Aswath Damodaran 40
A Hypothetical Example
Assume that you work for Disney and that you have an opportunity to open a
store in an inner-city neighborhood. The store is expected to lose about
$ 100 , 000 a year, but it will create much-needed employment in the area, and
may help revitalize it.
! Would you open the store?
a) Yes
b) No
! If yes, would you tell your stockholders and let them vote on the issue?
a) Yes
b) No
! If no, how would you respond to a stockholder query on why you were not
living up to your social responsibilities?
I do this survey in three parts.
First, I allow people to make the choice of whether they would open the store. I
then pick someone who would open the store and press them on whether they
would reveal this to their stockholders. If the answer is No, I point out that it is
after all the stockholders’ wealth. If the answer is Yes, I then ask them whether
they would let stockholders vote (if not on individual store openings, on the
money that the firm will spend collectively on being socially responsible)
I also ask people why they would open the store. If the answer is that they
would do it for the publicity, I counter that it is advertising and not social
responsibility that is driving the decision. There is nothing wrong with being
socially responsible and getting economically rewarded for it. In fact, if societies
want to make firms socially responsible they have to make it in their economic
best interests to do so.
