Many investors are concerned with corporate social responsibility, the precise meaning of which is ambiguous as are methods to analyze and evaluate such responsibilities. The late Milton Friedman and his followers have argued that the term "corporate social responsibility" is meaningless. Businesses are profit making entities, no more, no less. They are responsible only to their shareholders. Such a position is increasingly hard to defend. Today most companies want to be considered good corporate citizens concerned for the environment, for their workers, and for the communities in which they operate.

Concerned investors will want to read Kate O'Sullivan's article "Virtue Rewarded" in the October issue of CFO (www.cfo.com). O'Sullivan interviews CFOs from various companies, all of whom are concerned about minimizing risk, staying ahead of negative publicity, and maintaining a positive reputation while not sacrificing bottom line profitability.

After reading this article, investors may want to read "Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility" by Michael Porter and Mark Kramer in Harvard Business Review, December 2006 (www.hbr.org -- subscription required). Porter and Kramer argue that the attitude of CFOs reflected in O'Sullivan's article is exactly what is WRONG with current thinking of corporate social responsibility. Company executives set up a business vs. society model in which long-term sustainability is sacrificed to quarterly profit figures. Companies waste literally millions of dollars each year supporting feel-good, positive publicity projects of dubious long-term benefit that have nothing to do with the strategic mission of the companies. Companies need to consider their social responsibilities from an operational and strategic standpoint, as a vital component of their value chain. What does a company already produce? Where in its operational structure are negative social impacts generated? What can the company do to reduce or even eliminate those negative social impacts? When a company ceases to react defensively to perceived negative publicity or activist shareholder proposals and integrates social responsibility into its operational processes, that company generates an enormous competitive advantage because it integrates the health of the business into the health of the society in which it operates.

Porter and Kramer argue that strategic corporate social responsibility responses must create shared value for both the company and society simultaneously. A company must focus on a small number of large impact initiatives integral to its own core operations. Management must measure potential social rather than stakeholder satisfaction. Generic social do-good programs do not have a measurable long-term impact on either the company's competitive position or the health of the society. One company that practices strategic corporate social responsibility as part of their operational structure is Whole Foods Market (NASDAQ: WFMI), which not only sells high-quality organic foods, but also uses environmentally safe cleaning products, recycled materials in store construction, wind energy credits equal to 100% of its electrical use, and biofuels in its trucks. Other companies mentioned are Toyota (NYSE: TM), due to its concentration on hybrid auto technology; Sysco (NYSE: SYY), which supports family farms and locally grown produce in its stores; General Electric (NYSE:GE) for "ecomagination" that focuses on water-purification technology; and Unilever (NYSE: UN), which is concentrating on products to serve the needs of the poorest populations. Corporate social responsibility is an idea that will only grow in importance. Investors may wish to consider it as an integral part of their due diligence investigation.

Investors will want to read Alfred Rappaport's article "10 Ways to Create Shareholder Value" in Harvard Business Review September 2006. Most companies profess to increase shareholder value, but do they actually do more than talk? Rappaport argues NO. Most corporate senior management focuses on short-term earnings and stock prices connected to the exercise of generous option grants. Both of these actions mitigate against creating shareholder value. Not surprisingly, Rappaport singles out Warren Buffett's Berkshire Hathaway (NYSE:BRKA) as one company that really does focus on increasing shareholder value. This is due to the fact that Mr. Buffett has long insisted on acting according to Rappaport's #1 Principle for increasing shareholder value: Do not manage for earnings. Management must develop strategic plans with the long-term goal of increasing shareholder value regardless of dips in short terms earnings. A company's acquisition strategy should proceed along those same lines.

Executive compensation, or rather excessive executive compensation, has been in the news of late. Think former NYSE head Dick Grasso and Home Depot CEO Bob Nardelli. Rappaport suggests that companies reward executives handsomely but only for long-term returns. This presupposes, however, that the executive suite does not have a revolving door and that a CEO is given long enough to implement strategic plans.

Share the wealth. Don't just reward the senior management team. A lot of middle and front-line managers work very hard in the trenches every day to create lasting shareholder value. If they don't do their jobs, the best strategic plans will come eventually to nought. Recognize and reward their efforts. Everybody benefits in the long run. Corporate boards should lay off granting options as though there is an infinite supply. Make senior management stand the same risk as all other shareholders by owning stock outright. That will help keep everybody focused on the same goal.