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Finance Professor Maretno Agus Harjoto Discusses His Moskowitz Prize-winning Research
The concept of socially responsible business practice signaled a new era in free market capitalism, a move toward ethical profitability. But an award-winning research project undertaken by Maretno Agus Harjoto, assistant professor of finance at the Graziadio School of Business and Management (GSBM), found that it can actually be very difficult for corporations to make profits when conducting business in a socially responsible manner.
"Corporate social responsibility does not always bring greater value to shareholders," says Harjoto. In the last decade, he continues, "Firms overinvested in corporate social responsibility beyond the optimal level. Therefore, the cost of responsibility is going up beyond the benefits that firms receive from their customers and investors."
Harjoto authored the study, "The Economics and Politics of Corporate Social Performance," with David P. Baron, from the Graduate School of Business at Stanford University, and Hoje Jo, from the Leavey School of Business, Santa Clara University. The study earned them the prestigious 2009 Moskowitz Prize for Socially Responsible Investing, from the Center for Responsible Business at UC Berkeley's Haas School of Business, which is the only global award recognizing outstanding quantitative research in the field of socially responsible investing.
"I am pleased and honored to receive this award," Harjoto says, noting that the honor goes beyond the prestige of the world's premiere award in this field. "I believe this award also reflects the mission of Pepperdine and the Graziadio School, in that we are committed to educating and producing future leaders with strong ethical and moral values."
Though the study found that the cost and benefits of socially conscious business practice do not always optimally align, the ethical and moral value of such practice is becoming increasingly important in today's economic climate. "Corporations need to meet the demand for social responsibility to avoid a drastic and continuous drop in their stock prices as our society increasingly requires corporations to raise their responsible actions to be more in line with social norms, ethics, and moral standards."
Often, the key to determining a corporation's social responsibility is to gauge how they value everyone who contributes to their company, including non-investing stakeholders. This includes offering fair, high quality service to customers; ensuring good working conditions for employees; and maintaining a positive and responsible community presence.
"Corporations that only focus on getting their shareholders rich quickly, do so at the expense of such non-investing stakeholders, and our paper explains that how corporations interact with society is much greater than with just their shareholders," Harjoto asserts.
Those looking to find a socially responsible business in which to invest hard-earned money do not have to resign themselves to a small return, however. Harjoto explains that the demand is growing for the practice, and his advice is to seek out companies with a long history of socially responsible action.
"Look for those firms that conduct responsibility as in integral part of their corporate culture, and not those who just follow the trend. The firms that know their sustainability depends on their social conduct will survive by doing it right. And in the end, these are the firms that bring values—both monetary and social values—to their shareholders."