THE CASE FOR CARING: It's difficult to link corporate philanthropywith financial performance. But its value can affect more than thebottom line, reports Sherri Deatherage Green

Over the past couple of weeks, corporate America has reacted to the

terrorist attacks by finding ways to help out, and opening its

collective check book.



No corporate executive worth his salt will be giving a second thought to

getting something back from those donations and aid programs. But, in

ordinary times, no CEO is going to sign off on a major investment in a

corporate social responsibility (CSR) program without at least

considering how that investment will pay itself back.



Hill & Knowlton's 2001 Corporate Citizen Watch survey found that US

corporate donations in 2000 increased more than 12% to $10.86

billion. And last year's Cone/Roper executive study found that 78% of

companies surveyed increased their cause involvement during the previous

five years.



Those involved with CSR - and many CEOs - believe that doing good can

reap financial rewards when projects are well managed and logically

linked to a company's goals. H&K research found that 79% of Americans

claim to take corporate citizenship into account when purchasing

products.



Companies can be hard-pressed, however, to prove whether the public's

good intentions really translate into stronger sales or stock prices,

and some experts wonder if corporations should even try to link CSR to

financial gain.



Jordanna Friedman, a director in Burson-Marsteller's corporate financial

practice in New York, spent most of her career in non-governmental

organizations (NGOs). But though her last job was with the Center for

Responsibility in Business, even she can't definitively tie CSR to sales

or stock price.



A number of surveys and studies link CSR to enhanced corporate

reputation, brand value, and customer loyalty, but these are "intangible

assets" that can be hard to express in dollars. Executives, however,

have gotten used to having their companies judged on soft criteria, and

many recognize CSR's value even without spreadsheets to prove it. "I

don't think senior management at most companies need that anymore,"

Friedman posits.



But while CSR and corporate philanthropy are at all-time highs, so is

consumer cynicism, the H&K report shows. Most doubt the sincerity of

corporate do-gooding and think companies act nice just for the PR value.

In fact, a 1998 Conference Board study found that enhancing corporate

image and building trust were the most frequently stated goals of

community economic investment programs.



Executive advisor John Di Frances of Di Frances Associates in Wales, WI,

says attempts to quantify the dollar value of CSR can backfire. "It

looks pretty mercenary," he says.



But measurement efforts can be worthwhile if they boost management

confidence in CSR programs, says Bill Cryer, corporate communications VP

at Samsung Austin Semiconductor. Research can be expensive, however, and

PR people shouldn't expect too much from it. "You can spend a whole lot

of money for very, very squishy data that can change on a dime," says

Cryer.



CSR advocates willing to dig can find a few nuggets in existing research

to help persuade reticent management that giving is a good idea. DePaul

University accounting professor Curtis Verschoor studied corporate

annual reports in 1999, and he found that companies that publicly

embraced ethics codes posted better showings in Business Week rankings,

on Fortune's "most admired" list, and on the Stern Stewart Performance

1000.



Even if dollar-for-dollar cost/benefit analysis of CSR isn't feasible,

some intangibles affected by CSR can reap long-term benefits, experts

claim.



A happy workforce doesn't quit



The current economic slump might have temporarily reduced the focus on

employee retention, but forecasters still predict a long-term labor

shortage as baby boomers retire. Various American and British studies

show that CSR programs, particularly those that get employees involved,

make workers feel better about their jobs.



Pharmaceutical giant Merck is something of a CSR pioneer. Since 1987, it

has donated its drug Mectizan to Africans to prevent river

blindness.



More recently, the company partnered with the Bill and Melinda Gates

Foundation on a five-year AIDS project in Botswana, and is selling AIDS

drugs at cost in developing countries. Back home, the staff gets

involved in science education programs, and Merck's 93% employee

retention rate is among the highest in the industry, notes Gwendolyn

Fisher, media and corporate communications manager.



Cost savings associated with low turnover rates might reflect one of the

most tangible financial benefits of CSR, but few if any companies have

quantified such savings. Steve Rochlin, director of research and

development at Boston College's Center for Corporate Citizenship,

however, cites studies by several companies that showed improved

performance reviews among workers involved in employer-sponsored

volunteer programs.



Consumers also feel rank-and-file workers bring more sincerity to CSR

programs, according to the H&K report. Only 33% said they were "very

impressed" when a CEO talked about a company's social involvement, but

nearly 60% were "very impressed" by employees volunteering their time to

charitable causes.



Some companies focus CSR activities on developing workforces relevant to

their business needs. Hi-tech companies often donate funds, equipment,

and employee time to science or math education programs, frequently

focusing on minorities, inner cities, or other underserved

populations.



Hewlett-Packard's HP Scholars program, for example, provides

scholarships and summer jobs to minority and female engineering and

computer science majors. But the program illustrates one common reason

why CSR result measurements are so hard to come by: the program is so

new, the first beneficiaries won't graduate until this spring.

Therefore, HP can't say for sure whether the program will yield a

dependable pipeline of qualified employees. However, education program

manager Cathy Lipe does note that 90% of the minority students involved

have successfully completed their junior year. But overall, the student

retention rate for minority engineering and computer science majors is

only about 35%.



Saving money (if not the world)



Although advocates may not be able to prove that CSR makes money, they

claim that doing good can save lots of it.



For example, CSR can keep corporations in the good graces of NGOs, notes

Burson's Friedman. Although stockholder resolutions usually don't get

far in shareholder meetings, companies targeted by activists must spend

some time and money dealing with them. "Some (activists) will actually

try to destroy the assets of a company," says Friedman.



The LA riots provided one example of how good corporate reputation can

save more than face, says Carol Cone, president of Boston's Cone

Communications. McDonald's, well known for its children's charities,

operated 22 stores in the riot area. "Not one McDonald's was

vandalized," Cone explains. "What would it have cost to rebuild one

McDonald's? Everything else around them was trashed."



A reservoir of goodwill filled by CSR becomes very valuable during

crises, as well as when dealing with city hall, Samsung's Cryer notes.

The Korean company stresses community relations and volunteering to

integrate its workforce into the Austin community. And because foreign

companies can't make political contributions, Samsung has nonetheless

impressed local officials by installing an environmentally friendly

water recycling system.



Companies that don't try to be good citizens pay steep prices, Cryer

observes. "Eventually, you are going to be able to put a dollar figure

on it, and it's not going to be positive," he says. "The city officials,

regulatory agencies, and so forth are going to take a dim view of what

you're doing."



Good words on the Street



The popularity of socially responsible investing soared in the 1990s.

Assets increased by 227% between 1995 and 1997 in mutual funds that

screen out investments in companies not seen as socially responsible.

But although more people put their money in socially screened funds,

data remains inclusive on whether they earn better returns.



Some screened portfolios have done well. Advocates say that's because

socially responsible management is good fiscal management. Critics,

however, note that since such funds don't buy stocks in "dirty"

industries like energy and utilities, they gravitate toward "clean"

hi-tech and telecom stocks that have performed well in the past several

years.



So if companies can't directly attribute financial benefits to CSR, why

do they do it? "I don't think a lot of them are doing it for the bottom

line," says Di Frances. "They do it because it's right."



To skeptics doubting corporate altruism, PR director Rick Peyser's

explanation of why Vermont-based Green Mountain Coffee Roasters provides

economic support to coffee farmers in Latin America and Asia may sound

more sincere: "It's in the long-term best interest of the company," says

Peyser.



CSR is a long-term proposition, Cone agrees, although companies looking

for short-term results can get them through cause-related marketing. And

since consumers are cynical, hyping a CSR program up front can backfire

if a company doesn't follow through. "Your employees will be outraged if

you do it poorly," Cone explains.



Last year's Cone/Roper study found that only 43% of companies widely

communicate the good they do through CSR programs. Meanwhile,

corporations like General Motors want to toot their own horns more. "For

so long, we operated under the vein that it's simply the responsibility

of the company," says Jocelyn Allen, whose position as PR manager for

GM's philanthropic foundation and diversity programs didn't exist until

last year.



When companies do brag about their good deeds, they should do so

carefully, Cone warns. Corporations shouldn't focus on themselves, but

on the people they help, and the programs they showcase should be more

than window dressing. "Never do this for the publicity," Cone advises.

"Do it for building your business, your brand equity, and your

stakeholder relations."



CSR BY NUMBERS



Hill & Knowlton's 2001 Corporate Citizen Watch Survey found:



79% of Americans take corporate citizenship into account when making

purchasing decisions; 36% of respondents say they seriously consider

it.



71% say they consider corporate citizenship when making investment

decisions, but only 12% would buy stock from socially responsible

companies if it meant accepting lower financial returns.



27% of Americans rate domestic companies as above-average corporate

citizens; 53% rank them as below average.



76% believe companies participate in philanthropic activities to get

good publicity, while only 24% believe corporations are truly committed

to the causes they support.



33% say they are very impressed when CEOs appear as spokespeople for

causes companies support, while 59% say they are very impressed by

employees volunteering their time and by companies donating products or

services.



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