Many organizations have embraced some form of corporate citizenship, social responsibility or sustainability for years, some even for generations. But for many organizations such activities have been considered voluntary or even a luxury.
So is there a real business case for corporate social responsibility (CSR)? Let’s look at three significant pieces of work by academics based in Europe who examine social responsibility from different perspectives.
In the Journal of Business Ethics, four authors from Portugal examine a large body of work on CSR and sustainability that provides useful definitions and identifies the researchers who have examined the relationship between sustainability and financial performance. They tell us that previous research has found mixed results, but they list studies that show the relevance of nonfinancial information on market value.
Using membership in the Dow Jones Sustainability Index as a proxy for sustainability efforts, their preliminary results showed that corporate social performance may explain stock prices better than traditional financial measures such as earnings and book value of equity.
The article provides a useful bibliography of studies on stakeholders, impact on employee motivation and morale, and the impact good reputation has on relations with customers, investors, bankers, suppliers and competitors.
The importance of investment in CSR and sustainability is especially important for large organizations because of heightened expectations among stakeholders for strong performance. The research shows a high probability of risk for larger organizations that do not engage socially due to increased stakeholder expectations.
“Our findings show that what investors really do is to undervalue large profitable firms with low level of corporate sustainability performance, which face greater public scrutiny and pressure from stakeholders,” the authors conclude. This creates a clear call for additional investment in either CSR activities that are closely aligned with business objectives and for additional communications for large companies that are not telling their stories.
An article in the Journal of Brand Management by two Spanish professors examines the impact of CSR on brand value – using measures that combine earnings, consumer demand and brand strength (reputation, loyalty, market position). They conclude that brand value is more sensitive to CSR than traditional financial measures. If brand building is central to your organization, this work suggests CSR activities can be very helpful in bringing measurable return.
Stakeholder expectations are central to any CSR or sustainability program and to reputation, which essentially is the collective judgment of stakeholders about an organization. A study from a cross-functional team (law, economics, finance, IT) in The Netherlands examined whether companies comply with the raised expectations of their stakeholders for CSR.
The paper models what is called “corporate social responsibility reputation,” a term that suggests academics could benefit from communications support as much as corporations. Regardless, the work seeks to measure CSR reputation across companies, countries and sectors from the perspective of stakeholders, including primary (shareholders, investors, employees, suppliers, customers) and secondary (those indirectly affected).
The study found that the UK and Finland are the best performing countries for CSR reputation, with Hong Kong and Singapore performing the most poorly (and with the US in the middle). Among sectors, the utility companies appear to be meeting expectations while health care and financials were least likely to meet expectations.
Together these three studies provide theoretical frameworks and empirical analyses that will help a communicator build a business case for a company to engage in strategic CSR activity, and to tell its story to stakeholders about its value to society. Over time a stronger reputation among stakeholders may result in stronger financial performance.
Linda Locke, principal at Reputare Consulting, subscribes to journals from which she draws inspiration and concepts for clients of her corporate reputation consulting practice. If you wish to suggest a research article for her review, contact her at Linda.Locke@ReputareConsulting.com, or DM her on Twitter @Reputationista.