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Mutual benefit: investing in the social

Good CSR needn’t be a tug-of-war between cash and kindness, says Brenda Kowske, as new research shows that socially responsible organisations substantially outperform those that are not

11 Jul 2011

By Brenda Kowske, Kenexa

CSR and a return on investment

ALTHOUGH corporate social responsibility (CSR) has long ticked boxes when it comes to public relations and branding benefits, few investors are interested in the feel-good intangibles of serving the community or the extra power it brings to recruitment efforts.

CSR is considered an unnecessary expense with little-to-no financial return, but is this belief well founded? Not according to recent research conducted by the Kenexa High Performance Institute.

A study of more than 175 organisations revealed that those that are rated by their employees as strong social citizens significantly outperform their low CSR counterparts, in both three-year total shareholder return and return-on-assets.

CSR defined socially responsible organisations honour the triple bottom line: people, planet and profits. To create ‘shared value’, leaders think beyond immediate gains and build a sustainable system and environment for future organisational fiscal health.

Organisations and consumers need each other – organisations profit from selling goods and consumers benefit from buying the goods they want. This interdependence requires both parties to be sufficiently healthy to fulfil their role. Therefore, it is in an organisation’s best interests to protect a healthy society via its service or product, as well as protect and garner the resources necessary for the business itself to function.

This isn’t a fringe perspective; business strategy gurus Harvard Professor Michael Porter and Harvard’s Kennedy School of Government Senior Fellow Mark Kramer discussed this strategic CSR approach - dubbed Creating Shared Value - in the December 2006 issue of the Harvard Business Review.

True corporate social responsibility is far more than window-dressing; it is a commitment to operating in a fundamentally different, more sustainable way. Through its annual WorkTrends study, the Kenexa High Performance Institute has captured employee opinions on their organisations’ corporate responsibility efforts, and then examined whether organisations with strong corporate responsibility practices and policies performed better financially.

Employees from all over the globe were asked to say to what extent they agree with the following statements:

  • My company does a good job of contributing to the communities in which we live and work.
  • My company's corporate social responsibility efforts have increased my overall satisfaction with working here.
  • At my company, short-term business gains are balanced against investments in communities where we operate.
  • My organisation makes business choices that support the environment, such as recycling, energy conservation and vendor selection.
  • My company's commitment to corporate social responsibility (e.g. community support, protecting the environment, etc.) is genuine.

The tangible benefits Socially responsible organisations enjoy a myriad of benefits from higher employee engagement to more positive employee outlooks on the organisation’s performance over the past year. Employee engagement was four times higher among those organisations with a socially responsible culture (84%) compared to 20% among companies with a low CR culture.

Two thirds of employees in high CR companies boasted organisational performance improvement over the past 12 months –compared to 22% of staff in low CR culture businesses.

The American Customer Service Index (ACSI), a well-regarded measure of customer satisfaction, also demonstrates a strong link with corporate responsibility. Over the 16-year period of the ACSI survey, it has been shown that companies with high ACSI scores tend to have better performing stock prices than low ACSI scorers. Scores above the national average of 75.3 points are viewed as good, and in general scores of 80 and above are viewed as excellent.

The WorkTrends data shows a clear relationship between corporate social responsibility and excellent reports of customer service. The top 25% of companies in terms of corporate responsibility boasted a mean ACSI score of 80.8, in contrast to a mean ACSI score of 72.6.among those organisations with the bottom 25% of CR scores.

Beyond employee and customer ratings, social organisations also enjoy higher three-year total shareholder return and return-on-assets. An analysis of total shareholder return over the 2007-2009 timeframe revealed that, during the recession, organisations were hit hard but those with solid CSR programmes, as rated by employees, fared far better.

We see a similar relationship when we examine 2009 return-on-assets. Organisations that scored in the lowest quartile on CSR gained only a 0.25% return, while those in the top CSR quartile enjoyed nearly a 5% return.

In short, corporate social responsibility is linked to stock performance, although the exact nature of the relationship has yet to be investigated: do CSR efforts lead to better metrics, or do high financial performers have more resources to invest in socially responsible programmes?

Strengthening CSR initiatives Organisations need a myriad of natural resources and a wide range of talent to function. With so many possible directions, identifying the most impactful course of action can stymie CSR efforts.

The following suggestions can help leaders move their efforts forward: Focus on one primary initiative: Do one thing, and do it well. Having focus directs resources to the initiative of biggest impact and allows people and leaders to cultivate one media message. It communicates an importance of purpose necessary to rally support and drive change. Direct CSR efforts to the changes that matter most.

Reapply strengths: Leaders already know what their company does well – now expand that strength into CSR efforts. For example, Campbell’s Nourish programme takes their soup-in-a-can core product and applies it to solving world hunger by providing those in need – not consumers – with a one-can, balanced daily meal. By taking advantage of something the company already does well, few resources are spent inventing new processes or systems to alleviate a societal problem.

Super-charge communication: Organisations looking to bolster the impact of CSR efforts need to start by ensuring people everywhere can learn about CSR efforts. Crucially it starts with employees. Get people taking part and talking about your efforts and ride the wave of change.

Conduct an organisational ‘basic needs’ audit: Whether human or natural, all resources utilised by organisations are developed or grown in some way, somewhere. Invest in the development and protection of the resources that are critical to the functioning of the business and consider the entire lifecycle.

Strengthen communities in which the business operates: Ask people in consumer or local communities what challenges they face – what takes their time and energy. For example, perhaps schools are too far apart to be practical, or citizens have few childcare options. Solving these problems for a community allows citizens to redirect their time and effort towards mutually-beneficial ends.

Good corporate citizenship need not be a tug-of-war between cash and kindness. Many CSR efforts benefit society as well as, in the long run, the organisation. Taking a long-term strategic perspective may mean more investment in the short term, but will also result in an organisation poised for growth when its competitors face resource shortages.

Dr Brenda Kowske is research manager at the Kenexa High Performance Institute. www.khpi.com

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