What are the best choices in corporate social responsibility?
Social responsibility leads to a good return on investment (ROI) if marketing is implemented properly. But some CEOs make the wrong choices in trying to implement social responsibility initiatives.
“A lot of firms question the benefit of corporate social responsibility (CSR) activities, because they are often viewed as more of a cost,” says Sachin Modi, an associate professor in Iowa State University’s College of Business.
“Firms may not always see the benefit because they have to make an investment,” he adds. “What we want to show is that if a firm is good and has some complimentary capabilities, it can gain a lot from CSR activities.”
That’s one of the conclusions from a 2016 study by Professor Modi and Saurabh Mishra, an associate professor at McGill University. The researchers say a strong marketing department delivers the anticipated ROI from CSR.
Types of CSR
To determine the resulting long-term value and increases in stock prices, they analyzed six types of CSR:
— Corporate governance
The researchers concluded strong marketing and CSR delivered a 3.5 percent increase in stock returns.
For the average market capitalization, there was a $242.34 million increase in stock value.
But there was a caveat. The rate of return depended on the CSR activity.
With the exception of charitable giving and philanthropy, the companies profited from five of the six types.
Companies errantly selected CSR activities based on their personal preferences not what consumers, employees and vendors thought.
Charitable giving didn’t always work because it was difficult for consumers to substantiate, which meant they didn’t buy the companies’ products.
“As firms pick what initiatives to get involved with for the community and for charitable giving, they might want to focus on those which are more easily verifiable by consumers, explains Professor Modi. “So they don’t necessarily have to advertise it, consumers just come to know this firm does a lot for a particular charity.”
“It is very important to give from a community and charity standpoint. And it may be a more true form of giving, because it doesn’t always give the firm value in return,” he adds. “We’re not saying firms shouldn’t give to charity, because it is a very important component, all we’re saying is we don’t see a financial return.”
With strong marketing, he says the most profitable CSR activities often stem from messages about product improvements, environmental friendliness, a diverse workforce and use of sustainable resources.
But he emphasizes weak marketing doesn’t work.
He also says companies have to be astute. In citing an example, Sun Chips, he says promoting its biodegradable packages failed to work because customers complained about the loud noise when chip bags were merely touched.
“Our hope is that firms see it is important to be socially responsible. It’s not a choice of one versus the other,” he concludes. “Firms have to do multiple aspects of being socially responsible.”
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