Companies beware. The world may reject brand America and make its shareholders pay through the stock price. That turned out to be one of the thoughts that participants at the World Economic Forum took away from their meeting in Davos last week. If, for example, the European consumer does not approve of US soldiers in Baghdad, he may turn his back on Marlboros, Barbie dolls and AOL. Investing "American" may become taboo, just as investing in South Africa was in its day. There may also be portfolio boycotts Perhaps there will even be a systematic boycott to remind the arrogant corporate world that the millennium of social responsibility has begun.

This danger is smaller than it sounds. It is possible to hurt a particular brand through a boycott. But targeting the returns of an entire financial market - that is next to impossible. Should a company focus on social action? Socially oriented behaviour may yield moral returns - or, eventually, even economic ones - but it is wrong to assume such actions will yield instant returns in the marketplace.

Consider the model that most often springs to mind, the campaign to force South Africa to abandon its heinous regime of apartheid. From schoolroom to newsroom to boardroom, the South Africa paradigm is considered a model of success. After all, the government did end apartheid. What is more, there is the impression that everyone was the better for it. Especially companies that divested.

But even the South Africa case is not clear. In a 1999 paper, three researchers looked at the long drive to put pressure on South Africa and its consequences for financial markets.* First, they found anti-apartheid sentiment was strong. In 1973, a representative of the Church of Christ demanded better treatment of South African employees at a Mobil annual meeting; that same year some banks showily began to restrict loans to South Africa. Corporate boards started thinking about forcing integration in plants and, eventually, divesting. By 1976, Henry Kissinger, then US secretary of state, was talking about using economic and political levers to force South Africa to change. In the 1980s, European nations, including the UK, introduced trade restrictions and the US passed the Comprehensive Anti-Apartheid Act of 1986, restricting exports and loans.

In the mid-1980s, labour stoppages, recession and inflation plagued South Africa. Its leaders believed that the boycotts were imperiling their regime's future. It was easy by the end of the 1980s for all to conclude that the sanctions were working, both inside and outside South Africa. What went unnoticed, however, the research paper notes, was that around thesame period the price of gold, South Africa's big export, also dropped. In a commodity economy, this alone is an event that can dramatically change the picture, and often has in South Africa.

The romantic storyline that sanctions per se caused South Africa's descent is therefore questionable.

What is more, the sanctions did not draw blood where it counted most - in US financial markets. The authors found that portfolios of companies that continued to invest in South Africa did drop a bit at the time of the strongest pressure. Then, however, they rallied. Those that divested did worse afterwards than before. The authors concluded that "the public may have had the impression that shareholder or legislative sanctions hurt these firms, but this is not visible in real time returns". Sanctions did not deliver the economic punishment to investors that was intended.

What does South Africa tell us about the potential for influencing companies and their shareholders when it comes to protesting at US policy today? That small campaigns do not change much, for one thing. If the concerted rage against apartheid could not hurt financial markets in the longer run, it is hard to imagine that the more diffuse protest mood of today could have greater effect. As John Quelch of Harvard University said at Davos, the idea that brand America is in trouble is a "tempest in a wishful teacup".

But it is the second lesson here, the one for chief executives, that is more important. While your own advisers - especially your "vice-president, social responsibility" - may tell you otherwise, diverging from the pack on social policy does not automatically trigger a financial penalty. If, as a CEO, you see your principal duty to be maximising share price, then truths like South Africa's are something you will want to think and talk about.

All of which is not to say that social action by individuals or companies does not have purpose. After all, many forms of socially conscious behaviour at home, such as recycling, were always more about feeling righteous than about some eventual economic effect. On the corporate side, socially oriented policies make management feel virtuous. In the long run they may foster economic growth generally.

Finally, there is the moral consequence of corporate policy. Apartheid was evil. Pressure, including business pressure, did end it. Today, companies may provide tsunami aid, or pour cash into stopping the spread of HIV. This is fine. As long as they do not tell us that what they are doing will boost tomorrow's share price.

* Siew Hong Teoh, Ivo Welch, C.Paul Wazzan, The Effect of Socially Activist Investment Policies on the Financial Markets, University of Chicago Journal of Business, 1999

© Copyright 2005 Financial Times