in questionable marketing of baby formula in the 1980s, then consulted with the World Health Organization on a pioneering international code of marketing practices. He has worked to professionalize corporate public affairs in the U.S., Europe, and Australia, has written extensively about the concept and practice of business and society, and is frequently cited in the media for his expertise. In 2010, Post received a lifetime achievement award from the Aspen Institute.
Read more about the book Corporate Responsibility: The American Experience.
From “A Hidden Markov Model for Collaborative Filtering,” MIS Quarterly, 36(4), 1329-1356.
Commercial websites are constantly suggesting new products and content to us—a mechanized, cyber-age form of the old urging, “if you liked that, you’ll love this!” In tech terms, the systems that generate these suggestions are called personalized recommender systems. But how can these computer systems account for the age-old human tendency to change our desires as time goes on?
A new study by Boston University’s Nachiketa Sahoo and co-authors Param Vir Singh and Tridas Mukhopadhyay is one of the first to address this problem.
Sahoo is an assistant professor in information systems at Boston University School of Management; Singh and Mukhopadhyay are faculty members at the David A. Tepper School of Business at Carnegie Mellon University. Their paper, “A Hidden Markov Model for Collaborative Filtering,” appearing in MIS Quarterly‘s special issue on business intelligence research, suggests using a stochastic algorithm called a hidden Markov model (HMM) to process data about user activity and preferences, rather than the common algorithms used now by most personalized recommender systems. The authors show that the HMM, a more dynamic model, allows online personalized recommender systems to account for changing user preferences.
A New Model to Address Changing User Preferences
The authors point out that dynamic, not static, user tastes and desires are integral to the consumer experience, particularly with the repeat consumption of so-called “experience goods,” such as movies, music, and news. “This causes problems for a recommender system that has been trained to identify customers’ preferences from their past ratings of products,” the authors write.
Sahoo et al. propose a customized HMM algorithm to estimate user preferences and make recommendations. They evaluate their approaches using three real-world datasets: one containing employees’ blog reading activity in a Fortune 500 IT services firm, one documenting users’ movie watching behavior in the Netflix Prize dataset, and one tracking users’ music listening behavior on last.fm. Comparing the performance of their algorithm with that of several other popular algorithms in recommender systems, the authors show that the HMM-based algorithm performs as well or better than the other algorithms, particularly as user preferences change.
Their approach is based on the intuition that older data, rather than being discounted—as they are in some current personalized recommender systems—could instead be used to learn about that user’s preference and then applied to another user. “Data from a user’s past may not be useful for making recommendation for the user now,” they argue, since “her preference has changed, but it might be useful for making a recommendation for someone who currently has that preference.”
Read more about ”A Hidden Markov Model for Collaborative Filtering.”
Banner photo is a visualization of related movies found by a computer algorithm created for Netflix Prize. Each movie is represented by a dot, and colored lines signify a similarity between pairs. Photo courtesy of flickr user chef_ele.
Karim, Samina (2012). “Exploring structural embeddedness of product market activities and resources within business units.“ Strategic Organization 10(4): 333-365.
The lead article in the November 2012 issue of Strategic Organization is Samina Karim‘s study “Exploring structural embeddedness of product market activities and resources within business units.”
Karim is an assistant professor in strategy and innovation at Boston University School of Management.
This paper defines “embeddedness” as the dependence on routines and coordination mechanisms within one’s own business unit, and explores the degree to which embeddedness impacts the success of product market activities (PMA). Karim focuses on which alternative better supports the longevity of a product market within the firm: 1) moving a PMA out of one unit and into another, or 2) moving the entire unit with its PMA into another unit (so that the PMA is still managed in its original organizational context, even though it is now “housed” in another, bigger unit).
Among Karim’s findings:
- If activities and resources are highly embedded in their business units, then “reconfiguring” a unit (by adding to it, trimming it down, or recombining it with another unit) may have consequences on how successful the firm is at its product market activities.
- Moving an entire unit with its PMA into another unit leads to a greater likelihood of retaining the PMA (i.e. the PMA will not be not divested or shut down).
For managers within PMA units, the practical insights of Karim’s study include:
- If managers are going to move a PMA from one unit to another, they are better off recombining the entire unit into the other than simply moving the PMA from one to the other.
- If managers are going to move a PMA from one unit to another, they should be less worried about whether the PMA was acquired or not, and more focused on whether, during the move, they can keep intact the PMA’s former unit’s routines and processes.
“Pricing Regulation and Imperfect Competition on the Massachusetts Health Insurance Exchange”
A new National Bureau of Economic Research (NBER) study, authored by Keith M. Marzilli Ericson and Amanda Starc and focused on pricing regulation in health insurance exchanges (HIE), shows that purchasing mandates can be essential to the functioning of this entire market.
Ericson is an assistant professor of markets, public policy, and law at Boston University School of Management. Starc is an assistant professor of health care management at the Wharton School at the University of Pennsylvania.
Their study, “Pricing Regulation and Imperfect Competition on the Massachusetts Health Insurance Exchange,” explores pricing regulation, consumer demand, and insurer profits in HIE, which are government-run marketplaces for private insurance. The authors use data from Massachusetts’s HIE, the first in the nation, and then apply these data to the broader functioning of health exchanges themselves. Their focus on the mandate, requiring citizens to purchase a minimum level of insurance, sheds light on one of the most controversial issues in Congress’ recent struggles over health care across America.
HIEs: An Ideal Context for Exploring Consumer Welfare, Regulation, and Profit
The authors point out that HIEs offer an ideal opportunity to study issues of consumer welfare, competition, government regulation, and firm profits, as they offer a wide range of choice to consumers in the context of a heavily regulated environment. Moreover, in the next few years, a projected 20 million Americans across the country will purchase health insurance through these exchanges, as the 2010 Affordable Care Act has mandated that states and the federal government develop HIEs.
But Ericson and Starc note a lack of previous research exploring how insurance pricing regulation actually functions in markets where firms have some market power to charge prices above their costs—a condition they refer to as “imperfect competition.”
Their new NBER study fills this gap.
“If the Mandate Is Removed, Markets Can Unravel”
Ericson and Starc first execute a series of simulations based on data from the Massachusetts HIE to show how changing regulations on insurers can vary prices between different types of consumers (such as older vs. younger consumers) and can impact other important and controversial insurance market regulations, such as minimum loss ratios (which attempt to limit insurer profits), risk adjustment (which attempts to equalize insurers’ costs derived from insuring different populations), and mandated insurance purchase (which attempts to ensure market participation).
Ultimately, the study’s simulations show that if the mandate is removed, markets can unravel, due to differences in preferences across a broad population where a significant segment of that population would be willing to withdraw from the market altogether if they can’t find a price they are willing to pay.
If consumers are allowed to opt out of coverage, the authors note, the most price-sensitive consumers—who tend to be both young and relatively healthy—will tend to opt out. As these consumers opt out, the less price-sensitive consumers—who tend to be both older and have higher health costs—are the ones remaining in the market, which in turn leads to higher markups. If enough people are willing to drop out of the market altogether, the authors note, “a death spiral” can occur. “As a result,” Ericson and Starc show, “a weak or absent mandate may negate the consumer surplus gains achieved” from the other regulations still in place.
Read more about the study “Pricing Regulation and Imperfect Competition on the Massachusetts Health Insurance Exchange.”
Banner photo courtesy of flickr user Images_of_Money.
New Study Uncovers Green Eco-Seals’ Opposing Impact on Different Consumer Types
Researchers Barbara Bickart and Julie Ruth have completed a study filling a crucial gap in advertisers’ knowledge about the efficacy of green marketing techniques such as eco-seals, showing that they have a distinctly different impact—and in fact sometimes opposing effects—on different types of consumers.
Bickart and Ruth are associate professors in marketing at Boston University School of Management and Rutgers University, respectively. Their new study, “Green Eco-seals and Advertising Persuasion,” is forthcoming in the Journal of Advertising‘s special issue on green advertising.
Bickart and Ruth focus on the differing persuasiveness of eco-seals for consumers with high versus low concern about environmental issues, as well as with high versus low familiarity with a brand. They also offer insight into how these different consumers react depending on an eco-seal’s source and the type of specific messaging it provides.
Among their findings:
- When consumers have a low-level of environmental concern, the presence or absence of an eco-seal on a package has limited impact on purchase intentions, regardless of familiarity with the brand, although;
- When consumers have a low-level of environmental concern, the absence of a seal leads them to evaluate the familiar brand more favorably than the unfamiliar brand.
- When a consumer has a high-level of environmental concern, eco-seals in general generate more favorable purchase intentions for familiar brands, although eco-seals with an ambiguous source generate less favorable purchase intentions for unfamiliar brands, and perhaps most surprising;
- High-concern consumers are more likely to respond favorably to eco-seals generated by the manufacturer, as opposed to an independent source such as the government, suggesting that familiar-brand seals boost these consumers’ beliefs about a company’s concern for the environment.
As a whole, the study data points to numerous specific strategies for marketers and policy makers about the most effective use of eco-seals and message strategies for various easily-identifiable target audiences.
See a recent profile of this research at the Wall Street Journal blog, “Corporate Intelligence.”
Banner photo courtesy of flickr user Pylon757.
In their recent article “Financial Literacy 101,” offering experts’ top recommendations for novice investors, The Wall Street Journal spotlighted Risk Less and Prosper by Boston University’s Zvi Bodie, the Norman and Adele Barron Professor of Management, and co-author Rachelle Taqqu:
With its focus on goal-based investing, this book offers concrete steps to help beginning investors detail their specific needs and wants for the future, and to invest based on those goals.
Zvi Bodie, a management professor at Boston University, advises investors to take on risk only with money they can afford to lose. For the rest, he recommends specific inflation-indexed government bonds.
“Stocks can be a winning strategy, but they can also bring tragedy, and Bodie carefully sets out the risks and rewards of the alternatives,” says Dallas Salisbury, chief executive of the Employee Benefit Research Institute, a nonprofit think tank.
HBS Working Knowledge Article Spotlights “Public Procurement and the Private Supply of Green Buildings”
Timothy Simcoe and Michael W. Toffel have published a new study on how government policies can stimulate private demand for environmentally friendly buildings. Simcoe is an assistant professor in the Strategy and Innovation Department at Boston University School of Management. Toffel is an associate professor in the Technology and Operations Management group at Harvard Business School.
Their study, “Public Procurement and the Private Supply of Green Buildings” has been published by the National Bureau of Economic Research (NBER Working Paper Number 18385) and was recently spotlighted in the article “LEED-ing by Example,” from HBS Working Knowledge:
In the debate over whether to increase or decrease the stringency of environmental regulations, the possibility that government agencies might use purchasing to stimulate market demand for “green” products and services is often overlooked. Nevertheless, several recent US presidents (of both parties) have issued executive orders requiring federal agencies to use environmentally preferable products and services whenever possible…
But….there has been virtually no industry analysis of whether this strategy actually worked, up until now.
In a new paper, “Public Procurement and the Private Supply of Green Buildings,” authors Timothy Simcoe and Michael W. Toffel show that there is, indeed, a spillover effect to the private sector. The authors studied what happened after municipal governments in California adopted policies that required public (but not private) building renovations and new construction to build “green,” which nearly always meant adhering to the US Green Building Council’s Leadership in Energy and Environmental Design (LEED) standard. After local governments decided to pursue LEED certification for their own buildings, there was an uptick in the number of local architects, general contractors, and other construction industry professionals who sought LEED accreditation. Also, the use of the LEED standard increased among private builders in the same local markets.
Read more at Working Knowledge‘s LEED-ing by Example.
See a recent overview of this research on Forbes.com
Above: Photo of the first LEED-certified parking structure in the US by flickr user Schlüsselbein2007.
Placed 16th overall, 1st among female academics
In December 2012, the American Marketing Association (AMA) launched a new annual initiative to track top contributors to premier marketing journals such as the Journal of Consumer Research, Journal of Marketing, Journal of Marketing Research, and Marketing Science. The goal is to acknowledge the most productive researchers, both by authorship and university affiliation, in the previous five years and to provide a unique perspective to future doctoral students making application decisions about marketing PhD programs.
In the first Author Productivity in the Premier AMA Journals list, Boston University School of Management’s Shuba Srinivasan has ranked number 16 overall and number one for female academics for contributions to the Journal of Marketing and Journal of Marketing Research.
Srinivasan is an associate professor, Dean’s Research Fellow, and PhD Program faculty liaison in marketing. Her research focuses on strategic marketing problems, the link between marketing and financial gains, and metrics for gauging marketing performance.
Professor Srinivasan’s publications include:
- Srinivasan, S., K. Pauwels, and V. Nijs (2008), “Demand-based Pricing Versus Past-price Dependence: A Cost-Benefit Analysis,” Journal of Marketing, 72 (2), 15-27. (Abstract)
- Srinivasan, S. and D. M. Hanssens (2009), “Marketing and Firm Value: Metrics, Methods, Findings and Future Directions,” Journal of Marketing Research, 46 (3), 293-312. (Abstract)
- Srinivasan, S., K. Pauwels, J. Silva-Risso, and D. M. Hanssens (2009), “Product Innovation, Advertising Spending and Stock Market Returns,” Journal of Marketing, 73 (1), 24-43. (Abstract)
- Srinivasan S., M. Vanhuele, and K. Pauwels (2010), “Mind-Set Metrics in Market Response Models: An Integrative Approach,” Journal of Marketing Research, 47 (4), 672-684. (Abstract)
- Osinga, E., P. Leeflang, S. Srinivasan, and J. Wierenga (2011), “Why Do Firms Invest in Consumer Advertising with Limited Sales Response?” Journal of Marketing, 75 (1), 109–124. (Abstract)
Professor Srinivasan is also chair of the AMA’s Marketing Research Special Interest Group and serves on the editorial boards of Marketing Science, Journal of Marketing Research, and International Journal of Research in Marketing. Among her other honors are being named a finalist for the 2012 Robert D. Buzzell Best Paper Award, winning the 2010 Broderick Prize for excellence in research scholarship at Boston University’s School of Management, and receiving the 2001 European Marketing Academy Best Paper Award.
See Professor Srinivasan’s additional honors.
“Getting Inside the ‘R’ in Customer Relationship Management”
Boston University School of Management’s Susan Fournier was featured as a keynote speaker in Stockholm recently, where she delivered her talk, “Getting Inside the ‘R’ in Customer Relationship Management,” for the Swedish Marketing Federation’s 2012 annual conference.
Her keynote covered the top three consumer relationship mistakes: Relating with “consumers” but leaving the “people” out; adopting a one-size-fits-all approach to relationships; and not effectively listening or playing by the rules of the consumer-brand contract. Fournier then offered the following advice for marketers:
- We are not relating with “consumers;” we are relating with people.
- People aren’t here to have brand relationships; they are here to live their lives.
- Optimized systems put brand relationships in perspective as facilitators, not ends in themselves.
Contact Professor Fournier for a copy of the presentation.
New Study on CEO Compensation Is First to Provide Evidence that Firms Benchmark High for Market, not Self-Serving Reasons
A new study by Ana M. Albuquerque, Gus De Franco, and Rodrigo S. Verdi is the first to provide evidence that the “peer pay effect” (the tendency to benchmark to a set of peers with higher CEO pay) among corporate boards represents a reward for CEO talent, not self-serving motives or weak corporate governance.
Albuquerque is an assistant professor of accounting at Boston University School of Management. De Franco and Verdi are on the faculty of the Rotman School of Management at University of Toronto and MIT Sloan School of Management, respectively. Their new study, entitled “Peer Choice in CEO Compensation,” is forthcoming in the Journal of Financial Economics.
This paper offers data showing that when firms benchmark high against their peer group in order to offer higher total compensation to their incoming chief executive officers (called the “peer pay effect”), they 1) do so as a reward for CEO talent and not for self-serving reasons, and 2) tend to yield a better future return on investment (ROI) in terms of CEO performance. Thus, the research offers an argument against claims that firms benchmark high among their peers in order to justify flawed corporate compensation packages with excessive CEO pay.
Albuquerque et al use data from ExecuComp, including mostly firms that comprise the Standard and Poor’s 1500 index, for the fiscal years 2006 to 2008, focusing on Definitive Proxy Statements and their Compensation Discussion and Analysis sections which list peer companies used for benchmarking purposes. They define CEO talent by measuring data about a CEO’s historical abnormal stock and accounting performance, the market value of the firms that the CEO managed in the past, and the number of media mentions a CEO has accrued.
In contrast, they define self-serving behavior or poor oversight on the part of boards based on data about board structure (e.g., how busy are board members and thus how much time can they devote to effective oversight and monitoring?) anti-takeover provisions (e.g., how insular is the firm from the external market, which carries the potential threat of a takeover, and thus works as a strong external force for disciplining management?), and ownership concentration (e.g., how personally invested are individual board members in the firm’s future performance?).
Finally, the authors define future ROI as future accounting and stock performance.
From their data pool, the authors find that:
- the impact of benchmarking against highly paid peers for self-serving reasons on CEO compensation is positive in some, but not all, cases, and at a much lower magnitudes than for talent reasons;
- in terms of economic significance, the impact of the peer pay effect for talent reasons on CEO pay is from two to almost ten times larger than is the impact of the self-serving component of the peer pay effect; and, perhaps most crucially,
- firms that benchmark high to offer higher CEO compensation to more talented CEOs yield a better future ROI performance.
Thus, “Peer Choice in CEO Compensation” is an important contribution to the argument that high CEO compensation is crucial to attract top talent as well as to better motivate high-potential CEOs compared to their similarly-high-potential peers who end up with lower compensation due to more moderate benchmarking at their respective firms.
Ultimately, this new research provides evidence that firms who benchmark high do so not simply for self-serving reasons or to justify higher-than-needed CEO compensation, but because they understand the importance of offering a CEO package at the top end of their peer pool, in order to attract, retain, and motivate the best talent.