What is the Economic Effect of Compliance, Ethics and Social Responsibility Efforts On the Bottom Line?

Chicago GSB will join with the Ethics and Compliance Officer Association (ECOA), the largest organization of ethics and compliance practitioners in the world, to examine the economic effects of corporate compliance, ethics and social responsibility initiatives. The study seeks to address concerns by critics that such efforts are either just a public relations campaign or an attempt to pursue other agendas at shareholder’s expense.  According to Keith Darcy, executive director of ECOA, “While inherently these programs reduce the reputation risks and legal liabilities to companies, this project represents an extraordinary effort to assess how these programs contribute to a corporation’s bottom line and the creation of shareholder value.” 

Other issues associated with programs aimed at corporate compliance, ethics and social responsibility initiatives include the potential to reduce legal and regulatory trouble and how they might improve the firm’s ability to attract and retain a strong and motivated workforce. Both have an impact on the company’s market value. This may help explain why these programs are gaining the attention of a growing number of investors.

The research will be conducted by GSB faculty members Kevin Murphy, Mark Zmijewski, and Michael Gibbs. Murphy is George J. Stigler Professor of Economics, MacArthur “genius grant” recipient and winner of the John Bates Clark Medal. Zmijewski is Leon Carroll Marshall Professor of Accounting, and deputy dean of the Chicago GSB. Gibbs is clinical professor of economics and human resources.

The involvement with the ECOA offers a unique opportunity. It is hoped that the researchers will have access to data from ECOA member corporations. 

L. Stephan Vincze, ’06, vice president, ethics and compliance officer at TAP Pharmaceutical Products Inc. and a member of the ECOA, played a leading role in bringing the ECOA and the GSB together to study this issue. According to Vincze, “One of the key questions we will try to answer is, ‘What are the factors in these programs that correlate to the creation or destruction of economic value and sustainable competitive advantage in highly regulated industries?’”

Vincze went on to cite the contributions to economic research by Nobel laureate Gary Becker, University Professor of Economics and of Sociology as well as Murphy, one of the project’s leaders. He acknowledged how their work examines the question ‘If human behavior can be shaped through economic incentives and disincentives, then shouldn't we be able to consistently shape ethical behavior in a way that returns both desirable behavioral outcomes and economic value?’”

Gibbs further remarked, “The University of Chicago is the home of the late Milton Friedman – author of the famous New York Times article The Social Responsibility of Business Is to Increase Its Profits – and the Chicago School of Economics. It is appropriate for such a project to be conducted here.”