Today, I wanted to share a good friend of mine’s blog post. Omar Ziadeh has done an excellent job of explaining what CRS (Corporate Social Responsibility) is.
This blog post explains the operational effectiveness of engaging in CSR and delves into Stakeholder Theory. A stakeholder is any person or group that is affected by the actions of a business. Typically the people most affected by a company are its employees, suppliers, customers, community, the environment and so on.
Omar gives a brief history of where this topic stems from and reasons why companies engage in CSR. He also discusses why it is so critical for companies to seriously consider being a CSR firm.
The important take away is that when you take care of all the facets of society they will, in turn, support the company. What is good for the goose is good for the gander.
Guest Blog Post:
In the current era of business, corporate social responsibility has become a focal point of many operational strategies. Companies no longer see corporate social responsibility as just another cost of doing business.
Today, corporate social responsibility can be a way for companies to hold a competitive advantage over their industry rivals.
At first glance, company managers might think that engaging in CSR might burden the company’s bottom line. In fact, the opposite seems to be true. There are a number of studies that have proven that companies who engage in corporate social responsibility actually flourish.
Corporate Social Responsibility: Creating Value
One fantastic study on the connection between performance and CSR is an article by called Washing Away Your Sins? Corporate Social Responsibility, Corporate Social Irresponsibility, and Firm 2.21.Performance by Charles Kang, Frank Germann, and Rajdeep Grewal.
This study looks at four mechanisms for reasons why companies engage in CSR.
1. Slack Resources Mechanism – Firms engage in corporate social responsibility because they are doing well financially. CSR is viewed as voluntary, and managers have the flexibility to initiate them. Managers are given the ability to spend extra funds on CSR initiatives.
2. Good Management Mechanism – Firms view the cost of corporate social responsibility to be lower than the benefits received by performing good deeds. It is simply good management to engage in CSR. These firms believe that CSR can attract quality employees and raise employee morale. CSR can also reduce costs through operational efficiency and create a competitive advantage.
3. Penance Mechanism – Firms that only incorporate CSR initiatives as “penance” to corporate social irresponsibility. Firms try to compensate or engage in image damage control in order to cover up a previous irresponsible action. An example of this is when BP oil launched its “green campaign” after it caused the tragic oil spill in the Gulf of Mexico.
4. Insurance Mechanism – Firms incorporate CSR initiatives before any possible controversies about corporate social irresponsibility as “insurance”. The idea is that a firm’s good reputation can serve as an asset during times of crises and help reduce the potential repercussions as a result.
The End Result of Corporate Social Responsibility:
So what did these three researchers find about these four mechanisms? If you are a fan of corporate social responsibility, it is clear, their study pointed to the Good Management Mechanism and the Insurance Mechanism as the superior options.
(Their study includes many complicated variables and descriptive statistics that you can view here, but I am going straight to the discussion and conclusion)
“In summary, our model results indicate that there are two types of firms that pursue CSR: those that do so not because they are doing well financially but (we speculate) because they believe that it is the right thing to do and those that do so to make amends for their past CSI. Although the former firms might engage in CSR for seemingly altruistic reasons, they can expect to see significant financial returns from their CSR investments. In contrast, the latter firms will likely see few if any positive effects from their CSR investments.”[¹] (74)
CSR builds a reservoir of goodwill that will act as a possible insurance barrier to any controversies that arise in the future.
In addition, employees are much more motivated by companies that are socially responsible. All things considered, it seems that there are many reasons for a company to engage in CSR. Whether a firm engages to ensure its image or to repair its image, one thing is sure. In the long run, CSR is good for a company’s bottom line.
Let us go to another study that finds similar results.
1997: The Roots of Corporate Social Responsibility
In 1997, corporate social responsibility was barely on the minds of business people, and very few companies engaged in CSR.
A study performed by Sandra Waddock and Samuel Graves called, “The Corporate Social Performance-Financial Performance” was completed to find if CSR would be beneficial to companies.
The results are clear. I have added this excerpt from their study so that you may read their conclusive findings for yourself.
“Our findings indicate minimally that attention to Corporate Social Performance (CSP) arenas does not represent a competitive disadvantage and may in fact be a competitive advantage. If, for example, better performance along CSP dimensions allows companies to attract better employees more easily, forego difficult and costly battles for site placement with communities or governmental officials, or avoid payments of fines for environmental problems, then potentially we are changing the definition of CSP so that it no longer represents a discretionary activity on the part of management, but is fundamentally linked to management performance itself.” [²] (9)
Corporate social performance is much more than just doing extra to look good, it has to be seen as a way of doing business.
Without stakeholder support, firms cannot experience success. Corporate social responsibility goes beyond just trying to do the right thing. CSR should serve as a guideline for best management practices.
Corporate Social Responsibility is a MUST:
In conclusion, these studies are not something I nitpicked from a list of studies that backed up my own opinion on corporate social responsibility. In the past decade, almost every study conducted on the effectiveness of CSR has supported the operational effectiveness of engaging in CSR.
Companies should be invested in stakeholder theory. Companies should operate and be responsible for a wider group of stakeholders, other than just shareholders.
As a result, when you take care of the community, the community will reciprocate and support the company.
I really hope you have enjoyed reading this blog post. Do you currently work for a company that is engaged in giving back or goes above and beyond in some way? If so, I want to know more about how companies are incorporating their stakeholders into their daily operations. Please share by commenting below)!