© Nathan Mandell

By Ed Finkel

When Kellogg School of Management Dean Dipak C. Jain and his faculty began thinking through an ambitious new major focused on corporate social responsibility in the spring of 2001, little did they know what the subsequent year would bring.

With the implosion of Enron and Arthur Andersen and the string of accounting scandals that followed, the new Business and its Social Environment (BASE) major, offered for the first time this fall, arrives at an especially propitious time. But Jain and others stress that both faculty research and student interest in the subject of how corporations can “do well by doing good” dates back a number of years.

“This major is going to be driven by faculty research,” Jain says. “We do not view it as a flavor-of-the-day curriculum. We earned a reputation because we anticipated the market’s needs better and faster than our competitors. BASE represents another example of our efforts to remain ahead of the curve in leadership education.”

The new major includes some courses that previously existed, such as Strategic Management in Nonmarket Environments, and others that have been newly created or substantially revamped, including Environmental Management, Making Ethical Decisions and The Socially Responsible Business. BASE is open immediately to second-year students, and its individual courses — like any in Kellogg — are open to nonmajors.

Mandy Taft ’03, a second-year student who is president and co-chair of Kellogg’s student Social Impact Club, says she and many of her classmates see BASE as a new way — beyond Kellogg’s existing nonprofit management major — to apply business skills to social issues such as human rights, labor and the environment.

“There’s a unique set of issues that appear when you’re trying to balance the corporate bottom line and the social bottom line,” she says. “It’s new. There are not a lot of people who do it. It’s wonderful to be on the cutting edge of a new field and to have an opportunity to develop the skills to be a leader in that area.”

	© Nathan Mandell Professor Daniel Diermeier, BASE co-director, engages his students in a discussion about strategic management in nonmarket environments.

Ethics as fiscal foundation
Faculty do not expect the typical graduate to join a company’s “corporate social responsibility department” per se, but rather to become an executive who is better oriented to these emerging issues, says David Messick, the Morris and Alice Kaplan Professor of Ethics and Decision in Management, and the academic co-director of the new major and director of Kellogg’s Ford Center for Global Citizenship.

“These are all issues that somebody who’s going to be a successful executive has to be conversant in and has to understand the importance of,” says Messick, who has incorporated whistle-blowing cases such as “Serpico” in his courses, as well as books such as It’s No Accident and Serpent of the Rock, exposés of lethal baby products and Prudential’s fraudulent marketing of financial products. “This major is going to be more important in the coming century as fewer things are done by government agencies. People, through a political process, are going to require business to accept responsibilities that they hadn’t previously thought of as their responsibilities,” he notes.

Josh Miller ’03, a second-year student and BASE major, echoes others’ thoughts in saying that the major will provide a structure for Kellogg’s teaching and research in the area of corporate social responsibility.

“This major is acknowledging that this topic isn’t just a passing thought, but something you can spend your career thinking about,” Miller says. “It’s legitimizing an important set of skills for business people. More Kellogg students will decide to pursue BASE, and it will put more MBAs into the world who have thought about the issues of ethics and social responsibility.”

The research thrust behind the BASE major is not a pie-in-the-sky notion that claims companies should care about workers, consumers, the environment and other social concerns because it’s merely a nice thing to do. Rather, faculty have been examining “when the environment makes financial sense for a company to try to differentiate itself from a competitor by being socially responsible,” says Daniel Diermeier, IBM Professor of Regulation and Competitive Practice, and academic co-director of the new major.

Their research has investigated questions such as whether it is true that companies identified as socially responsible are indeed more profitable, have a higher stock price, have cheaper access to capital, are better at risk management and are better companies to work for, notes Diermeier.

“That means you look at this issue from the point of view of rigorous management research,” he says. “We wanted to make sure that ethics and issues of social responsibility are not ‘ghetto-ized’ and assume a kind of elective status, in the sense that they are perceived as a luxury, or that such considerations are only of interest for specialists. We believe that the issues raised by BASE can become a central focus of management thinking in general.”

This belief is one that’s starting to gain wider and wider acceptance among leadership educators and industry observers. Kellogg, however, is the first school to launch a comprehensive major in this area, rather than simply respond by adding a stand-alone ethics class.

Balancing the relationships between financial success and a progressive social agenda can prove extremely complicated for businesses, especially when the decisions corporate leaders must make end up being more nuanced.

Progressive businesses will lead the market
As an example, Kellogg Professor Tim Feddersen has researched the subtleties of how to deal with activist groups. His work has found that in markets with tight competition for consumers and differing degrees of social responsibility among companies, activists’ stamp of approval or disapproval can make a difference.

Feddersen, the Wendell Hobbs Professor of Managerial Economics and Decision Sciences, says firms need to be aware of the characteristics of their products and markets that increase vulnerability to activist action. “Firms need to think strategically about how to respond to activist action and to recognize opportunities to work with activist groups,” says Feddersen, who, like Diermeier, teaches a BASE course on strategic management in nonmarket environments.

© Nathan Mandell Professor David Messick discusses the ethical obligations of executives as corporations grow increasingly important politically. Messick spoke at a recent Kellogg Alumni Advisory Board dinner.

The consensus among Kellogg faculty, students and alumni is that, in the long run, businesses making progressive decisions about social issues — even if that means going beyond what government requires — will be the most successful.

“One of the basic misconceptions that people have is that it’s a tradeoff: either you do good business or you do good for the community. The two are actually reinforcing,” says Ivy Tseng ’01, who works in corporate marketing for IBM in Armonk, N.Y. “Short term, you might spend a bit more on your bottom line to make sure the products you manufacture are not using dangerous chemicals. Long term, you don’t have to worry about getting sued.”

She adds: “As a purely payoff-oriented investor, I want to pick a company that isn’t going to get sued tomorrow. That’s going to be a company that cares about the environment and their employees. One of my frustrations with businesspeople in general is that they think it’s one or the other. I’m glad that Kellogg has seen the light.”

Lawsuits are but one of an array of potential concerns facing corporations who continue with the old ways of doing business: Activist boycotts of a company’s products, critical stories in the press and greater government regulations all await those who give social concerns short shrift, say Kellogg School experts.

“What is becoming more and more apparent is that you ignore those influences at your peril,” says Erich Hoefer ’03, a second-year student who is taking the core courses for BASE and “strongly considering” it as a major. “I’m developing the savvy and the toolbox to be a better manager, as well as other opportunities to meet similarly minded people. It’s context and contacts.”

When assets become liabilities
Diermeier cites Nike as an example of a company that met and even went somewhat beyond just following the laws in its overseas factories — but still faced activist boycotts and harmful media coverage.

“As a human-rights activist, if I want to change labor practices in Thailand, I’m no longer going to protest in front of the Thai embassy. That’s ’90s or ’80s activism,” explains Diermeier. “What I’m doing now is targeting and boycotting Nike, so that I can use private practices as a transmission belt, so to speak, to effect changes in developing countries. That’s much more effective. It’s much quicker and just works better.”

	© Nathan Mandell Standing up for an ethical and sophisticated approach to business studies: BASE Profs. Daniel Diermeier and Timothy Feddersen

And that fact goes to the heart of what students will study, Diermeier says. “What can be assets for a company — let’s say their brand or their reputation — can be turned into liabilities,” he says. “Not only do we have to deal with private actors, like activists or the news media, you also have to worry about legislators, regulators and exactly what the incentives are to take action and how to manage them. That’s a complex strategic problem. That’s a difficult environment in which to be successful. And that’s what our students are going to learn.”

These students will have much to offer, since only a handful of companies have moved boldly in a progressive direction, says Samantha Levine ’02, who works for the Boston-based Bridgespan Group, a nonprofit consulting firm.

“There is a larger group of corporations that would like to move in this direction, but they would like more guidance, or they need someone to push them a bit, or they need some reassurance that this will not hurt profitability,” Levine says. “That’s where I think Kellogg grads can be most effective — taking these skills and being that catalyst for change within a company.”

One company that many believe has sought such change is BP. The firm has endeavored to position itself strategically as an energy company — not a petroleum company.

“Their big question is whether they would drill in the Arctic National Wildlife Refuge” even if they could do so legally, Diermeier says. Other questions for the company include devising investment strategies, defining corporate culture and internal organization and assessing marketing efficacy. “These considerations go to the heart of everything BP does,” adds Diermeier. “The firm is a big role model for many of the students. They dream of working for BP. And there you go — that’s another advantage conferred by serious consideration of the social context of your business — it’s easier for you to attract talent.”

Miller agrees wholeheartedly. “People will start to learn that it’s a competitive advantage to understand nonmarket forces and the social environment, and they’re not going to want to work for a company that doesn’t get it,” he says, “because that corporate model will be less sustainable."