Research Finds that Investing in CSR Doesn’t Always Pay Off

A new book called Leveraging Corporate Responsibility: The Stakeholder Route to Maximizing Business and Social Value by Bhattacharya, Sen and Korshun, is a must read for communication professionals.  It shines new light on corporate social responsibility (CSR) and documents what I have been saying about CSR for years, namely that it can be money well spent, or that it can be a waste of investment.  The book offers guidance to managers making CSR decisions.

The authors already have experienced consternation and “push back” from those who advocate CSR in any and all circumstances.  Many of these critics are from the communication industry, a major group that has long advocated CSR.  To hear communicators talk, one would think that any CSR program would be a good thing and would be welcomed by stakeholders and the larger society.  It seems reasonable to assume that companies seeking to “do good” would be looked at more positively, but the authors have found that this is not always the case.

The authors examined routes to CSR value: the “direct route” and “indirect or stakeholder route”.   In the direct route, the company finds programs that lead to cost savings or increased revenues.  For example, companies can invest in sustainability and have a favorable bottom line impact.  This is the position supported by “shared values” advocates (I blogged about this in September 2011).  Shared values suggests that companies seek to maximize their own self interest so the best way to get a company to engage in CSR is to find an area that both maximizes their value and also contributes to the good of society.

The “stakeholder or indirect route” is the more traditional route advocated by the communications profession.   This involves the company finding some way to contribute to society.  Stakeholders then judge the program. The expectation, of course, is that stakeholders will praise the company for “doing good”.  This does not always occur.  As a result, there are a lot of companies that have wasted a lot of money.

One of the authors of the book, Daniel Korschun, is a colleague of mine at the LeBow College of Business at Drexel University and a Fellow of the Center for Corporate Reputation Management that I lead.  We talk regularly about reputation management in general and CSR in particular.  My view has always been that CSR success is based on two primary variables: 1) that the CSR activity is consistent with the strategy of the company; and 2) that it is meaningful to the stakeholder for whom it is intended.  The authors support this view, but offer a far more refined basis for the success or lack of success of CSR programs.   The findings can be summarized by three themes: Understanding, Usefulness and Unity.

Understanding:  Stakeholders filter the CSR program against their understanding of the company and their expectations of the firm.  If the CSR programs do not make sense to the stakeholder, i.e., the program is from a company with a poor reputation, the reaction is likely to be suspicion rather than praise.  The initiative in this case can create a negative ROI.  A company with a poor reputation should begin correcting its problems and avoid trying to jump-start their reputation with a large-scale CSR program.

Usefulness: Stakeholders look to their own needs and interests first and ask “what’s in it for me”.  While a CSR program may benefit society at large, the program is likely to be more successful if stakeholders perceive a benefit to themselves.  An example here is the disappointment of many pharmaceutical firms that invested heavily in African River Blindness only to find little or no interest in the United States.  The program was of high value to those on the African Continent, but had little usefulness to Americans.

Unity: When Understanding and Usefulness are in play for stakeholders, they interpret that the CSR efforts align the company’s values with their own.  This, the researchers found, is a “powerful predictor” of CSR success.  The concept of unity is similar to relevance.  That is, the belief that the organization is “like me” or is important to my life.  It is more important than differentiation in a highly complex, competitive marketplace.

When one looks at CSR in this light, one sees a route to decision-making that is more logical and systematic than currently available.  All potential CSR programs can be judged against the “3Us”, and the program can better be aligned with the company’s business strategy and the interests of stakeholders.

Communication researchers should take heed.  We need more research on behaviors and less on opinions that lead us to make decisions that may not be valid.  For example, one well known research study by a major PR firm regularly finds that the vast majority of people would rather do business with a company that is socially responsible.  What a revelation!  They likely also want to be friends with people who love their mothers.  The issue is not what people say, but rather what they do.  Unless we can better predict behaviors, our research will have little practical value.

This is a book well worth reading by all those who are interested in corporate social responsibility.  While it may disappoint some who want companies to do any and all social activities possible, it serves as a guide for executive decision-making.  This book should be a welcome read for those who want more research, science and rigor in communication advice.  It demonstrates that the art of communication needs a good dose of science to assure that its perspectives are not only correct, but also produce the ROI that companies should expect from their investment.

Elliot Schreiber, Ph.D. is Clinical Professor of Marketing and Executive Director of the Center for Corporate Reputation Management at the LeBow College of Business, Drexel University, Philadelphia, as well as CEO of Brand and Reputation Management LLC.