In the wake of the Enron debacle, companies scrambled to maintain a level of investor confidence and distinguish themselves as companies that looked to put the needs of the investor along with the bottom line (Allen, 206). One of those investor needs is the communication of corporate social responsibility (Hockert & Moir, 85).
Some investors are not only looking at the bottom line, i.e. the returns on their investments, but "also a certain type of social performance" (Hockert & Moir, 85). Not only do investors want to know how financially solvent a company is by looking at certain indexes and ratios as we've learned through out readings, but people want to invest in companies that place the same high value on certain social issues as the general public might, such as environmental causes.
While companies wonder how they can restore investor confidence (Allen, 86), one answer is by communicating how socially responsible they are, thus, expanding the role of the Investor Relations team (Hockert & Moir, 86). As more investors look to CSR as a key factor in the decision-making process, IR departments have been able to identify 3 different types of Socially Responsible Investors (SRI):
1. Those who invest in companies on the basis that the more good a company does the more value the company has
2. Those who choose not to consider investing in questionable/controversial companies such as arms dealers, tobacco companies, etc.
3. Those investors looking to "stimulate change" through "shareholder engagement"
(Hockerts & Moir, 86)
The above investor types may not have existed in the past, especially before the Enron collapse. However, a survey conducted after the Enron collapse showed that 43% of active investors had "less confidence in the stock market following Enron. Further, 88 percent believe Enron executives, board, auditors or attorneys intentionally misled the public" (Allen, 206).
Companies now have more work to do when attracting investors, including showing how socially responsible they are.
References
Allen, C. (2002) Building Mountains in a Flat Landscape: Investor Relations in the post-Enron Era, Corporate Communications: An International Journal, Volume 7 (2), pp. 206-211
Hockert, K., Moir, L. (2004). Communicating Corporate Responsibility to Investors: The Changing Role of the Investor Relations Function, Journal of Business Ethics, Volume 52 (1), pp. 85-98
Phillip, could you expand on the third type of investor, those who want to stimulate change through shareholder engagement?
ReplyDeleteDo you think that the investors who only focus on the bottom line should actually fall into the first type of socially responsible investor? Meaning, since CSR theoretically creates value for the organization (when done right), then shouldn't those only interested in profits encourage CSR?