CorpComms Magazine

A respected corporate responsibility programme cannot protect a company's share price if it is caught up in a major crisis, new research claims.

The results contradict the long-held view that corporate responsibility programmes bolster companies' reputations and can mitigate the impact of scandal.

Academics at the University of Arkansas studied the share prices of clients of Arthur Andersen after it was announced that the accounting firm had shredded documents relating to its infamous Enron audit in 2002.

The report concludes that corporate social responsibility programmes did not prevent a drop in the stock market values of Arthur Andersen clients.

Manuel Sanchez, assistant professor in the Sam Walton College of Business, said: 'The negative returns imply a presumption in the market that financial statements of Arthur Andersen clients were more susceptible to accounting manipulations.

'The only way to test the claim that social responsibility pays off in a crisis like this is to conduct an event study such as ours in which the market is likely to reassess factors related to reputation.'

The researchers identified 147 Arthur Andersen clients with social responsibility data and, based on industry, firm size and auditor, matched each with a non Arthur Andersen client that also provided social responsibility data.

A social responsibility scorecard was created, based on data such as community relations, corporate governance, diversity, internal communications, environment, human rights and product quality. The final score also depended on whether the company was a member of the Domini 400 Social Index, a benchmark index constructed using environmental, social and governance factors.

The authors concluded that there was no evidence that corporate social responsibility helped the Arthur Andersen firms. 'Our study does not support the contention that social responsibility can burnish the reputation of the firm at a time of crisis,' said Sanchez.

Prior to the collapse of Enron, Arthur Andersen had been one of the top five accountancy firms in the world. 

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