Assignment Chapter 4

Assignment Chapter 4

Student: Binh Nguyen

Class: BBA-300 (1117-6839) PRINCIPLES OF MANAGEMENT (Fall 2011 DD2) 801

Instructor: Paige Miller

2/ Environmentalist are trying to pass laws for oil spills that would remove all liability

limits for the oil companies. This change would punish corporations financially. Is this

approach the best way to influence companies to be socially responsible?

Executives at Petróleo Brasileiro, the Brazilian oil company also known as Petrobras,

say a growing awareness of environmental and social concerns have meshed with

pressure from investors over the past three to four years to strengthen the company’s

social responsibility initiatives, and “We realized that investing in the environment and

safety and security results in a much better performance and lowered our risks,” says

Ana Paula Grether de Mello Carvalho, coordinator of social and environmental reports

in the department of corporate responsibility at Petrobras. “It also brings advantages in

the capital markets.” (Green, 2007, p.2)

"We have learned - and will continue to learn - many lessons from this oil spill. The

many investigations of the accident will bring changes to our industry - changes that will

improve the safety of deepwater drilling going forward." Bob Dudley Group Chief

Executive, BP said that after BP after BP was fine up to $20 billion dollars for Gulf of

Mexico oil spill. ("Supporting oil spill," )

Yes, all leaders of corporations recognized that, nowadays, corporation social is core

value which concern in their business. Not only to survivals of companies, social

corporation responsibility also positive relate with profits of companies

“For consumer industries, greater corporate social performance is associated with

better CFP corporate financial performance, and the opposite is true for industrial

industries. Empirical studies have examined the relation between CSR and corporate

financial performance, and while the results are mixed, overall the research has found a

positive but weak correlation.” (Robins, 2011,p.2) “If corporate social responsibility

comes out of social concerns, that is good. But if not, market logic dictates that

corporate executives recognize the need because it will play out financially,” says

Georg Kell, executive director of Global Compact, an initiative launched by the United

Nations to encourage corporate responsibility. “There’s a change in perception among

investors. They recognize that environmental and social concerns are material to

financial responsibility,” he notes. (Green, 2007,p.1)

Finally, the financial of corporations is most important. Socially responsible is also one

of cores value of business, and most impact in sustainability strategy of companies;

Therefore punishing corporations financially can consider the best way to influence

companies to be socially responsible.

5/ was it ethical during the 1990s for automobile manufactures to attempt to

accommodate an ever-increasing consumer appetite for SUVs with their low fuel

efficiency? what it good business ?

The Clean Air Act gave SUVs at least twice the pollution credits as cars, but those

weren't the only advantages that their vehicle class received during the first big decades

for SUVs. Tax code changes in depreciation regulations around 1984 severely crimped

deductions for purchasing business vehicles ($17,500 spaced evenly over five years),

unless the purchased vehicle weighed more than 3 tons. ("From the battlefield,"

2005.p.5)

SUVs were released friendly-environment technology. This will ultimately provide

significant environmental benefits as reduced pollution, smog, the amount of global

warming gasses such as carbon dioxide released into the atmosphere, and the demand

for fuel, we can avoid oil exploration in environmentally-sensitive areas. Moreover,

SUVs were generated big profit to automakers in during early 1990s. Annual profits

from selling SUVs increased nine fold from 1990 to 2000. For each Expedition it sold,

Ford cleared $12,000 in profit courtesy of the vehicle’s cheaper, older truck

manufacturing technique. ("From the battlefield," 2005.p.6,7) That means SUVs were

met the demand of the market, make consumers happy.

In conclusion, for SUVs with their low fuel efficiency during the 1990s were provided

wealth and meets the needs of current population while preserving the environment for

the needs of future generations. It was ethical and good for business.

Work cited

From the battlefield to the soccer field. (2005). Traffic safety Center, 2(4), Retrieved

from http://www.tsc.berkeley.edu/newsletter/Summer05-SUVs/history.html

Green, P. L. (2007). Corporate social responsibility. Global Finance Magazine,

Retrieved from http://www.gfmag.com/archives/41-41-april-2007/1172-cover-story-a-

question-of-principles.html

Robins, R. (2011, 05 26). Does corporate social responsibility increase profits?.

Environmental & Energy Management News, Retrieved from

http://www.environmentalleader.com/2011/05/26/does-corporate-social-responsibility-

increase-profits

Supporting oil spill response efforts . (n.d.). Retrieved from

http://www.bp.com/sectiongenericarticle

http://www.tsc.berkeley.edu/newsletter/Summer05-SUVs/history.html

http://www.gfmag.com/archives/41-41-april-2007/1172-cover-story-a-

http://www.environmentalleader.com/2011/05/26/does-corporate-social-responsibility-

http://www.bp.com/sectiongenericarticle

Cover Story : Corporate Social Responsibility

A QUESTION OF PRINCIPLES

As corporate responsibility becomes a staple corporate tool, it is easier than ever forcorporations to live by principles they can be proud of. The cost of failing to act responsibly isrising, too.

Pity the poor corporation with global ambitions but a murky plan forcorporate social responsibility (CSR) and how it will interact with society,shareholders and the environment over the rest of the decade. It’s no longerjust activists marching outside a corporate skyscraper in downtown Chicagoor environmentalists protesting a hydroelectric plant being carved out of anIndonesian rainforest who are demanding that multinationals act responsibly.

Institutional investors and Wall Street analysts who can influence acompany’s stock price or its ability to issue debt are increasingly demanding

that corporations consider the impact of such issues as climate change, workplace conditions andviolations of human rights on their bottom lines.

“If corporate social responsibility comes out of social concerns, that is good. But if not, market logicdictates that corporate executives recognize the need because it will play out financially,” says GeorgKell, executive director of Global Compact, an initiative launched by the United Nations to encouragecorporate responsibility. “There’s a change in perception among investors. They recognize thatenvironmental and social concerns are material to financial responsibility,” he notes.

After challenging business leaders gathered at the 1999 World Economic Forum in Davos to join hisglobal initiative, the then United Nations secretary-general Kofi Annan launched Global Compact inJuly 2000. Since that time, nearly 4,000 companies have signed on in hopes of advancing 10 universalprinciples in the areas of human rights, labor, the environment and anti-corruption.

Executives at Petróleo Brasileiro, the Brazilian oil company also known as Petrobras, which joinedGlobal Compact in 2003, say a growing awareness of environmental and social concerns have meshedwith pressure from investors over the past three to four years to strengthen the company’s socialresponsibility initiatives. “We realized that investing in the environment and safety and security resultsin a much better performance and lowered our risks,” says Ana Paula Grether de Mello Carvalho,coordinator of social and environmental reports in the department of corporate responsibility atPetrobras. “It also brings advantages in the capital markets.”

The company was hit by a wave of negative publicity at the beginning of the decade when an oil leakin Guanabara Bay off the city of Rio de Janeiro was followed by the sinking of its Petrobras 36 oilplatform, one of the world’s largest, in 2001 in Campos Basin. “That made the company wake up onenvironmental issues and invest higher levels in security and safety,” says Grether, adding thatPetrobras invested $4.3 billion in such measures in 2005. She could not provide data for previousyears. While 60% of the company’s shares are held by private investors and traded on the São Paulo

Cover Story : Corporate Social Responsibility | Global Finance http://www.gfmag.com/archives/41-41-april-2007/1172-cover-story-...

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Carone: The futureis sustainableproducts

stock exchange Bovespa, nearly 60% of the firm’s commun shares, which retain voting rights, are stillheld by the Brazilian government, she says.

Many analysts agree that socially responsible behavior is no longer a nicheagenda created solely to appease local environmentalists or irate globalshareholders and will increasingly push—or even drag—the corporate boardinto the social responsibility arena over the next decade. Andrea Moffat,director of corporate programs at Boston-based Ceres—a coalition ofinvestors and environmental groups working with companies to addresssustainability issues—says shareholders are increasingly interested in howsustainability issues affect a corporation’s pocketbook. Institutionalinvestors and their money managers want to know, for example, howclimate change will affect an energy company’s profits, whether mountinghealth concerns surrounding obesity will spark regulations that could dragdown a food company’s stock price, or how the human rights violations ofan indigenous group in Latin America might affect a multinational miningcorporation.Pity the poor corporation with global ambitions but a murky plan forcorporate social responsibility (CSR) and how it will interact with society,shareholders and the environment over the rest of the decade. It’s no longer

just activists marching outside a corporate skyscraper in downtown Chicago or environmentalistsprotesting a hydroelectric plant being carved out of an Indonesian rainforest who are demanding thatmultinationals act responsibly.

Institutional investors and Wall Street analysts who can influence a company’s stock price or its abilityto issue debt are increasingly demanding that corporations consider the impact of such issues asclimate change, workplace conditions and violations of human rights on their bottom lines.

“If corporate social responsibility comes out of social concerns, that is good. But if not, market logicdictates that corporate executives recognize the need because it will play out financially,” says GeorgKell, executive director of Global Compact, an initiative launched by the United Nations to encouragecorporate responsibility. “There’s a change in perception among investors. They recognize thatenvironmental and social concerns are material to financial responsibility,” he notes.

After challenging business leaders gathered at the 1999 World Economic Forum in Davos to join hisglobal initiative, the then United Nations secretary-general Kofi Annan launched Global Compact inJuly 2000. Since that time, nearly 4,000 companies have signed on in hopes of advancing 10 universalprinciples in the areas of human rights, labor, the environment and anti-corruption.

Executives at Petróleo Brasileiro, the Brazilian oil company also known as Petrobras, which joinedGlobal Compact in 2003, say a growing awareness of environmental and social concerns have meshedwith pressure from investors over the past three to four years to strengthen the company’s socialresponsibility initiatives. “We realized that investing in the environment and safety and security resultsin a much better performance and lowered our risks,” says Ana Paula Grether de Mello Carvalho,coordinator of social and environmental reports in the department of corporate responsibility atPetrobras. “It also brings advantages in the capital markets.”

“More institutional investors are asking for better disclosure, and more Wall Street analysts are


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Moffat: Get CSRinto the DNA ofbusiness

Chan-Fishel: Banks

responding,” says Moffat, referring to the trend among research departments at Wall Street investmentbanks to turn out reports based on how various sustainability issues, such as climate change, will affectcorporations operating in various industries. “As Wall Street uses this information, it can encouragecompanies to add to their CSR programs,” she says.Ceres has been actively pushing federal regulators to recognize the financial fallout of environmentalissues on corporate bottom lines. Last summer Ceres’ Investor Network on Climate Risk asked thechairman of the Securities and Exchange Commission (SEC) to require publicly traded companies todisclose the financial risks of climate change in their public documents. No action emerged from asubsequent meeting that SEC officials held with Ceres executives last year, although the moreswitched-on corporations are already beginning to take note of such requests. Whether or not the SECmakes a move on the issue, companies are recognizing that it might be wise to assess their exposure toclimate change risk.

The United Nations is also playing a role in pushing socially responsibleinvesting strategies around the globe with its Principles for ResponsibleInvestment. Launched in May of 2006, the set of voluntary guidelines givesinstitutional investors and asset managers a framework to follow and helpsthem avoid investing in companies with poor records on such issues as humanrights, pollution or corporate governance. The principles have nearly 170signatories from around the world, including some huge government pensionfunds.

“Our view is that the mainstream financial markets will advance the corporatesocial responsibility movement,” says Gavin Power, head of financial marketsfor Global Compact. “Up to now [mainstream financial markets] reallyhaven’t paid a lot of attention to CSR activities. But that is changing as theysee how these activities can affect a company’s reputation, brand name,employee productivity and other aspects of its operation,” he explains.

The bottom line for activists and stakeholders is to persuade multinationals tofocus more on how their daily business decisions play out on the environment, society at large andtheir shareholders. “The question is, how do you get CSR into the DNA of a business strategy?” saysMoffat. “There’s been a lot of progress around [CSR] over the last 15 years, but there is certainlymuch more to be done.”

Premium BenefitsIn a joint effort with Yale University and global insurance broker Marsh,Ceres is reaching into the corporate boardroom to educate hundreds ofindependent board members about the potential liabilities—as well asbusiness opportunities—surrounding climate change. “The message thatwe’re trying to get across is that [climate change] goes to the heart of yourcompany and will affect the long-term value of your firm,” says Anne Kelley,chief of governance programs at Ceres. “All corporate social responsibilityissues belong at the board level.” Active and effective management of climaterisks or other CSR-related risks can also help firms trim their insurancepremiums.

Analysts agree that solid corporate sustainability principles are moreimportant than ever as multinationals expand their reach around the planet


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can raise the bar

Flaherty: CSR hasbeen an evolution

Kell: There is achange inperception

with everything from brick-and-mortar factories to intricate supply chains tooff-shore back-office functions. Yet the impact of globalization on corporatesustainability practices remains uneven. “It’s all over the map. Globalization

exposes countries and people to forces of both good and evil,” says Julie Gorte, a vice president atCalvert Funds and the firm’s chief social investment strategist.

An investment company created three decades ago, with more than $12billion in assets under its management today, Calvert Funds set up the CalvertSocial Investment Fund in 1982 as a way for investors to sink their dollarsinto socially responsible investment vehicles. The holdings of these mutualfunds are screened across seven key areas: governance and ethics, workplace,environment, product safety and impact, international operations and humanrights, indigenous peoples’ rights, and community relations.

Gorte points out that, on the one hand, globalization means corporations willengage with governments holding extremely poor human rights records, suchas Chinese companies operating in the Sudan. That can help fill the coffers ofa regime exploiting the human rights of some of its citizens. Or a multinationalfrom an industrial nation will head to a country with weak labor standards tohire people to work in unsafe conditions for paltry wages.

But globalization and the accompanying scrutiny of corporate operations byglobal activists have also focused attention on these same Chinese companies operating in the Sudan,Gorte says. Activists have also successfully pressured China to raise the bar on environmentalpractices within its own borders, she adds.

And globalization has had a beneficial impact on working conditions in thegarment industry, analysts agree. The negative media attention surroundingworking conditions in Asian garment factories in the mid-1990s forced manyUS apparel and sports manufacturers to more closely scrutinize the workingconditions of employees at their overseas suppliers. Codes of conducts foroverseas vendors and the use of outside auditors to verify these newworkplace standards have flourished over the past decade.

Graham Sinclair, a Boston-based investment consultant involved with sociallyresponsible investing for many years, adds that it is not only multinationalsfrom developed nations that can help elevate sustainability practices amongcorporations. Indian energy companies, for example, have recently purchasedwind farms in Germany, and South African companies have taken the lead onsocial issues such as HIV/AIDS education in the workplace when they headinto a less-developed nation in sub-Saharan Africa, says the South Africannative.

A Global View“It’s not only the north-south influence. It’s the south-north and south-south influence,” says Sinclair,who runs a consulting firm that advises companies on integrating environmental, social and governanceprinciples into their investment strategies. “Companies from the south can show more sensitivity topoverty and the social welfare of citizens than companies from the north.”


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Grether of Petrobras views globalization as having a positive impact on the environment and socialissues as it helps raise the bar on a multinational’s activities around the planet. “We need to care, notjust about our offices at home, but our operations far away,” she adds.

Globalization has pushed Xerox as it signed on to the Electronic Industry Code of Conduct last year toensure its suppliers and manufacturers around the world are meeting appropriate labor standards. TheStamford, Connecticut-based manufacturer of copiers and other office machines has embracedcorporate responsibility principles since the early 1970s, when it began measuring diversity in theworkplace, says Christa Carone, a vice president of communications who produced the company’s firstglobal citizenship report last year. She sees the sustainable business of the future as a company devotedto developing sustainable products.

“There’s been a shift in thinking and a focus on sustainable innovation and technology,” says Carone,adding that Xerox is now developing a self-erasable paper that could be reused in 16 to 20 hours afterthe ink evaporates.

Banks Play a Key RoleIn the international banking arena corporate social responsibility has moved beyond energy reductionand community programs to scrutinizing the construction projects that banks finance, whether close tohome or in a jungle halfway around the globe.

“Ten to 12 years ago, banks were going for the lower-hanging fruit, such as turning out the lights andnot wasting paper,” says Michelle Chan-Fishel, program manager of the Green Investments Project atFriends of the Earth-US in San Francisco, California. Now banks are more frequently looking at thesocial and environmental ramifications of their lending policies, she adds.

“The most significant contribution that the financial sector can make [to CSR] is to incorporate theseprinciples into their lending policies,” says Chan-Fishel. She points out that it is more difficult toanalyze the social consequences of a corporate financing project than the environmental impact. Butbanks can most effectively raise the bar on environmental and social standards by placing at least oneperson from their CSR sections in the credit risk department. “That’s a good thing because it places aset of eyes in the deal cycle,” she adds. “If CSR is only in the public relations sector, it won’t have asmuch impact.”

Chan-Fishel points to the Equator Principles, the voluntary guidelines that banks can use to helpreduce the harmful social and environmental risks that surround the multi-billion dollar project financeindustry, as an example of how banks are successfully using the transaction process to protect theenvironment.

Pamela Flaherty, director of corporate citizenship at Citi in New York City, says banks have beenconcerned with corporate citizenship for many years, pointing to the decades-old policies surroundinglending into minority and low-income areas. “[CSR] has been an evolution, and it hasn’t just arrived atone time,” she says, adding that the focus shifts over time.

Flaherty agrees that the Equator Principles are a strong vehicle that banks can use to “make an impacton the ground” and set a standard for the industry. Citi was one of the 10 original signatories.

Flaherty, who is also the president and chief executive officer of the Citigroup Foundation, believesthat globalization has generally had a positive impact and helped spread social and environmental


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concerns around the world—in all directions. “There’s been learning across the globe,” she says,referring to companies such as Tata Group of India, which takes the corporate ethics embedded in itsbusiness values and operations into both industrial and developing nations.

And Flaherty thinks the CSR movement is heading for another phase, where principles are no longersimply embedded in corporate practices. “We’re moving to the creation of businesses and product linesthat are sustainable,” she says. “It’s very exciting.”

DOING THE RIGHTS THINGWhether it’s a blueprint for investing retirement dollars or a framework that global banks can use toreduce the harmful environmental impact of a mega-dam, the foundations underpinning the swellingsets of guidelines for sustainable business practices remain universal human rights and greatertransparency, analysts agree.

“These principles require transparency and give all people access to the same information,” says DianeOsgood, vice president of CSR strategy at Business for Social Responsibility in San Francisco. “Fromthe smallest investor to the largest pension fund, you’re able to get more information if a companyadheres to these types of guidelines. And 90% of CSR is about human rights, labor standards and theenvironment.”

Matthias Stausberg, a spokesperson for the United Nations Global Compact Office, says the GlobalCompact and UN Principles for Responsible Investment integrate the universal values that go back tothe UN Charter of Human Rights in 1948. Other global treaties and conventions, such as the 1992 RioDeclaration on Environment and Development or the International Labour Organization’s 1998Declaration on Fundamental Principles and Rights at Work, have helped weave human rights intobusiness practices and encouraged governments to integrate these principles into their national laws.

“Our goal was to have the broadest possible appeal and widest acceptance among businesses,” saysStausberg of both the Global Compact and the Investment Principles, which are coordinated by the UNEnvironment Programme Finance Initiative (UNEP FI) and the Compact offices, “and to not havethem rejected as instruments of the north being imposed on the south.”

Paula L. Green

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May 26, 2011

Does Corporate Social Responsibility Increase Profits?

Ron RobinsFounder & AnalystInvesting for the SoulBrowse all columns by Ron Robins

It is generally held that corporate social responsibility (CSR) could increasecompany profits and thus most large companies are actively engaged in it. But fewexecutives and managers are aware of the research on this important subject. And asI review here, the research does show that it may improve profits. However, linkingprofit growth to abstract variables that are frequently difficult to define is achallenging task.

Most executives believe that CSR can improve profits. They understand that CSR canpromote respect for their company in the marketplace which can result in highersales, enhance employee loyalty and attract better personnel to the firm. Also, CSRactivities focusing on sustainability issues may lower costs and improve efficienciesas well. An added advantage for public companies is that aggressive CSR activitiesmay help them gain a possible listing in the FTSE4Good or Dow Jones SustainabilityIndexes, or other similar indices. This may enhance the company’s stock price,making executives’ stock and stock options more profitable and shareholdershappier.

Does Corporate Social Responsibility Increase Profits? · Environment... http://www.environmentalleader.com/2011/05/26/does-corporate-soci...

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Substantiating some of these beliefs is a study, Corporate citizenship: Profiting froma sustainable business, by the Economist Intelligence Unit (EIU) published inNovember 2008. Corporate citizenship is another term roughly equivalent to CSR.

The EIU study said that, “corporate citizenship [CC] is becoming increasinglyimportant for the long-term health of companies even though most struggle to showa return on their investment from socially responsible activities… 74 per cent ofrespondents to the survey say corporate citizenship can help increase profits at theircompany… Survey respondents who say effective corporate citizenship can help toimprove the bottom line are also more likely to say their strategy is ‘very important’to their business (33 per cent) compared with other survey respondents (8 percent).”

At the heart of the debate as to whether CSR improves profits is first how you defineit. Besides the terms CSR and CC, another frequently used and related term iscorporate social performance (CSP). In the above quoted EIU study, it provides thefollowing definition of CC: “corporate citizenship is defined as transcendingphilanthropy and compliance, and is addressing how companies manage their socialand environmental impacts as well as their economic contribution. Corporatecitizens are accountable not just to shareholders, but also to stakeholders such asemployees, consumers, suppliers, local communities and society at large.”

The study of CSR and its relation to corporate profits is growing. The most recentstudy on this subject is by Cristiana Manescu. In her thesis, “Economic Implicationsof Corporate Social Responsibility and Responsible Investments,” at the Universityof Gothenburg’s School of Business, Economics and Law, Sweden, she wrote onDecember 6, 2010 that, “the results [of her thesis] reveal that CSR activities do notgenerally have a negative effect on profitability, but that in the few cases where theyhave a positive effect, this effect is rather small.” Other studies add furtherperspectives.

Defining the experience of CSR in relation to different industries is this study, TheEconomics and Politics of Corporate Social Performance, by David P. Baron,Maretno A. Harjoto, and Hoje Jo, published on April 21, 2009. The researchersfound that, “For consumer industries, greater CSP [corporate social performance] isassociated with better CFP [corporate financial performance], and the opposite istrue for industrial industries… Empirical studies have examined the relationbetween CSR and corporate financial performance, and while the results are mixed,overall the research has found a positive but weak correlation.”


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However, reviewing individual empirical studies can be confusing. But by using thetechnique of ‘meta-analysis,’ many studies can be statistically analysed to determinecollective results. A meta-analysis on CSR and its link to profits won the famedsocially responsible investing, Moskowitz Prize in 2004. The study, Corporate Socialand Financial Performance: A Meta-Analysis, was compiled by researchers MarcOrlitzky, Frank L. Schmidt and Sara L. Rynes. It yielded encouraging data suggestinga positive link between CSR and increased profits.

Summing up their results, the researchers said, “we conduct[ed] a meta-analysis of52 studies (which represent the population of prior quantitative inquiry) yielding atotal sample size of 33,878 observations. The meta-analytic findings suggest thatcorporate virtue in the form of social responsibility and, to a lesser extent,environmental responsibility, is likely to pay off… CSP [corporate socialperformance] appears to be more highly correlated with accounting-based measuresof CFP [corporate financial performance] than with market-based indicators, andCSP reputation indices are more highly correlated with CFP than are otherindicators of CSP. This meta-analysis establishes a greater degree of certainty withrespect to the CSP-CFP relationship than is currently assumed to exist by manybusiness scholars.”

So the research generally indicates that CSR/CC/CSP, no matter how you define it,does offer potential benefit to corporate profits. But there is another unansweredproblem, and that relates to causation.

Do high profits enable greater spending on CSR, or is it that CSR itself creates higherprofits? Referring again to the study, The Economics and Politics of Corporate SocialPerformance, the researchers write that, “…the direction of causation remains anopen question. That is, good CSP could cause good CFP, but good CFP could provideslack resources to spend on CSP. As the Economist wrote, ‘…whether profitablecompanies feel rich enough to splash out on CSR, or CSR [activity itself] bringsprofits.’” Hopefully, future research will be able to answer this question.

On balance, surveys and the research literature suggest that what most executivesbelieve intuitively, that CSR can improve profits, is possible. And almost no largepublic company today would want to be seen unengaged in CSR. That is clearadmission of how important CSR might be to their bottom line, no matter howdifficult it may be to define CSR and link it to profits.

Ron Robbins is Founder and Analyst of Investing for the Soul.


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Online newsletter Volume 2, Number 4 Summer 2005

From the Battlefield to the Soccer FieldThe history of the SUV as a tragedy of the commons

It’s just before 9 p.m. on a warm spring Friday in Oakley, CA, on April 15, 2005, and aHonda Accord four-door sedan with four teenagers inside is mid-U-turn onto Main St. A Dodge Durango sport utility vehicle fails to avoid the Accord, which has just pulledinto its path, and the Durango plows into a passenger side door.

Ambulances, fire and police respond, and in the end, three of the four teenage Accordpassengers are dead and one is severely injured. The driver of the SUV walks out ofthe hospital that same night with minor injuries.

It’s the kind of horrific crash that highlights the stakes in the ongoing debate about thesafety of what has been the best-selling vehicle design in America and what will be apresence on U.S. roads for years to come: the SUV. Critics would say the crash offersa textbook example of the incompatibility with smaller passenger cars that SUVs bringto the highways. Their high-set grills deliver blunt force trauma to the heads oflower-sitting sedan occupants. SUV owners and their defenders point to the sameattributes in crediting the design for saving lives, as was the case for the driver of theDurango in the Oakley crash.

From their origin as an unintended offshoot of fuel conservation laws passed in the1970s to current efforts to overhaul standard safety tests for these vehicles, SUVshave been the object of rhetorically charged claims and counterclaims concerning thesafety (and fuel-efficiency) of their design. They were marketed in America inbillion-dollar ad campaigns promoting them as a safe choice, shielded from foreigncompetition by tariffs and subsidized by various loopholes in the tax laws andenvironmental regulations. By 2004, their vehicle class (which includes pickup trucksand vans) constituted half of the vehicles sold every year in the U.S. and, despite fewersales in 2005, their production is slated to increase through the decade.

Although traffic safety research going back to the 1970s undermined the modern "safeSUV" marketing claims, these criticisms were outweighed by the apparent linkage, inthe public mind as well as among many respected researchers, between vehicle heftand safety. That changed after hundreds of rollover deaths in the 1980s and 1990s

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caused the kind of public attention that led federal regulators to propose more stringentrules. Still, the complexity of the makeup of the nation's vehicle fleet, the difficulty incollecting clear-cut safety data on different vehicle types, the widespread popularappeal of SUVs and light trucks, and the mixture of politics and big business that theyrepresent have made it difficult to achieve broadly accepted findings about the safety ofthese vehicles and, in turn, to devise policies that are science-based and effective andto implement them.

For example, limited access to research data and the incomplete or imprecise nature ofthe data sets as well as differences among SUV models make it difficult to reach clearconclusions about SUVs' relative safety as a class of vehicles, notes LawrenceBerkeley National Laboratory's Tom Wenzel. He spoke about his research at a UCBerkeley Traffic Safety Center Seminar on February 15, 2005, in a talk entitled "AreSUVs Really Safer Than Cars?"

On one hand, SUVs pose more danger to cars in a collision than other cars do, hesaid. However, compared to light trucks, SUVs are safer and more readily re-designedfor safety improvements.

Another example comes from Michelle White, an economist at UC San Diego, whowarned of the difficulties of generating conclusive findings from the data sets in her UCBerkeley Traffic Safety Center lecture on March 14, 2005, titled "The 'Arms Race' onAmerican Roads: The Effect of SUVs and Pickup Trucks on Traffic Safety." More detailis needed to correlate factors like seat-belt use, drinking and driving, and driver agewith vehicle type before definitive conclusions can be drawn, she said.

However, her analysis of data that are available strongly suggests that, as wasapproximately the case in the Oakley crash that occurred only weeks later and just 35miles away, every fatal crash of a “light truck” or SUV (White considered light trucks,SUVs and minivans together in her study) avoided comes at the expense of at least 4.3additional fatal crashes for occupants of cars. White suggests that getting people out ofSUVs and into to cars would be comparable to the safety increase of wearing a seatbelt.

To reiterate: the primary data sets both White and Wenzel worked with are not detailedenough to tease out some variables important for determining the safety of SUVsrelative to other vehicles. One of the leading databases for crash research, the FatalAccident Reporting System (FARS) of the National Highway Traffic SafetyAdministration (NHTSA), as well as data collected by the Insurance Institute ofHighway Safety (IIHS), a leading participant in crash analysis, can lead to different conclusions depending on how the numbers are analyzed. Even studies from notedtraffic safety researchers like Leonard Evans, president of the non-profit researchgroup Science Serving Society and a former GM researcher, have produced disparateconclusions about SUV safety. Evans has in the past held that heavier, SUV-likevehicles keep their passengers safer in collisions, while his more recent findingssuggest that weight can be less important than design, a development that will be

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explored in greater depth later in this article.

In the long view, the three goals of fuel economy, passenger safety, and safety forother road users continue to enjoy support from the public, but the public wants allthree at once, despite some level of incompatibility among these goals. The critical taskfor regulators and for industry is to develop approaches to meet each goalsimultaneously, for example, improving safety for occupants without sacrificing fueleconomy and without reducing safety for others.

The SUV's Roots in the 1930s

Looking back at the history of the SUV can tell us something about how we arrived atthe present juncture. The concept dates back to the early 1930s when a vehicle withhigh axle clearance for rough roads and off-road travel, built on a truck frame, with anenclosed rear cargo area (as opposed to a pickup's open bed), and optional four-wheeldrive was marketed to urban consumers. It was the Chevrolet Suburban, and it wasespecially popular with undertakers.

“Undertakers discovered that with all but the front seats removed, the back of aSuburban was precisely the right length and height for carrying the dead, either in bagsor in coffins,” says longtime New York Times automotive writer Keith Bradsher in his2002 book, High and Mighty – SUVs: the World’s Most Dangerous Vehicles and HowThey Got That Way.

By the 1980s, what came to be called SUVs began to gain popularity among generalconsumers, and carmakers raised their prices, but not before another automakerhelped nurse to life another precursor-SUV: the Jeep, whose transition to the massmarket was not as smooth.

As Bradsher explains it, after World War I, the U.S. military sought a mechanicalreplacement for mules and a more rugged and more versatile alternative toreconnaissance motorcycles on battlefields. Willys-Overland came up with the Jeep. Itproved to be extremely well-suited to combat use in World War II. After the war,Willys-Overland marketed it to American families, but the boxy design failed, Bradsherstates, in the face of more baroque, post-War tastes in vehicles.

Jeeps and SUVs with similar designs made in Europe and in Japan continued to bemanufactured into the 70s, but were marketed mainly to government off-road users likeforestry agencies and police departments. A stiff 25 percent tariff on imported lighttrucks limited foreign SUVs' presence in the U.S. market.

SUVs didn't really catch on as a conventional consumer product until American Motorsbought the Jeep brand in 1969 and began redesigns to make it more marketable to anurban consumer. The standard canvas top became metal, canvas seats becameleather, wheelbases were widened to reduce rollovers, and roll bars were installed.

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Spacious showrooms replaced mom and pop dealerships, and sales of Jeepsquadrupled in the following decade.

However, it was still a niche product, marketed to buyers with large disposableincomes who wanted a rugged-looking, if not entirely practical, vehicle. Jeepsexperienced rollover problems and were poised to come in conflict with new emissionsand fuel-economy regulations that were looming by the mid-1970s. The latter difficultywas eliminated when lobbying efforts permitted Jeeps to be classified as light trucksunder government regulations and thereby exempt from Clean Air Act requirementsimposed on cars when the legislation was passed in 1970.

Regulatory Loopholes Lend a Hand

Jeeps and their ilk avoided anther set of regulations inspired by the gasoline shortagesof the early 1970s, the Corporate Average Fuel Economy standards, or CAFÉ. CAFÉwas intended to double the U.S. passenger fleet's gas mileage by setting fleet-widegoals for each manufacturer, while leaving it up to them to decide how to allocate thesavings among the vehicles they sold.

But the 1975 CAFE standards contained concessions to business. Though theconcessions were intended for light trucks in order to avoid unfairly penalizing vehiclesused for businesses, the SUV makers were able to exploit them. They made theirSUVs tall enough to be considered capable of off-road operation and thus earn a "lighttruck" designation. They also made them so heavy, more than 3 tons (or 6,000 lbs.),that they could take advantage of other "truck" loopholes despite the fact that theywere largely passenger vehicles. The situation was compounded by light truckexemptions of up to $7,700 in taxes for “gas-guzzler” vehicles with the worst fueleconomy. By the end of the 1970s, CAFÉ rules said cars must get 27.5 miles pergallon by 1985, whereas light trucks would only need to achieve 20.5.

By the early 1980s, federal regulators at the National Highway Traffic SafetyAdministration (NHTSA) were already seeing that certain models of Jeeps wereinvolved in a disproportionate number of rollovers compared to their 1 percent share ofannual U.S. vehicle sales. NHTSA went so far as to suggest a ban on Jeep ads. ButJeeps easily met the longtime static standard for rollover risk, involving a ratio of heightto wheelbase, and attempts by NHTSA to impose a more realistic dynamic rollovertest, which would have been harder for SUVs to pass, were thwarted. Instead,automakers were required to put warning stickers on the sun visors of SUVs; theyremain a standard feature to this day.

“The stickers became a selling point for American Motors, giving an aura of danger tothe vehicles,” Bradsher reports. “‘Guess what happened? Sales soared, the kids lovedthem, it added to the excitement,’” an automotive executive tells the author.

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"Sport Utility" Is Born

The term “sport utility vehicle” was actually first made common in the press in themiddle of the 1980s amid a Reagan-era freeze on regulations of emissions, fuelefficiency and safety and an economic boom. Bradsher argues that the oil embargothat triggered the 1970s CAFÉ laws either forced consumers into tiny, dangerous anduncomfortable econo-cars that met then-strict new conservation guidelines or theopposite—big, gas-guzzling vehicles exempt from CAFÉ. “[A]uto executives attributethe rise of SUVs to the federal government’s insistence on preserving strictgas-mileage standards for cars while not raising gasoline taxes. The combination ofcheap gasoline and stringent curbs on gasoline consumption by cars forcedautomakers to transform the family vehicle of choice from a car into an SUV, theycontend, with considerable accuracy,” Bradsher reports. Domestic markets were alsoprotected from foreign competition by the decades-old 25 percent tariff on light truckimports.

SUVs first established a strong sales beachhead in the midsize family and luxury class,as evinced by what happened when General Motors bought American Motors andJeep in 1987 for $1.5 billion. Sales of Jeep models rose from 1.8 percent of the lighttruck market at the beginning of the decade to 6.5 percent at the end. More specifically,midsize family SUV sales jumped from 0.1 percent of light truck sales in 1980 to 3.55percent in 1989, a 30-fold increase. This growth was at the expense of sales of cars inthe luxury bracket, priced at $26,000 and higher. In a decade cars went from makingup practically all the sales of vehicles in this price range, actually 95 percent of them, to44 percent, as lavish SUVs took their place in consumers' preferences.

The Clean Air Act gave SUVs at least twice the pollution credits as cars, but thoseweren't the only advantages that their vehicle class received during the first bigdecades for SUVs. Tax code changes in depreciation regulations around 1984severely crimped deductions for purchasing business vehicles ($17,500 spaced evenlyover five years), unless the purchased vehicle weighed more than 3 tons. The rationalewas that farmers buying trucks needed a break on depreciation. A luxury tax enacted in1990 for vehicles costing more than $30,000 also exempted vehicles over 3 tons,another nod to farmers and other business buyers . Few SUVs were that big or costlywhen these incentives began in 1990, but they would be by the end of the decade, andpeople would want to buy them.

The big three automakers marketed these vehicles successfully using campaigns builton intense market research, including 115,000-person surveys, focus groups, anddetailed information on samples of 10,000 people (compared to just 1,200 for typicalpolitical polls). Automakers spent $9 billion on SUV ads from 1990 to 2001, a full tenthof all advertising spending in that period.

Annual profits from selling SUVs increased ninefold from 1990 to 2000. For eachExpedition it sold, Ford cleared $12,000 in profit courtesy of the vehicle’s cheaper,

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older truck manufacturing technique. The Michigan Truck Plant, which was whereExpeditions (in addition to trucks) were made, became the single most profitablefactory in any industry anywhere in the world in the 90s. The factory’s annualproduction, which included other profitable trucks as well, was worth $11 billion, or $2.4billion in after-tax profits in 1998. Such prosperity trickled down to assembly lineworkers, some of whom pocketed $100,000 a year as factories ran around the clock.Bradsher attributes much of the mid-90s economic boom in the Midwest not to dot comcompanies, but to the SUV boom and the immense profits for Ford.

Certain researchers and other groups had known since the 1950s that the inherentdesign behind SUVs made them rollover-prone and that they were outsized comparedto the rest of the fleet on the road and therefore a safety hazard to other types ofvehicles. However, such safety issues failed to resonate with the public until SUVdesigns represented a significant percentage of annual vehicle sales and had alreadyirrevocably reshaped the landscape of the highway.

“Nothing is a serious problem if it’s in small enough numbers,” Bradsher told the onlinemagazine Salon.com in 2002. “It’s different when you have 10 percent of the vehiclefleet that is designed in a way that is fundamentally incompatible with the cars that arealready out there.”

Insurance Institute for Highway Safety (IIHS) data as early as 1980 indicate that SUVsrolled over twice as frequently as cars. In that same year, 1980, CBS would win awardsfor a 60 Minutes documentary on how Jeeps roll over on a dry open road if the driverjerks the steering wheel around.

The Ford/Firestone Lawsuit

But by the mid-90s, an even bigger development would tarnish the “safe SUV”reputation. The rumblings sounded by the data from the IIHS and others werecompounded by the rollover deaths of hundreds of people in the 1990s while they wereriding in Ford Explorers equipped with Firestone tires. The resulting lawsuit filed by theattorneys general of the 50 states of the U.S. netted a settlement of more than $50million for misleading advertising and negligence.

Meanwhile, some researchers in Europe began intense study of the emerging issue of“incompatibility,” crashing SUVs into cars to see if there were differences in injuriessuffered by the occupants compared to those in a sedan-on-sedan crash.

“Mercedes was the only automaker that was paying attention to this problem in themid-90s,” Bradsher told Salon.com in the 2002 interview. “There was a Germanmotoring group that did some crash tests. For example, they crashed the NissanPatrol, a full-size SUV, into the Volkswagen Golf. The Nissan Patrol leaped right overthe hood of the Golf in a head-on impact and smashed into the passengercompartment. It did more damage to the dummy in the Golf than anything this motoring

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association had seen in any of its crash tests before. The same crash killed the dummyin the Nissan Patrol too? Why? Because the front end of the Golf got under the Patroland drove the steering column up and impaled the driver.”

Nevertheless the auto industry maintained a strong public insistence on the safety oftheir popular vehicles. The crux of their argument was based on FARS data and thework of Leonard Evans and others that appeared to support a simple formula: heavierequals safer.

Safety of Occupants

The “heavier = safer” interpretation ignored certain key subtleties involved in overallsafety, including the safety of other road users A more holistic look that included themin the equation yielded startling new conclusions: SUVs might be slightly safer for theiroccupants during certain types of crashes, but they increased risks to other road users,including those riding in non-SUVs. Both conclusions (about safety for those insideSUVs—under certain conditions—and increased risk for those outside SUVs) can besupported using FARS and both suffer from certain limitations, especially because theydon't adequately consider the contribution of driver characteristics— age, seat beltusage, likelihood of driving after drinking, and the like.

On the vehicle side of the argument, consistent, repeatable safety tests by regulatoryagencies have been slow in coming. Rollover propensity is determined by a staticmeasure, an equation based on wheel base width and height. NHTSA is just nowreturning to the 25-year-old idea of a presumably more realistic and more accuratedynamic measure of a vehicle's propensity to roll over.

In addition, manufacturers are starting to change the way they engineer SUVs, creatingvehicles that answer more fully to concerns about passenger safety, fuel economy andcompatibility with other vehicles on the road.

The 20-year rise (and, perhaps, fall) of the SUV illustrates how the unintendedconsequences of public policy meant to produce a common good, combined withwell-orchestrated marketing that can exploit consumer demand, can create a tragedyof the commons writ large on the shared space of the nation's roadways. Such atragedy is beginning to undo itself through technological innovation and newregulations, but as an accompanying article indicates, the light truck, with an evenmore dangerous and incompatible vehicle design, is coming onto the market inincreasing numbers without pressure from the public or regulators to improve like theonce-admired, now-scolded SUV.

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