How companies can do well by doing good

16 December 2015

  • A third of CSR studies found no impact on a firm's performance
  • Some found CSR has a negative effect on company's profits
  • Communication, aligning CSR with strategy and total commitment key
  • CEO-led CSR has bad consequnces for the company

A new study has identified three common factors that ensure CSR - or Corporate Social Responsibility - adds to a company’s bottom line.

CSR  has become a strategic part of most businesses and is used by companies to advance some social good and also allows them to enhance their organisational performance. Most organisations are integrating social and environmental issues into their core strategies. But can organisations do well while doing good?

To answer this, academics reviewed 163 research papers from top-tier journals published from 2000 to 2014 on the link between CSR and company performance.

In A Review of the Nonmarket Strategy Literature: Toward a Multi-Theoretical Integration published in the Journal of Management, Kamel Mellahi, of Warwick Business School, Jdrzej Frynas, of Middlesex University, Pei Sun, of Fudan University, and Donald Siegel, of University at Albany SUNY, argue the proper use of CSR can improve a company’s performance and so ensure that by doing good they also do well.

No triple-bottom line

Professor Mellahi, who teaches Global Business Strategy on the MSc Marketing & Strategy, said: “It is clear that the results are far from consistent. A lot of firms haven’t found the sweet spot of doing well while doing good at the same time. More than one third of CSR studies did not find a positive relationship between CSR and performance. Several studies found that CSR actually has a negative impact on performance. But some interesting trends can be observed.”

The study identified three factors that moderate the impact of CSR on performance.

First, in order for CSR to pay-off, the organisation must be able to adapt and align its CSR activities with the concerns of key stakeholders. It must have the capacity to influence stakeholders by having the ability to “to identify, act on, and profit from opportunities to improve stakeholder relationships”.

Secondly, communicating a company’s CSR activity is another important factor. Professor Mellahi, who also teaches International Business Strategy on the MSc International Business and the Undergraduate programme, added: “The visibility of CSR is very important. While managers are right to worry about self-promoting and publicising their CSR activities as they can be seen as ‘goodwashing’ or ‘greenwashing’, they need to be transparent about what they are doing, where the investment is going and the impact it’s having.”

The third factor is that the CSR must be consistent with what the organisation does, it needs to be committed to CSR.

Indulgent CEOs

Professor Mellahi said: “CSR may backfire if the firm is accused of hypocrisy, where it boasts about its CSR achievements in one area while acting irresponsibly in another.”

The study also highlights the potential negative impact of CSR initiatives when they are driven primarily by a manager’s ego or personal concerns. Business leaders who engage in CSR activities to boost their personal reputation and advance their personal career may hurt the bottom line. 

“If an organisation’s CSR is just an indulgence of the CEO then it produces a negative effect on performance,” said Professor Mellahi. “Managers are most likely to support and be loyal to social or political stakeholders to which they are most closely tied and so devise their CSR around them. This is not good for the organisation’s performance though and can alienate other stakeholders.”

Professor Mellahi added: “When managers are driven by self-serving motives they tend to spend an exceedingly large amount of resources on initiatives without a clear strategy or visible results.” 

Read more from Professor Kamel Mellahi on why it is not always desirable to measure CSR 

Read about the push for sustainable economic growth.

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