Corporate Responsibility
Research for Online Investors

by John Dalt

8/23/10

What is the primary purpose of a “for profit” corporation?  Why do you buy stock in a company?  Do you decide to own a piece of a company because they constantly increase profits and grow, or because they are ecologically friendly and sponsor philanthropic events in the city or state where their headquarters are located?

The Wall Street Journal carries an article today, “The Case Against Corporate Social Responsibility.”  It is worth a read, but misses a point that has been a burr in my saddle as long as I have been in business.  Whether a local small business or a public company, what makes society believe a company has any responsibility other than make money?

Ok, a small business is an extension of the owner.  If he chooses to sponsor the local girls’ softball team, it is his money and he can spend it as he sees fit.  So much the better that he can expense the cost of his daughter having a nice uniform!  I know many small businesses that budget a small amount for local 'feel good' advertising.  Who hasn't been asked to sponsor a page in the local paper congratulating the Graduating Senior Class?

The key to this sponsorship is the owner of the business is willing to make less money out of his business because he chose to spend it on a philanthropic expense.  You could call it advertising.  The value would be lost on a business that sells a manufactured item to a market outside the local reach of the softball team.

The team would probably give the small business owner a nice trophy and team picture.  As a stockholder in a public company, do you care if the officers of the company have trophies and pictures from sponsoring local events?

There may be some value as your employees feel good about the company but would probably rather have it in their paycheck.  I tend to vote with the employees, I would rather have the money in my paycheck!  I have to admit, our company sponsored the middle school talent contest for ten years while our girls where in school and participating.  It was a small amount of money, and made us proud to be part of a fun event for the kids.  But, I never had one customer call for a quote because of this sponsorship.

Do you think companies should maximize profits, distribute as much as possible to the shareholders and let us make decisions on our charitable gifts?  Not every company pays a dividend, but shouldn’t they execute their plan to maximize stockholder value?

The article referenced today addresses larger public issues.  Should public companies spend money on social welfare, pollution controls beyond what is required by law, or limit the marketing of products offered to those perceived as “good” for the consumer?

Should McDonalds (MCD) quit selling Big Macs because they contain too much fat?  Should Ford (F) quite selling pickups they use too much gasoline?  Should Smith & Wesson (SWHC) just close down because some people don’t believe we should have guns?  Can you believe that Coke and Pepsi have agreed to take soft drinks out of schools, because of pressure from groups concerned about childhood obesity?

These views may seem extreme, especially if you own one of these companies.  But there are some that believe all of the above are the socially responsible actions to take.  Personally, I prefer to own companies headed by executives that work every day to make profits for shareholders, leave the charity and social responsibility to the owners.  We can spend our own money how we see fit!

You can read the Wall Street Journal article, and follow our lead.  Vote out board members that don’t produce value for owners the next time you vote your proxy.

Quote:

You cannot legislate the poor into prosperity, by legislating the wealth out of prosperity.   What one person receives without working for, another person must work for without receiving.   The government cannot give to anybody anything that the government does not first take from somebody else.   You cannot multiply wealth by dividing it.   When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work, because somebody else is going to get what they work for, that my dear friend, is the beginning of the end of any nation.---Dr. Adrian Rogers

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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