CSR: Still a Question of Balance and Value

A recent article in the McKinsey Quarterly on the drivers behind corporate responsibility says that few companies are clear on how investing in social initiatives will change stakeholder behavior.

The article asserts that few companies understand the harm that a bad CSR strategy can cause.

This is a little surprising because the recent conventional wisdom has been that more and more companies are starting to “get it” when it comes to the importance and added-value of CSR.

Research by authors CB Bhattacharya, the E.ON Chair in Corporate Responsibility and dean of international relations at the European School of Management and Technology (ESMT), in Berlin; Daniel Korschun, an assistant professor at Drexel University’s LeBow College of Business and Sankar Sen, professor of marketing at Baruch College’s Zicklin School of Business, reveals a more troubling side of the equation.

Yes, stakeholders are paying increasing attention to “the social and environmental footprints” of their businesses, they write, but their CSR efforts “have moved into uncharted management territory.”

Companies are reengineering supply chains to make them greener, they continue, and supporting social causes through volunteer programs for employees, or lobbying for human rights around the globe.

Yet as this happens, “many executives are left with the nagging sense that such investments rest on a shaky understanding of how corporate responsibility creates value, both for their companies and for society.”

Some investments do produce immediate gains, such as recycling or energy-saving manufacturing processes, but often the results are more ambiguous, the article states.

The expectation is that social investments will result in longer-term benefits as consumers buy more, a broader investor base emerges, or new talent is recruited. That’s where the ambiguity and confusion can result.

The authors write that in those cases, “how is a manager to know whether stakeholders will indeed respond positively?” Their research, described in greater detail in the book, Leveraging Corporate Responsibility: The Stakeholder Route to Maximizing Business and Social Value, “suggests that while stakeholders’ interpretations of corporate responsibility are multifaceted and far from uniform, it is vital that managers avoid creating an impression that such activities are crowding out core business priorities.”

They also point to another problem that can cause management confusion or indecision – a company might be engaging in CSR activities that actually harm its competitiveness.

The value of CSR can sit on the razor’s edge of doing the right thing and producing the best product when resources are limited. Put another way, a company with low product quality could reap negative returns from its CSR activities.

Not understanding the value inherent in a company’s CSR activity could turn into a major problem for the long-term sustainability of corporate social responsibility programs, especially in a stagnant or collapsing global economy.

 

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