Does CSR Make a Difference to a Company's Image?

For many companies these days, corporate social responsibility or CSR, is an important part of their corporate profile. Companies like Hickory Springs, with its Earthcare Challenge, and Starbucks Coffee, known for its support of safe drinking water in impoverished communities, are examples of companies that have successfully built CSR into their corporate image.

But is “doing the right thing” enough to ensure a positive legacy?

CSR Research at Kellogg School of Management

Research conducted at Kellogg School of Management at Northwestern University suggests that it’s not that simple.

“Once social movement activists are aware of a company’s claims to decency and moral excellence, they actually become more critical of its practices,” writes Associate Professor Brayden King.

King and his research team studied the effects of environmental activism on corporate governance and financial success from 2004 to 2008. To do so, they separated activists into two camps: primary stakeholders who held a vested interest in the company’s success, (i.e., customers or employees), and secondary stakeholders (community activists, for example, who don’t necessarily patronize the company, and are searching for a way to “to communicate their grievances to a company’s leadership.”)

The results were surprising.

Not all stakeholders are perceived as equal

First, writes King, perception of risk to the company is what matters in terms of its ability to affect change. In other words, it is the perceived damage to reputation and financial stability of a company that affected change, not the actual financial outcome at the end of the strike, sit-in or letter-writing campaign.

Second, that perceived risk depends upon whether the activists are identified as primary stakeholders (customers or creditors, for example) or secondary stakeholders (individuals that don’t necessarily have a stake in the company’s financial stability).

Therefore, “the activities of primary stakeholders can serve to increase a company’s perceived environmental risk, which has a negative effect on financial performance,” whereas the financial risk attributed to a protest by an environmental NGO is thought to be less of a threat to the company’s stability.

Third, and most surprising:  the actual impact of activism on long-term performance in both groups is nil.

“Our research shows that activism by either category of stakeholder does not have a direct impact on financial performance,” says King.

So, when occupy movement protesters seized the lobby of a San Francisco Bank of America branch and forced a four-hour standoff with police, protesters didn’t necessarily get what they wanted, which was a blow to the bank’s financial reputation.

In contrast, where B of A might have felt a pinch was during “Debit Transfer Day,” on November 5, 2011, when a Facebook protest encouraged swarms of customers to drop their accounts in favor of credit unions. The move was to protest big banks’ plans to impose a $5 debit fee. Credit unions received an uptick of more than 200,000 new customers during that period, approximately one third of the new customers for the entire year of 2010. The actual financial loss for individual banks during October and November 2011 is unclear, but the perceived loss forced most of the banks to drop the fee.

But what about those Wall Street protests?

I can’t help but wonder whether the researchers’ conclusions would have been any different had they had an opportunity to include periods leading up to and including the occupy movement of 2011 and 2012. Would it have found that companies subjected to the protesters’ ire on Wall Street, and on the streets of Los Angeles, Chicago and Seattle, actually lost money?

Journalist Martha C. White, who writes for Time says, not necessarily.

“A year later, big, powerful banks remain big, powerful banks,” writes White in her September 12, 2012 article. She notes however, that there were some regulatory changes to consumer services and student loans that resulted from the occupy movement protests - changes that may have come from the perceived risk from ongoing protests and loan defaults.

Using CSR to corporate advantage

King offers a checklist of steps that companies need to consider before deciding how to use CSR to their advantage. And in many ways, the research findings seem to boil down to what we tell our kids when dealing with friends and new acquaintances: a) Be genuine in your behavior; b) Listen and respect others’ feelings and communications with you and c) Be heartfelt in your actions and how you live your life. You can never tell how they'll be perceived.

Occupy photo courtesy of DonkeyHotey