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Why Investors Should Care About Corporate Responsibility

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In the video below, The Motley Fool speaks with Roger Martin, strategy expert and Dean of the Rotman School of Management at the University of Toronto. We discuss why shareholders of a company should care about corporate responsibility. Martin argues that investors should look for the companies that are using their products to express their corporate responsibility, including companies like Starbucks (NASDAQ: SBUX  ) . 

A transcript follows the video.

The full interview with Roger Martin can be seen here, in which we discuss a number of topics including Bill Ackman, innovation, corporate responsibility, executive compensation, and how to pick out great companies. Martin is the coauthor of Playing to Win, a new book focusing on strategy written with former Procter & Gamble CEO A.G. Lafley.

If you're on the hunt for a great stock idea, The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report, "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

Brendan Byrnes: You've also done a lot of work on corporate responsibility. How important is that to shareholders of a company, and how do you think potential investors should look at the corporate responsibility of a company when they're considering an investment?

Roger Martin: I think this is a really, really interesting issue which is still being very much sorted out.

I think there is now a rising tide of desire for corporate responsibility among consumers. Until such time as that happened, I just don't think that corporations were going to respond, but I think now consumers care more than they ever have before, so I think getting out ahead of sustainability issues and how you treat your employees is important.

Brendan: We talked about conscious capitalism last time. Companies like Whole Foods (NASDAQ: WFM  ) , Panera (NASDAQ: PNRA  ) , Starbucks starting to do more of this and, actually, if you look back at it over time, seeing better returns. Is that something that you think other companies will take notice and will start to take off and snowball like that?

Roger: I think they will, and I think what is cool about those examples that you've given are that the expression of their corporate responsibility is through what they actually do for consumers.

Starbucks saying, "You will get a cup of fair trade coffee." Coffee is their business, so I like that better than -- even though I like corporate philanthropy -- than, say, giving money to something that doesn't relate at all to your business. Whole Foods would be a similar story. I think that's going to be the trend.

If I was an investor looking at that I'd say, "Boy, I'd rather invest in a company that's figured out through their business, in a way that supports and enhances their business -- those people drinking a cup of coffee from Starbucks and having confidence that it came from a farmer who's making a decent living -- I think those businesses will prosper."

As an investor, I'd say the consumers will love them, because they're expressing their responsibility through their product. I would look for that kind of corporate responsibility first and foremost.

If you're on the hunt for a great stock idea, The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report, "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

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  • Report this Comment On March 29, 2013, at 2:09 AM, strelna wrote:

    Strongly disagree. CSR has no place in a free market where competition and the rule of law exist and both employees and consumers can walk. Businessmen should not be diverting their attention to 'look at me, am I not a goody-two-shoes' overt, cuddly, do-goodery. As for fair trade, who will speak for Peasant Farmer B? Though more efficient, he is put out of business by Peasant Farmer owing to the price being rigged, while the poor in rich countries find themselves having to pay a premium. The jury's definitely out of this latest manifestation of the price-rigging idea.

    Capitalism amounts to the greatest charitable endeavor on earth. Human beings, brains still fully wired-up for life in small groups on the African savanna, really love socialism. This is a mistake!

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