It has become widely accepted that investing in corporate social responsibility (CSR) makes good business sense. A study by Accenture found that 78 percent of executives see social responsibility as vital to the future growth of their business, and corroborating statistics abound. Whether companies view CSR as risk mitigation or value creation, it is easy to argue that doing more good is better for business, or at the very least does no harm.
However, a study published by Michael Barnett (Rutgers) and Robert Salomon (NYU) debunks this logic with data that show that doing more good can actually do harm for some companies. In studying 1,214 public companies, the researchers found that the relationship between financial performance (measured by net income and return on assets) and social performance (evaluated using Kinder, Lydenberg and Domini data) is not linear but rather is U-shaped.
The firms that rated highest on social performance tended to have the highest financial performance, as you might expect. However, companies that had moderate levels of social performance actually had the lowest financial performance—lower than companies that did nothing. In other words, if companies didn’t fully integrate and deliver on social responsibility, they were better off to not invest in it at all.
When companies reactively grow their CSR investments because stakeholders demand it and without a strategic approach to the business potential, they risk falling in the low-performing middle. So, how can you avoid this CSR chasm? In our work with corporate clients, we have identified three practices that CSR teams use to successfully generate positive and meaningful business impact.
1. Identify your business goals.
It is natural to think first about the social goals you aim to achieve with your CSR strategies. Just as critical to making CSR an integral part of generating business value is identifying the business metrics that CSR activities can and should drive. This process typically involves talking to stakeholders, evaluating strategic plans, and reviewing data from across and beyond the CSR department. You may find a diversity of business metrics that you can impact, but they will likely fall into one of the following categories: consumer or customer behavior (such as spend or loyalty), employee behavior (such as productivity or retention), cost reduction or avoidance, and risk management. The order of this list is not random. We have consistently found that the most opportunity for generating business value comes from CSR strategies that are designed to drive consumer/customer or employee behavior.
2. Leverage the organization.
If your CSR department operates in isolation from the rest of your company, it’s very likely that your strategies will be isolated from driving business value—at least, they will not drive as much value as they could. To ensure that you maximize the impact on the business metrics you have identified, you should work closely with the other departments in your organization that are tasked with driving those same metrics. Breaking down these silos can be challenging, but creating an internal “business case” for CSR can help facilitate initial conversations. You should address the following topics and provide supporting data wherever possible:
- The business goals that you identified for CSR
- Specific benefits that CSR strategies can deliver to support the business goals
- Assessment of how well current CSR strategies deliver those benefits and generate business value
- Opportunity areas for strategy innovation
- Ways to leverage your combined resources (manpower, budget, etc.) to better generate business value with social strategies
This approach will enable true social innovation and lead to strategies that maximize both business and social impact.
3. Measure, measure, measure
The only way to ensure that you are creating the intended business impact is to measure that impact. Too often measurement is an afterthought. We see it as a critical part of strategy development. Once you have identified your business goals, you should determine the metrics that you will use to assess how well you are progressing toward those goals. This measurement framework becomes a strategic tool to guide innovation of new strategies, assessment, prioritization, and refinement of existing strategies and communication to internal and external stakeholders. Measurement will also be the key to determining where you are on the curve of social versus financial performance, and ensuring that you have successfully landed on the right side of the CSR chasm.