Are Men Less Ethical than Women? Part 2.

NPR’s Morning Edition offered a fascinating look at research by the Institute’s Laura Kray on the gender gap on business ethics and why it discourages women from entering business school.

Kray, professor of leadership in the Berkeley-Haas Management of Organizations Group, co-authored a study last year which found that men are more willing than women to make ethical compromises. That gap, and the perception that business often entails ethical lapses, the researchers found, are a big reason that women are still under-represented in business schools.
In an interview with NPR’s Shankar Vedantam, Kray added another twist: In negotiations, both men and women are more likely to tell a blatant lie if their counterpart is female.
“What I found is firstly that men tend to have more lenient ethical standards than women,’’ Kray explained. “And secondly, that negotiators are more likely to tell a blatant lie to a female counterpart than a male counterpart.”

Vedantam described this as a “triple hurdle” for women in business.

“The first hurdle is that men are more willing to accept jobs that involve ethical compromise,” he said. “Men seem to be less plagued by ethical doubt. And women are not only plagued by ethical doubt, they’re actually targeted for deception.”
Kray also found that men apply ethical decisions more egocentrically than women. If an ethical decision hurts them in some way, men are likely to view it as an unethical decision. But if an ethical lapse benefits them, men are more likely than women to brush it off as no big deal.

Nobody can argue that women are wrong for placing a higher emphasis on doing the right thing. But Kray raised the concern that some women may be taking themselves out of the conversation by avoiding business careers entirely.

“It’s her hope that if women actually understand the way they’re thinking about business, that they actually understand that process, they will find a way to stay in the game and also stay ethical,” Vedantam said.

Could Mexico Lead the World in Renewable Energy?

By Omar Romero-Hernández and Sergio Romero-Hernández

Like many other nations, Mexico has been half-hearted about increasing its use of renewable energy. In theory, political leaders recognize the benefits – reduced carbon emissions and particulate pollution; increased energy independence; long-term security in energy prices. In practice, progress has not been as fast as needed to meet its 2024 goal of producing 35% of its electricity from clean technologies.

Mexico remains a major oil-exporting nation, and oil has traditionally dominated the energy policy agenda. Renewables currently supply only 19 percent of Mexico electricity, and most of that comes from big, traditional hydroelectric projects.

Yet Mexico has major untapped resources in renewable energy that could be the envy of the world. With its large land mass and its intense exposure to the sun, Mexico has one of the highest solar generating capacities of any nation in the world. It also has substantial wind-power capacity across the isthmus of Tehuantepec, the Yucatan peninsula, Tamaulipas and Baja California. It has additional opportunities in hydropower, bio-based fuels, geothermic sources, energy efficiency, and waste-to-energy conversion.

What would it take to ramp up production from these substantial renewable resources?
It’s an important question, and not just for Mexico. Every nation has a long-term, strategic interest in reducing carbon emissions and slowing the pace of global climate change. Most nations have a stake in reducing their reliance on imported fossil fuels, which entail both price risk and political risk.

We recently collaborated with experts from Mexico and the United States on a comprehensive review of Mexico’s prospects in renewable energy. We concluded that it has tremendous potential, but it also faces technological, economic, political, and regulatory obstacles.

Renewable Energy in Mexico pictures
To cite just one example, Mexico’s recently approved general energy reform does not include any mechanism specifically tailored for renewable energy sources (such as feed-in tariffs).

The new reform opens energy generation to all players – think here of companies that own wind-farms or solar-panel arrays, or even industrial companies that produce power through co-generation. But it makes it illegal to transmit electricity, because transmission is an exclusive role of the government’s National Center for Control of Energy.

Even if a company is allowed to transmit electricity and sell it to the national grid, the transmission lines may not exist because the sources of renewable energy are often distant from any connection nodes to the national grid. The big question lies ahead: who should be paying for new lines, private investors aiming to develop profitable businesses or a government aiming at social welfare and electricity for all?

Mexican leaders are making headway. There is an active effort to clarify the rules for the energy sector. The specific terms of the implementing legislation for the constitutional amendments will be critical in determining how the private sector will be able to participate in the reform of the power sector. Increased legal certainty would clear further the way for more investments. Ironically, the key precedent may come with new rules for Pemex, Mexico’s state-owned oil company. Investors are paying close attention to the effect of recent constitutional changes. The higher the certainty, the higher the investment in energy projects. The higher the investment, the larger the number of interested parties, who eventually, may aim into larger renewable energy projects.

We also emphasize the social role of renewable energy in Mexico and many other developing economies (check our book on Mexico – Renewable Energy Technologies and Policies). Local solar arrays and wind turbines, for example, are often well-suited for people in remote areas who don’t have access to the national power grid. Our research focuses on opportunities across the USA and Mexico’s border and the way nationally implemented projects, such as thermal solar heating, biofuels, and wind sources may solve the double challenge of economic and social development.

As academics involved in Mexico’s debate – one of us at the Berkeley-Haas Institute for Business and Social Impact, and the other at the Instituto Tecnológico Autónomo de México, we remain optimists. We predict that the inherent logic of renewable energy will lead to its expansion, and we see genuine progress on the legislative and regulatory front. That said, this is as much a legal and political challenge as a technological one. There is no silver bullet to successfully address all the challenges, but opportunity maps have been identified for a lot of regions. If we get collaboration on all fronts, Mexico’s renewable energy industry really could become the envy of the world.

Crowd-Funding for Research: What I Learned the Hard Way

William Fuchs

Even at an institution like Berkeley-Haas, it’s not always easy to raise money for research projects. So when two of my colleagues and I had an idea last year for a project in rural Uganda, we decided to try something new: “crowd-funding.”
Crowd-funding has grown at an explosive pace on sites like Kickstarter and Indiegogo, and some organizations have raised hundreds of thousands of dollars for their projects – charities, music albums, art installations, and business start-ups. But academic research? On how to get rural villagers to replace kerosene lamps with solar lights?

Almost to our own surprise, we succeeded.   But along the way, we learned some valuable lessons.

solar lamp uganda
First, some background. This project is a collaboration between David. I Levine, Brett Green and myself. Many rural Africans don’t have electricity and rely on expensive and dirty kerosene lamps for lighting. A $20 solar lamp can provide light as well as electricity for recharging cellphones. It can pay for itself in less than six weeks. It seems like a no-brainer for rural villagers as well as for entrepreneurs. Yet the market hadn’t taken off. What was getting in the way? The uncertainty about the product? The lack of credit?

It was an important puzzle with wider applications for development economics. We proposed a series of controlled experiments to provide answers.

It was my wife who suggested the crowd-funding. At first, I thought it was a crazy idea. But the more we all thought about it, the more it seemed worth a shot.
So we took the plunge. We created a site on Indiegogo and set a modest goal at $20,000, about one-fifth of what we would ultimately need. We gave ourselves just under two months.

We offered incentives to donors, but I have to admit the enticements were low-budget. For $250, you would get to have coffee with us and a solar light like the ones we were using for our experiment. For $2,500, we would take you to dinner.

The good news is that it worked. We raised $16,700 directly through the online platform, and off-line contributions pushed the total to more than $20,000. The contributions came entirely from non-traditional donors – individuals. Almost 90 percent of the donations were for less than $250. It was a completely new kind of support for us, and it was gratifying.
But we also learned some important lessons. (The hard way)

First, crowd-funding doesn’t run on autopilot. Once we set up the site, we had to get the word out to as many people and organizations as we could think of. And we had to keep reaching out the whole time.

Second, and probably more startling, we learned that one key endorsement can make the difference between success and failure. Our biggest break, by a wide margin, was a short but enthusiastic write-up on the Freakonomics blog by Justin Wolfers, professor of economics at the University of Michigan. Freakonomics has a big following, and its specialty has always been on concrete economic experiments aimed at discovering how incentives play out in the real world.

Wolfers loved our project, as well as our attempt at crowd-funding. “Think of it as Kickstarter for development economics,’’ he wrote. “But better. They’re letting donors into the emotional roller coaster that is economic research.”

That sparked a flood of contributions – about $9,000 in a just a few days. It was amazing, but it highlighted the importance of reaching a broad public audience.
Crowd-funding isn’t manna from heaven for research. You still need to connect with people who have a shared interest, and some types of research may be too abstract and difficult to communicate to a wider audience. We should also be mindful of ethical risks and potential conflicts of interest. We wouldn’t want to pulled toward projects that have dubious value but are “catchy’’ enough to attract public interest.

But crowd-funding is clearly a valuable tool. I suspect it could be especially useful in funding small pilot projects, which can produce some early results that strengthen the case in applying for larger grants.

Since our little experiment, Berkeley-Haas has jumped into crowd-funding on an institutional level. It has started its own crowd-funding platform, and the Center for Responsible Business launched a campaign in February to raise $100,000 in fresh money for the Haas Socially Responsible Investment Fund. At this moment, with eight days to go, the center has attracted more than $66,000 – all of which will be matched dollar-for-dollar by Berkeley alumnus Charlie Michaels (BS, ’78).

I know several colleagues are anxiously waiting for the research arm of the the Haas crowd funding platform to be up and running.  Stay tuned, and you might be able to contribute to cutting edge research.

Tyson: Minimum Wage is a Working Women’s Issue

Part of our mission at the Institute for Business and Social Impact is to shed light on the interplay between for-profit business, the public sector and urgent public problems.

In a recent column for the New York Times, Laura D. Tyson examines that interplay in the current political debate about raising the federal minimum wage.

Contrary to popular perceptions, the minimum wage is not simply an issue for teenagers who live with their parents and hold part-time jobs to pay for movies and clothing.  As Tyson points out, the biggest demographic group of minimum-wage workers is adult women — many of whom are working mothers.  The minimum wage is both a women’s issue and a family issue.

You can read Tyson’s entire column, but here are some key statistics:

  *Women make up less than half the nation’s workforce, but 75 percent of workers in the 10 lowest-paying occupations and 60 percent of people who earn the minimum wage.

   *About three-quarters of female minimum wage workers are above the age of 20, and about three-quarters of those women live without support from a working spouse.

   *The single biggest demographic group of minimum-wage workers is not teenagers, but adult women. 

   *Women head up 7.1 million working families, and about 58 percent of those families are low-income.   About 65 percent of the children in female-headed working families are low-income.

   *A full-time working mother with two children who earns the federal minimum wage of $7.25 an hour makes less than $14,500 year – more than $4,000 below the poverty line.

   *Adjusted for inflation, the current minimum wage is lower today than it was in 1968. 

   *Women comprise two-thirds of workers who rely primarily on tips. 

   *The federal minimum wage for tipped income is only $2.13 an hour – and has been frozen at that level for 21 years.  During the 1980s, the tipped minimum wage equaled about 70 percent of the normal minimum wage.  Today, it is less than 30 percent of the regular minimum wage.

The minimum wage also affects the efficiency of two major anti-poverty programs: the Earned Income Tax Credit, or E.I.T.C., and the  Child Tax Credit.  Together, the two refundable credits provide extra money to 32 million working families and lift about 10.1 people of all ages out of poverty.

But in the absence of a solid floor on wages, those tax credits make it easier for employers to pay less in wages themselves.  If employers know that workers will reap extra money from the E.I.T.C, they can offer less than the market wage to get the workers they want.   According to one recent study, about 30 cents out of every dollar provided through the E.I.T.C. ultimately flows back to employers in the form of lower wages.

Opponents of a higher minimum wage, including most Republicans in Congress, argue that it would lead to higher unemployment.   But as Tyson pointed out earlier this year, a raft of rigorous studies has largely debunked those arguments in connection with proposals to raise the U.S. minimum wage to $10 an hour.

No, Men are Not from Mars and Women are Not from Venus

By Laura Kray

In 2014, is the gender glass half full or half empty? With Berkeley-Haas’s Janet Yellen recently sworn in as chair of the Federal Reserve, the most powerful job in global economics, the proverbial glass ceiling has suffered another serious crack. If Hillary Clinton decides to run for president in 2016, it may further undermine the barricades that keep women from domains traditionally dominated by men.

On the other hand, gender barriers haven’t disappeared.  Many highly accomplished women still  speak out passionately against the  stubborn obstacles, both personal and institutional, that hold women back en masse from the upper echelons of their professions. Anne-Marie Slaughter has railed against persistent and inflexible institutional obstacles that block women from meeting the dueling demands of work and family life. Sheryl Sandberg of Facebook has encouraged women to keep their feet on the gas pedal. Celebrities including Geena Davis and Jennifer Seibel Newsom have sharply criticized the ways in which women are portrayed in the media and the impact of those portrayals on the aspirations and values of young adults.

But on top of the barriers identified above, there is a more subtle obstacle to women’s progress:  fixed gender mindsets, or subjective beliefs that gender boundaries are unchanging and permanent.

In a nutshell: does believing (at least metaphorically) that men are from Mars and women are from Venus hinder progress towards gender equality?

 In my research with two Stanford psychologists, Alexandra Russell and Lauren Szczurek, we are finding that gender mindsets affect how motivated people are to stretch traditional gender roles, as well as the likely consequences of doing so.

On one end of the belief continuum are individuals with very fixed mindsets, who see legitimate and stable barriers that prevent gender- atypical arrangements from succeeding. On the other end of the continuum are people with  a growth gender mindset, who see gender barriers as relatively permeable because the barriers lack legitimate and stable root causes.

 Our research finds that mindsets predict gender attitudes over and above the endorsement of traditional versus egalitarian gender beliefs, and also on top of conservative versus liberal political beliefs. On top of what social roles people think men and women should occupy, beliefs about the degree of malleability of gender roles also matter.

To assess your own gender mindset, ask yourself how much you believe men and women will always occupy different roles in society?  Or, to what degree do you fail to see any innate reasons for gender segregation into distinct social roles?

Building on Carol Dweck’s pioneering research on the power of mindsets to shape goals and risk-taking, we find that mindsets about the permanence versus malleability of gender roles have an important influence on how individuals make career choices and craft marriages.

Recent scientific research, including studies by Bobbi Carothers and Harry Reis, suggests gender itself is more fluid than fixed.  Obviously, physiological  differences such as strength and anatomy are large and robust enough to constitute two distinct gender categories.   But the vast majority of psychological characteristics, such as personality and values,  exist along a continuum. It just is not accurate to declare that women are from one planet and men are from another.  We’re  all on Earth, and we each embody a unique blend of human traits.

Fixed gender mindsets prevent progress by setting off a chain reaction of other behaviors.  Studies show that people with more fixed theories tend to have a more precarious sense of their own gender identities and a greater need to “prove” them.  They literally need to prove their manhood – or womanhood, as the case may be.  People with fixed gender mindsets are more likely to be defensive and resistant to people who don’t comport with their ideas about proper gender roles. That can create obstacles to women who want to push the envelope.

 By contrast, people with “growth gender” mindsets are freer to direct their energies towards crafting a world with fewer gender-based constraints. They focus more on getting things done, and less on who does them.

It isn’t necessarily simple to change a gender mindset, but the first step is examining it. Moving the dial further in the direction of gender equality may require that individuals examine—and question—deeply held assumptions about the fixedness versus fluidity of gender roles. For insight on how to examine your mindset, visit this website.  

 Is a fixed gender mindset holding you back?  


Millennial MBAs: Charting New Career Paths

By Lisa Feldman

It surprises me, but many people still assume that MBA students focus only on traditional business careers.  For a long time, it is true, business schools attracted a high proportion of young consultants and bankers who had worked a year or two as analysts and expected to return as associates on the partner track.

But that has changed. BloombergBusinessweek reported last year that traditional on-campus recruiting has declined at top business schools.  Yet graduates from those same schools saw very high employment rates.  Where were they looking for those jobs?

The short answer is that many in this generation of MBAs are looking outside traditional career tracks, because they want work that has personal meaning and social impact.  It could be in an educational start-up, a social enterprise, or in a corporate program on sustainability or social responsibility.  It could be almost anywhere.

Look at recent Berkeley-Haas alumni, such as Kristin Groos Richmond and Kirsten Saenz Toby, co-founders of Revolution Foods.

Kristen Groos Richmond and Kirsten Saenz Toby, co-founders Revolution Foods.

Kristen Groos Richmond and Kirsten Saenz Toby, co-founders Revolution Foods.

As a result, the MBA job search is changing. The average full-time Berkeley-Haas MBA student is 28 years old, which means that this group falls squarely in the Millennial generation – people born between 1980 and 2000. Millennials have been criticized for being selfish, among other traits, but their career motivations are more complex than that. A raft of surveys shows that Millennials are idealistic and want more than just financial success.  They want to accomplish something of value, often for the broader public good, and many chart their own paths to achieve those goals.

Certainly, a substantial share of MBAs still seek traditional  careers in banking and consulting.  But there is no typical MBA path any more.   Millennials are “an army of one,” each having been told that he or she is special and unique.  The data on MBAs shows that this generation is looking for happiness as well as money.  At Berkeley-Haas, our students search for social impact in every traditional category of industry, from consulting and finance to consumer products, energy, and technology.

Even at the heart of the MBA stereotype, finance, we see a shift away from investment banking and toward impact investing.  This interest has been so high that we have added courses on impact investing and social finance to our curriculum.  We also provide experiential learning programs, including the yearlong management of our $2 million Haas Socially Responsible Investment Fund.  In career services, we have added a separate communications channel just for students who pursue impact investing —  and firms are seeking out those students.

Even students who pursue traditional MBA roles are imposing new demands for work-life balance.  They no longer want to work 80-hour workweeks, and employers are responding.   To retain talent, Goldman Sachs and other firms have begun to restructure junior roles to improve work-life balance.

The search for variety,  flexibility, and impact is driving many MBAs toward start-up companies – many of our graduates launch ventures themselves, and even more join smaller companies that have momentum and offer the potential for impactful career success.  They want flexibility in work hours, but they also want to assert their ideas at companies where decisions and processes have not yet been solidified.

As a result, the MBA job search has become far more individualized.  On-campus recruiting, where entire slates of candidates compete for a position whose start date may be 10 months out, still works for some employers and some students.   It certainly provides predicitability and stability of career path.  But students are pursuing jobs through other routes as well, using our strong Berkeley network and their own drive for impact to find unique roles.  At Berkeley-Haas, we have structured our MBA career services to ensure that every student receives personalized support in his or her search.  It has worked.  Despite the macro decline in traditional on-campus corporate recruiting, 96 percent of our full-time MBA students in the past two years have found jobs within three months of graduation.

As leaders, teachers, and mentors, our role is to equip these students to achieve their goals.  We are handing them a world that we broke, and we must do all we can to help them fix it.

Lisa Feldman (Berkeley MBA 95) is a member of the Institute for Business & Social Impact.  She served as Executive Director of Berkeley-Haas’ MBA Career Management Group from 2011-2013.

How to Tame Your Hidden Prejudices

By Dana Carney

The architecture of the human mind has evolved to efficiently navigate us through a complex world. We make decisions constantly, and most of those decisions are almost unconscious.  Which direction do we check first when we cross the street? Who do we look at as we board a plane?  What is OK to touch at the flower store? Whom do we sit next to in the doctor’s office?

We like to think we have the free will to make the optimal decision through a rational process. More than 60 years of research, however, has shown that our rational mental processes are bounded. In other words, our brains sometimes make decision errors without our control or permission.

One frequent error is that our brains tend to prefer people who are familiar or similar to us. Many experiments in psychology have shown that white people are more likely to hire other whites rather than people of other races or ethnicities.  White doctors are more likely to offer medical treatment to whites than to blacks. Whites are more likely to be friends with other whites, join groups associated with whites, smile at whites, and touch whites. These social group biases occur in many other domains, including sexual orientation, religion, nationality, and economic status.

This kind of decision-making is essentially irrational and can lead to sub-optimal outcomes.  If Jamaal is as educated and experienced as Jason, it is irrational to favor Jason because he has a stereotypically white name.  Yet studies show that people do this often.  Likewise, a white Mr. Thompson may be no more ill than a black Mr. Thompson — yet studies show that the white Mr. Thompson is more likely to get treated for coronary artery disease.  

It’s too simple to write off such employers and doctors as racial bigots.  They have minds and brains just like yours and mine, and all of us make decisions  guided by what scientists call “unconscious preferences.” These are deeply  ingrained preferences stemming from a lifetime of exposure to a culture that values certain things.  If you were raised in America—regardless of your race—your brain was taught again and again that some social groups are more valuable and safer than others.

So here we are. We live in a world that we wish was post-racial, but our brains still see race as very important in making decisions. Are we doomed? Science says “no.”  

Studies show that the simple awareness of how your brain works can dampen some of the bias.  Further, the motivation to be unbiased, combined with an awareness of the bias, can do even more to mitigate the impact of those unconscious preferences still rattling around in your head.

Here’s what we all need to remember. First, prejudice and bias are still alive and well. Second, many of our prejudices live on without our consent.  Third, awareness of these biases can mitigate the impact of these biases on perception, judgment, decision and behavior.

To learn more about implicit preferences and their impact, an excellent book is Blindspot: Hidden Biases of Good People, by Mahzarin R. Banaji and Anthony G. Greenwald. You can even test your own biases by visiting a related website, which offers online tests that are widely used and scientifically valid.

Laura Tyson on Cleaning up Global Supply Chains

Nearly one year after more than 1,100 Bangladeshi workers died in the collapse of the Rana Plaza textile factory, corporations and governments are still struggling with how to enforce decent working conditions in global supply chains.

But as Laura Tyson argues in a new column for the New York Times Economix blog, there may be some counter-intuitive strategies for preventing future tragedies.

American and European companies are still scrambling to improve safety in the Bangladeshi clothing factories that supply them.  European companies have signed the Accord on Fire and Building Safety in Bangladesh, and American companies have embraced a plan called the Alliance for Bangladesh Worker Safety.   Both plans call for higher safety standards for safety and more inspections.    A special board appointed by the Bangladesh government has called for a 77 percent increase in the minimum wage, to about $68 a month

Big multinational corporations buy heavily from Bangladesh, which is the world’s second biggest clothing exporter after China.   But even though labor groups and civil society organizations have been warning for decades about the dangers, disasters still keep happening.  And Bangladesh is just one link in the global supply chains that deliver consumer goods to rich nations.  As a result of globalization, almost everything Americans buy contains either materials or components produced in part by low-wage workers in developing countries.

The good news, Tyson notes, is that there is a lot of agreement in principle about what constitute minimally acceptable standards for workplace conditions.   Look at any number of voluntary industry codes of compliance, and you’ll find they all condemn child labor, forced labor, discrimination, sexual abuse and dangerous conditions.

Big western corporate buyers, from Walmart and Benetton to Apple and H&M, worry about their reputations.  Their customers want low prices, but they are increasingly aware and concerned about products produced by exploited and endangered workers.

The problem is monitoring and enforcement.  The maze of subcontractors makes it easy for multinational buyers to keep their  distance from grim workplace practices.  Local governments, eager for business, can abet the cover-ups.  Even if a multinational company wants to enforce humane conditions, it’s difficult to know what’s happening below the first or second tier of suppliers in their chains.

One innovative strategy, Tyson suggests, may be the Better Work program, a joint venture between the International Finance Corporation and the International Labor Organization. Better Work conducts in-depth, unannounced factory-level inspections in eight countries, including Cambodia, Indonesia, Nicaragua and Haiti.  It’s now starting a new program for Bangladesh.

Better Works only inspects factories that provide their consent, and not all of them give it.  But its reports offer accurate and credible information on hundreds of factories in a given country.  It also lists the names of factories that open themselves to inspection.  Factories that don’t open themselves up pose a red flag for corporate buyers that want to protect their reputations, as well as for non-governmental organizations and advocacy groups that pressure the corporations.

There’s another possible lesson from Better Work, Tyson argues: international trade agreements can provide leverage to improve supply-chain conditions.   Better Works got its start after the United States and Cambodia signed a trade-opening pact in 1999.  To get more access to the U.S. market, Cambodia had to show that its workplace conditions were improving.   That led to the launch of Better Factories Cambodia, and studies have shown that the program did indeed foster better conditions there. Cambodia became the prototype for other Better Works programs in many other countries.

Trade agreements are unpopular in Washington right now, especially among Democrats.   Senate Majority Harry Reid recently threw cold water on President Obama’s calls for fast-track authority to pass the Trans-Pacific Partnership.  Some Democrats see such deals as encouraging a race to the bottom that will only drag down conditions for American workers.   But the Cambodian deal, Tyson says, illustrates how trade deals can raise standards abroad rather than lower them at home.

CVS and Its New Bottom Line on Cigarettes

By Kristiana Raube

When CVS Caremark announced on Feb. 5 that it will ban cigarette sales in all its drug stores, it raised fascinating questions about the link between corporate social responsibility and the bottom line.

 What motivates a for-profit corporation to voluntarily exit a line of business in the name of public health?  Will a company “do the right thing” even if it doesn’t contribute in some way its self-interest?  Is this just a PR stunt and a display of business as usual?CVS Quits

These are core issues at our institute, especially for scholars and students at the Center for Responsible Business.

I would argue that this was about the bottom line, but that it certainly was not business as usual. CVS is the nation’s second-biggest chain of drug stores, with $123 billion in annual sales.  Its cigarette sales alone total about $2 billion a year. 

Its decision to walk away from that business appears to have been totally voluntary. The government wasn’t demanding it.  Public-interest advocacy groups weren’t staging boycotts against it. And while Target banned cigarettes sales back in 1996, big competitors such as WalMart were still in the business and — for now — are staying in it.

In other words, CVS didn’t make its move either because it had to or because it hoped for an immediate financial pay-off.

At the same time, CVS clearly did make a strategic business calculation. As its executives explained, CVS is increasingly in the health care delivery business. On top of its pharmacies, it also operates 800 in-store “MinuteClinics” – and that business is expected to grow rapidly.  It was getting more and more untenable to sell health care under the same roof as products linked to 480,000 smoking deaths every year.

It’s also worth noting that CVS doesn’t expect that the loss of cigarette sales will lead to a decline in its profits.  Cigarette sales are a tiny fraction of CVS’s total sales, and the company hopes to ramp up other lines of business to pick up the slack.  

Investors seem to accept and even approve of all this.  CVS’s share price jumped from $66.11 on Feb. 4, the day before its announcement, to $69.49 as I write this on Feb. 13.

A cynic might say that CVS just put a good PR spin on a decision it was making anyway.  But that’s too simple. For one thing, it wasn’t a risk-free decision.  If WalMart and Walgreens are still selling cigarettes, CVS could conceivably lose some foot traffic that affects more than just cigarette sales.  

The more important point is that CVS appears to have decided that its social impact on public health affects its core goal of building shareholder value. CVS is positioning itself as a health care company, not just as a chain of stores that sell everything from greeting cards to cosmetics and just happen to have a pharmacy in one corner. The more that retail health care becomes a core business, the more cigarette sales undermine its strategic direction. 

This isn’t just about CVS’s clinics, either. Every company has important social stakeholders, from customers and employees to community and political leaders, who have a big impact on its overall business.  Smoking and cigarettes have become highly unpopular with a solid majority of Americans.  Just look at the very small number of public places where it’s even legal to smoke now.  As a result, cigarettes are not only bad for public health. They’re also bad for a corporation’s brand and reputation.  

The interesting question now is whether CVS’s dramatic move to be “good” will offer competitive advantages.  For the time being, for example, WalMart plans to keep selling cigarettes even as it offers health-care services in its stores.   But WalMart invests heavily in being a “good” company too, as illustrated by its effort to drastically reduce the carbon emissions associated with the products on its shelves.

I suspect CVS’s move will put its rivals under competitive pressure to follow suit.   In the meantime, it is likely to reap big rewards for being a front-runner in this area of corporate social responsibility.  If so, there’s a lesson here for other business leaders.



Measuring the Sharing Economy

By Laura Boudreau

This past Sunday, my roommate picked up her pink mustache and headed to work. Since quitting her job to return to graduate school, she has signed up as a driver for Lyft, the ride-sharing company that puts those trademark mustaches on cars to let customers know their rides have arrived. 

Lyft lets individuals augment their income by using their own cars on their own schedules to taxi people. It’s one of many sharing companies that allow individuals to turn their time or underutilized assets into extra income. I would argue that these companies can also promote more socially and environmentally responsible behavior and even help tackle urgent social needs.

Many sharing companies were established in part with the idea of making more efficient use of natural resources and energy. Zipcar, which helped bring car-sharing to the U.S., wanted to take cars off the road, reduce traffic congestion, and quell pollution.  Alta Bicycle Share, which installs and operates bike-sharing programs, aims at similar goals by making it easy for people in cities to ride by bicycle rather than in cars.   Feastly, which allows cooks to reach a wide network of people interested in top-notch homemade meals, builds community by bringing locals together around the table.

The sharing economy can engender community at the local and global levels, which is essential to social and economic well-being as the world’s growing population continues to strain natural resources and social safety nets. Consider Airbnb, which allows travelers to book lodging, from couches to castles, directly from homeowners. Airbnb hosts started an emergency-shelter movement after Hurricane Sandy by posting their homes for free to storm victims. Since then, Airbnb has formalized its role as a platform that connects disaster victims with emergency housing.

But traditional metrics for gauging business success don’t capture the social and environmental dividends from sharing. If we’re serious about moving toward a more equitable and environmentally sustainable economy, we should do better at quantifying a firms’ triple bottom lines.  The more we know about the social and environmental impacts of firms’ operations, the easier it is to reward companies that perform well or tax those that perform poorly.

 We have voluntary examples of these metrics in the private sector, such as when industry groups set social and environmental codes of conduct and reporting requirements. But public policy can push companies to go further. As Professor David Vogel described in his post on corporate America and carbon, for example, a tax on fossil fuels could efficiently and effectively contribute toward mitigating the risks associated with climate change.

Yes, it’s difficult to quantify social and environmental costs and benefits.  What is the environmental benefit of swapping or trading a TV, instead of purchasing a new one?

But where those benefits can be quantified, the results are often encouraging. After Alta Bicycle Share quantified the public health benefits of bike-sharing in cities such as Washington, D.C., other cities launched similar programs. In D.C., bike-sharing users can also quantify the benefits of their own trips in terms of calories burned and reduced CO2 emissions. In my last 200 trips on bikeshare before moving out of D.C., I rode 204 miles, burned 10,200 calories, and saved 138.6 pounds of C02 that would have been emitted if I had been driving. That kind of user-level feedback can provide powerful encouragement for socially and environmentally responsible behavior.

The sharing economy is a harbinger of a future in which socially and environmentally responsible business is a norm. But to get there, we need better metrics for social and environmental impact and stronger policies for appropriately rewarding or taxing these impacts.      

 Laura Boudreau is a Ph.D. candidate at Berkeley-Haas.