Even Google has its dry spells—those stretches when the otherwise innovative Internet company launches nary a new product. During those times, Google’s informal motto “Don’t be evil” and its generous corporate foundation may protect the company’s coffers, says Clyde Hull, an assistant professor at the Rochester Institute of Technology’s Saunders College of Business. Being socially responsible “helps companies ride out the troughs when innovation flags,” he finds in research he recently coauthored with colleague Sandra Rothenberg.
Companies often rely on new products and intense advertising to leap ahead of the pack. But companies can’t be brilliant all of the time, because “innovation comes in spikes,” notes Hull. And some companies are just chronically uncreative. In both cases, “CSR [corporate social responsibility] can give your company that something extra to attract consumers,” says Rothenberg.
For example, “if you develop a razor that will remove all of your facial hair in two seconds with no nicks or cuts,” explains Hull, “people won’t care if producing it kills 16 indigenous species. But if company No. 2 has the same product, being socially responsible can make you more competitive.”
Using data from the socially responsible investment research firm KLD Research & Analytics Inc., Hull and Rothenberg tracked how social performance shaped returns on assets for 69 large corporations over the course of three years (1998- 2001). They also examined whether a company’s level of innovation—as indicated by its research and development budget—amped up or dialed down the effect of CSR on financial performance. After controlling for firm size, industry, and debt/asset ratio (a measure of risk), the authors show not only that CSR generally improves financial performance, but also that it especially helps companies when they are less innovative.
“People running a business think they have to choose between being profitable and being socially responsible,” Hull says. “But our research shows that CSR never hurts. And so the question isn’t ‘Is CSR good?’ It’s ‘When is CSR good?’”
Rothenberg draws parallels between the CSR movement of today and the quality movement of 15 years ago: “People wanted to see the link between quality and performance. Now it’s just assumed. I think that’s where social responsibility is headed. Soon, I hope, we won’t need to justify every CSR decision.”
Read more stories by Alana Conner.