Profits and CSR: Partners or Opponents? (Are We More Able to Generate and Use Revenue Wisely by Meeting Stakeholder CSR Expectations?)
Does the cost of achieving CSR decrease, increase, or have no effect on “profit” –the cost-benefit residual? What communication activities add impact to CSR performance? In addition to making general claims that corporate responsibility is good for business (Makower, 1994) and observing the trend that companies are integrating environmental values and competitive strategizing (Elkington, 1994), many empirical studies offer data that demonstrate the relationship between profits and CSR.
Most studies have identified a positive relationship (although not always linear) between CSR activities and organization performance as measured by various indicators such as shareholder returns, profit, or marketing impact. For example, the data from Ogden and Watson (1999) suggested that despite the cost of improving the quality of customer service performance, “shareholder returns respond in a significantly positive manner to such improvements” (p. 526).
Beliveau, Cottrill, and O’Neill (1994) found that the CSR-profit relationship is not linear and varies by industry as well as by different company performance indicators. For instance, some industries are rewarded for being innovative more than others. In addition, stock market measures lead in CSR performance, while accounting measures lag CSR. Including sociological factors (such as social impact of an industry) can help explain CSR impact on performance measures. Finally, perceptions of management reputation can have a social and economic advantage.
Sen and Bhattacharya (2001) discovered that CSR performance can increase marketing clout if it relates to product quality and/or consumers’ personal preference views on key social issues. This study suggests that aligned interest is crucial to and accountable for positive impact of CSR, but also cautions that such facts don’t count if key stakeholders don’t know about the organization’s accomplishments.
Awareness counts. Sen, Bhattacharya, and Korschun (2006) used survey data to conclude that knowledge of companies’ CSR (primarily defined as strategic philanthropy) is fairly low. When consumers are more aware of what companies are doing philanthropically, that knowledge increases desire to purchase from the company, and makes it more attractive as a place to work and in which to invest. The motives (positive or negative) attributed to companies for this action affect the perception of and motivation to respond favorably to the company.
Rochlin, Witter, Monagahn, and Murray (2005) discovered that “by building a business strategy that aligns social, environmental, and economic performance with long-term business value, corporate responsibility becomes part of core business and is tied to long-term value creation for both business and society” (p. 8).
Other studies have shown how CSR decisions relate to people’s attitudes and behaviors toward organizations. CR can sell products (Gildea, 1994-1995) but is best when CR decisions lead to increased sales and reputation management, rather than when sales drive CR. Based on ranking data, the following list was compiled, ranging from most important to least important factors in making decisions relevant to a specific company: business practices, community support, employee treatment, quality, environment, service, price, convenience, and stability. Analysis revealed that:
- 34% of the respondents would avoid buying a product or service from a company they perceived as unethical.
- 16% seek information to consider a company’s business practices and ethics as part of their decision making.
- 50% intended not to purchase a product or service from a company they considered not to be socially responsible.
Ellen, Webb, and Mohr (2006) found consumer opinions on CSR performance are complex rather than simple—either serving economic or social ends. Customers are more positive when they see CSR as being values driven and strategic. They think badly of companies whose efforts are attributed to egotism or as merely accommodating.
Using social identity theory, Cornwell and Coote (2005) found that if supporters of a non-profit organization know of a mutually beneficial relationship between it and a company that knowledge and the identification with the non-profit positively predict consumer purchase intentions. Barone, Miyazaki, and Taylor (2000) found a positive connection between cause-oriented marketing and consumer relations.
CR also has shown value by reducing costs and gaining support. Carroll (1991) argued that CR pays for itself. Other assumptions relevant to the bottom line are these:
- CR reduces the propensity and rationale activists have to call for excessive and punitive legislation/regulation and the cost of such mistakes.
- CR protects organizations, at least for a while, during a crisis and can reduce various costs, such as litigation and related punitive damages.
- CR increases the likelihood, on the part of non-profits and governmental agencies, that they will get funding they need because they are accomplishing a mission which stakeholders support.
These factors translate into axioms that Carroll (1991) argued serve the good of the company and community: Do good for the community, be ethical, obey the law in spirit as well as principle, and make a profit (or generate revenue regardless of the type of organization) that is put to proper purpose.
Carroll (1991) used these principles to formulate the pyramid of corporate social responsibility:
- the foundation is economic responsibility (to produce an acceptable return on investment)
- legal responsibilities (to act within the legal framework),
- ethical responsibility (to do no harm to its stakeholders and operating environment),
- philanthropic responsibility (or more proactive, strategic behaviors that can benefit the firm and society, or both):
“Be a good corporate citizen; contribute resources to the community; improve quality of life” (p. 42). To accomplish CSR, effective management requires the appropriate balance between an orientation toward owner/shareholders, and employee stakeholders, customer stakeholders, and community stakeholders. To make society “good” becomes a reality only when this high expectation “becomes the aspiration and preoccupation of management” (p. 48).
