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.
