First Look

October 2, 2012

Sustainable Business Practice Starts At The Top

"Globalization has concentrated economic power within a group of large companies who are now able to change the world at a scale historically reserved for nations. Just 1,000 businesses are responsible for half of the total market value of the world's more than 60,000 publicly traded companies. They virtually control the global economy." That is how professors Robert G. Eccles and George Serafeim begin a recent article for, Top 1,000 Companies Wield Power Reserved for Nations. Their point: With such power concentrated in so few firms, it's important that those at the top engage in sustainable business practices. "Remaking these 1,000 companies will change the behavior of millions of other companies, as healthier business practices trickle down their supply chains and into the constellation of private companies."

The Rewards Of Doing The Right Thing

There's a continuing debate about how much (or even whether) companies that follow corporate social responsibility programs benefit on the bottom line. In the paper Corporate Social Responsibility and Access to Finance, George Serafeim, Beiting Cheng, and Ioannis Ioannou report that companies do benefit, in the form of better access to finance. "Using a large cross-section of firms, we find that firms with better CSR performance face significantly lower capital constraints," the authors write. The results will be published in a forthcoming issue of Strategic Management Journal.

Economic Development Versus Environmental Damage

A new case also takes up the subject of sustainable business. Generation Investment Management is a sustainable investing firm whose founders include former vice president Al Gore. In the case, David Lowish, director of global industrials, must decide whether to recommend an investment in the power and automation technologies firm ABB India. "The decision pits economic development—supplying energy to impoverished rural areas in India— against environmental damage—caused by the use of coal-fired power plants." Order "Generation Investment Management (Abridged)," written by Sandra J.Sucher and Matthew Preble.

— Sean Silverthorne


Corporate Social Responsibility and Access to Finance


In this paper, we investigate whether superior performance on corporate social responsibility (CSR) strategies leads to better access to finance. We hypothesize that better access to finance can be attributed to a) reduced agency costs due to enhanced stakeholder engagement and b) reduced informational asymmetry due to increased transparency. Using a large cross-section of firms, we find that firms with better CSR performance face significantly lower capital constraints. Moreover, we provide evidence that both of the hypothesized mechanisms, better stakeholder engagement and transparency around CSR performance, are important in reducing capital constraints. The results are further confirmed using an instrumental variables and a simultaneous equations approach. Finally, we show that the relation is driven by both the social and the environmental dimension of CSR.

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Working Papers

Colocation and Scientific Collaboration: Evidence from a Field Experiment


We present the results of a field experiment conducted within the Harvard Medical School system of hospitals and research centers to understand how colocation impacts the likelihood of scientific collaboration. We introduce exogenous colocation and face-to-face interactions for a random subset of biomedical researchers responding to an opportunity to apply for a research grant. While the overall baseline likelihood of any two researchers collaborating is small, we find that random colocation significantly increases the likelihood of pair-level co-application by almost 70%. The effect of exogenous colocation on subsequent collaboration was greater for previous coauthors, pairs including a woman, and pairs researching similar clinical areas. Our results suggest that matching between scientists may be subject to considerable frictions-even among those in relatively close geographic proximity and in the same organizational system. At the same time, even a brief and focused intervention facilitating face-to-face interactions can provide information that impacts the formation of scientific collaborations.

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Technology, Innovation and Economic Growth in Britain Since 1870


This chapter examines technological change in Britain over the last 140 years. It analyzes the effects of patent laws and innovation prizes that were designed to promote technical progress. It explores the challenge associated with the changing organizational structure of innovation and the shift from independent invention to R&D activity taking place inside the boundaries of firms. And it also studies the development of British industrial science in universities and efforts to promote innovation through the formation of industry clusters. Overall, the evidence supports the traditional story of British failure in generating large payoffs from technological development. Although from the early 1970s Britain experienced a revival in the quality of innovation and improved productivity growth, structural weaknesses in the commercialization environment still remain.

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Cases & Course Materials

CNBM: Rolling Up China's Cement Industry

Joseph L. Bower and G.A. Donovan
Harvard Business School Case 312-067

The Chinese government has charged Song Zhiping with the job of rationalizing China's cement industry. He has acquired 200 plus companies, but the industry is still fractured. Can he succeed?

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Generation Investment Management (Abridged)

Sandra J. Sucher and Matthew Preble
Harvard Business School Case 613-002

Examines the investment process of Generation Investment Management, a "sustainable" investing firm established in 2004 by David Blood and U.S. Vice President Al Gore. Places students in the position of David Lowish, director of global industrials, who must decide whether to recommend an investment in ABB India. The decision pits economic development-supplying energy to impoverished rural areas in India, against environmental damage-caused by the use of coal-fired power plants.

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