It’s imperative for organizations to adopt and promote systems of corporate social responsibility (CSR) with the overall goal of maximizing profits for shareholders. Aligning both stakeholder interests and shareholder interests provides a framework in which both become invested in the long term sustainability of the organization. Corporate governance can act as a function and tool to support CSR. Furthermore, scholars have identified improved financial performance, and reduced risk when corporate governance and CSR are aligned, where the consumers view and perception of an organization that promotes and actively supports CSR are believed to provide higher quality products and services, be more reliable, and more honest than those organizations who are not socially responsible (McWilliams & Siegel, 2000).
Benefits to Stakeholders and Organizations of Socially Responsible Values
In some cases, improved financial performance has been linked to CSR. Chang et al (2014) found a positive correlation between those firms with strong CSR initiatives and a reduction of firm risk, and improved financial performance, with each varying depending on whether or not CSR initiatives were more favorable toward primary or secondary stakeholders. Greater benefits were earned when CSR was focused on primary stakeholders, such as customers, employees, partners, etc. (Cheng et al, 2014).
Stronger corporate governance is also linked to CSR. Mason & Simmons (2014) discerned corporate governance has a major influence on CSR and vice versa, where a cause and effect relationship exists between the two. Strong corporate governance, which tends to align shareholder goals with stakeholder goals, creates a sense of salience towards social responsibility which stakeholders attribute CSR to long term value (Mason & Simmons, 2014). Furthermore, organizations have begun to build on CSR initiatives by creating boards, codes of conduct for CSR initiatives, and non-financial practices, which are aimed at creating an image that profits are not the most important factor in business; being ethical, trustworthy and transparent are more important (Gill, 2008). Companies that adopt CSR strategies create a branding image for themselves where consumers believe they too are buying into a socially responsible organization and ultimately are supporting a cause (Williams & Siegel, 2000). Organizations are then able to identify and market to these consumers, creating and building upon a niche, another differentiation strategy. Organizations that practice CSR have been linked to longevity and tend to retain high quality employees longer than those that do not (Gill, 2008).
Visual Evidence of Socially Responsible Values
Mason & Simons (2014) identify a framework for determining whether socially responsible values exist within an organization. First, the organization must have something in place that describes how the organization will operate from a CSR standpoint. Second, the organization must have something in place to ensure management contributes to the achievement of corporate goals. Third, the organization must have something in place to provide ethical rationale for approaches to stakeholder management. These three attributes are known as the stakeholder systems model (Mason & Simons, 2014). The model helps identify who the stakeholders are, the expectations of the organization and determine if those expectations are being met.
A branding image is another way to communicate social responsible values. Organizations who produce and process food may use labels that mention the words “organic,” “no anti biotics,” or “free range,” etc. (McWilliams & Siegel, 2000). Organizations that produce makeup products may specify the fact that the products are made without animal testing (McWilliams & Siegel, 2000). Marketing strategies will typically follow these products where the strategies promote CSR attributes and tend to create a strong reputation for quality products, reliable products, and associate the organization with honesty (Williams & Siegel, 2000).
Potential Detriments to Organizations without Socially Responsible Values
From the stakeholder perspective, Mason & Simons (2014) identified two potential detriments to organizations that do not adopt social responsible values. The first is a lack of commitment by stakeholders to the organizations systems where stakeholders may not feel they are effective and management may treat them unfairly (Mason & Simons, 2014, p78.). The second detriment is when stakeholders decide to implement a “duty of care,” which can lead to reduced engagement toward ethical initiatives (Mason & Simmons, 2014). Lack of duty of care endangers the vision for the “responsible and sustainable corporation” (Mason & Simmons, 2014, p.80).
From the consumer perspective, Williams & Siegel (2000) found organizations that do not practice CSR to be viewed as less trustworthy, less reliable and less honest. If consumers do not believe in the organizations cause, they may be less likely to purchase goods or services from that organization. Customer trust is an important, often overlooked, aspect that without it, would ultimately challenge the organizations existence and negatively impact financial performance.
Socially responsible values have been linked to improved financial performance, a sense of loyalty, honesty and reliability from the customer perspective. Customers who purchase goods or services from socially responsible organizations find themselves contributing and being a part of something greater, an organization that cares and is in business for a purpose that consumers can feel good about and get behind. The consequences of not being socially responsible for organizations could impact the financial performance negatively, where its existence is challenged at some point. Lastly, stakeholders also want to be a part of a socially responsible organization, one they too can feel proud about.
Managers have struggled over the years with determining what’s more important, profitability, or being socially responsible (Williams & Siegel, 2000). A link may exist between the two, at least from a longevity and stakeholder management perspective, which long term profitability far outweighs short term profitability. Managers must understand and determine the best course of action to obtain the two, with a major focus on promoting CSR and stakeholder buy in and promotion of CSR.
Chang, K.; Kim, I.l; Li, Y. (2014). The heterogeneous impact of corporate social responsibility activities that target different stakeholders. Journal of Business Ethics, 125(2), 211-234. doi: 10.1007/s10551-013-1895-8.
Gill, A. (2008). Corporate governance as social responsibility. A research agenda. Berkeley Journal of International Law. 2008, Vol. 26 Issue 2, 452-478. Retrieved from: http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1360&context=bjil.
Mason, C.; Simmons, J. (2014). Embedding corporate social responsibility in corporate governance: a stakeholder system approach. Journal of Business Ethics, 119(1), 77-86. 10p. 1 Diagram. doi: 10.1007/s10551-012-1615-9.
McWilliams, A.; Siegel, D. (2000). Corporate social responsibility and financial performance: correlation or misspecification? Strategic Management Journal, 21(5), 603-609. doi: 10.1002/(SICI)1097-0266(200005)21:53.0.CO;2-3.Industry News