Cost Reduction and Marketing Advantage (Rational and Economic Arguments)
CSR is important because it is the foundation for reducing cost and gaining marketing advantage.
- Cost reduction (outcome): CSR can reduce cost. Conflict can raise costs, through litigation, legislation, and regulation. These can be dysfunctional means for making decisions of public policy when outrage drives the discussion of stakeholder expectation.
- Marketing advantage (outcome): By achieving appropriate standards of CSR, an organization has a more favorable image and is preferred by customers and other commercial stakeholders. Thus, CSR can increase revenue. CSR is more important when customers can vote their performance expectation with purchase dollars. It has advantage when market conditions prevail so some can achieve market advantage through higher standards. David, Kline, and Dai (2005) offered this challenge: “consumers’ knowledge of CSR practices of an organization is a function of corporate communication activities” (p. 298). This knowledge can lead to positive perceptions of the company, as well as purchase intention and behavior. Perception of an organization’s willingness to engage in discretionary CSR practices and moral/ethics predict belief that the organization has strong corporate social values. Using the theory of reasoned action, Werder (2008) reasoned that knowledge of CSR initiatives can foster salient beliefs about the company, but do not predict attitudes toward it or behavior intention. Luo and Bhattacharya (2006) reasoned that CSR initiatives with stated financial, marketing, and communication objectives can enhance company visibility, enhance customer satisfaction, and generate financial gain. Impact is greater when CSR standards are perceived to be more altruistic than self-interested. As Porter and Kramer (2002) claimed, “The acid test of good corporate philanthropy is whether the desired social change is so beneficial to the company that the organization would pursue the change even if no one ever knew about it” (p. 67).
These two outcomes build a rational or economic argument for CSR. CSR offers a rational argument for managers who seek to maximize their performance by minimizing operational and financial constraints, especially in today’s globalizing world, where activist organizations feel empowered to enact change. This view of CSR builds on what is best about the efficiency and rational market argument supporting the private sector. In addition, CSR is an argument of economic self-interest for business because it allows companies to reflect the needs and concerns of their various stakeholder groups and thus gain its societal legitimacy and maximize its financial viability.
Indeed, Clarkson’s (1995) ten years of research project on corporate social performance found a clear distinction between stakeholder issues and social issues. Similarly, Freeman (1984) suggested the stakeholder framework argues the firm is not responsible to society at large, but to specific stakeholders. Different from the moral argument, this view is similar to strategic philanthropy, or instrumental stakeholder management (Donaldson & Preston, 1995). CSR should focus on specific activities and target publics that are most desirable in terms of loyalty, trust, and goodwill (Fombrun, 1996), consumer purchase decisions, and the goals of the corporation so that ultimately the shareholder value is increased in ways that affirm the franchise to operate.
Globalization/Free Flow of Information and Changing Trends (Reflectiveness and Stakeholder Expectations)
CSR is the foundation for understanding and meeting the challenges of global stakeholders. In the last half of the 20th Century, activist publics formed to change every aspect of business and government. What tended to start as local concern and networking increased to global proportion. With the Internet, virtually every aspect of business and government around the globe can receive instant and detailed attention 24/7.
For this reason, the stakeholders of any organization play an increasingly important role in its standards of CSR. This stakeholder reciprocity/common good rationale for CSR was introduced by Freeman (1984) for strategic management and effective public affairs. This approach reasoned that key stakeholder expectations were crucial to building harmony with targeted organizations.
Basu and Palazzo (2008) highlighted the stakeholder driven approach to CSR is fundamental to a content approach whereby stakeholder standards are important for an organization to know and implement. Planning and performance combine to achieve those standards. The motivation for achievement rests on the principle that reputation counts; it can bring revenue and reduce costs.
This stakeholder rationale motivates authors such as Fombrun (1996) to merge public policy battles and crisis response. Stakeholder adjustments are important. The foundation of successful CSR rests on outside to in thinking: effective CSR goes beyond the question “what’s in it for us” to focus on the higher moral position, “what’s in it for them” or even for “us”?
Related to the stakeholder argument, social capital is thought to be a “stockpile of goodwill” that can aid an organization in addressing and recovering from crisis. It can also increase the likelihood that it will be a desirable relational partner in many ways such as a preferred provider of products or services.
Discussing social capital and its specific role in collective action regarding climate change, Adger (2003) reasoned that such topics “inform the nature of adaptive capacity and normative prescriptions of policies of adaptation. Specifically, social capital is increasingly understood within economics to have public and private elements, both of which are based on trust, reputation, and reciprocal action” (p. 387). Such dialogue can be framed as matters of the public good and ability of organizations to make appropriate adaptations to change. As a resource challenge is framed in terms of economics, CSR (as related to social capital) must come to grips with this reality: “…adaptation processes involve the interdependence of agents through their relationships with each other, with the institutions in which they reside, and with the resource based on which they depend” (p. 388). By this analysis, “social capital is an important determinant of human well-being, along with the traditional factors of production and natural capital” (p. 391). As a force in organizational and societal decision making, social capital can be seen as both bonding through shared meaning and governmental intervention and networking through shared interests and expectations. Such reasoning agrees with Bowie’s (1991) challenge that a stakeholder CSR features “reciprocal duties” (p. 62).
In similar fashion, Clark (2000) concluded that CSR and public relations “have much in common” (p. 369). Her communication-management approach (CMA) works “to join the most compelling arguments made by CSR and public relations, that is, to use the knowledge of identifying stakeholder groups and a corporation’s responsibility to them with the ability to strengthen these relationships through effective communication” (p. 373).
To achieve the fully functioning quality of each relationship, the client organization must have the management procedures and cultural commitment that lead to admiration rather than condemnation. No efforts to foster effective relationships can preclude the need for the organization to be good, as a first step to being a good communicator (Heath, 2001).
How to Implement CSR
How organizations implement CSR depends on how they define it, whether as a moral obligation and a rational approach to stakeholder satisfaction. It serves best when it is part of organizations’ culture, planning, and management. It has implications for budgeting, return on investment, and measures of effectiveness. As mentioned above, public relations practitioners not only participate in the dialogue to define CSR standards but they also play a crucial role in helping markets, audiences, and publics to be aware of the standards client organizations are willing and able to implement.
