Kamel Mellahi / Jan 2016
The debate about whether Corporate Social Responsibility (CSR) pays has come a long way. It has recently shifted from whether engaging in CSR is the right thing to do to whether and how firms can do good and do well at the same time.
Overall, the research suggests that the business case for CSR is not straightforward. Our comprehensive review of the research found that there were at least three factors that determined whether a firm’s CSR initiative translated into positive performance - alignment, communication and consistency.
Alignment means the company’s CSR must be in conjunction with its overall strategy and so involve its various stakeholders. A good example is ice-cream firm Haagen-Dazs, which has become well known for its campaign to save the honey bee. As a food manufacturer it needs bees to pollinate its food, so it is aligned with its stakeholders and core strategy.
Communication should be part of a CSR campaign. Some managers worry about self-promoting and publicising for fear of being accused of ‘greenwashing’, but they need to be transparent in the investment they are making and the impact it’s having. This can be done subtlely and add to a company’s all-important reputation.
Consistency is vital as companies need to be committed to CSR so the campaign is adhered to right through all its offices and supply chain. Companies have to ‘walk the talk’ at all levels, the CSR needs to be part of the company’s DNA.
Implementing these three factors is a tricky task, firms face inherent challenges when engaging in CSR activities.
So far firms have not figured out how to address stakeholders’ conflicts and contradictions. Not all CSR initiatives are viewed equally favourably by stakeholders. When thinking about CSR initiatives from stakeholder perspectives ‘one size does not fit all’.
Firms are advised to develop the capacity to identify, act on, and profit from opportunities to improve stakeholder relationships, but stakeholders may have different or conflicting objectives. In this case firms usually prioritise salient stakeholders according to their power, legitimacy, and urgency.
But how do firms deal with contradictions where a given action may be seen as socially responsible from one stakeholder perspective but irresponsible from another?
This is more prominent when it comes to operating across national borders. What is right and proper in one country may not be the case in another. This creates what is called an institutional contradiction.
Institutional contradictions create a context where a particular CSR strategy may lead one stakeholder group to support it and confer legitimacy to the firm, but, meanwhile, may lead another group of stakeholders to object to it and stand up against it.
In international contexts, this implies that firms may need to abandon their well-established CSR practices in order to adjust to the host country’s institutional norms or they may employ ceremonial adoption without changing actual practices. Or they may even be pushed to engage in certain CSR activities that are not in congruence with their overall CSR strategy. Such institutional contradictions may make the firm look bad while doing good.
Dealing with social movements
Firms need to figure out how, and when, to collaborate with, and when to contend with social movements. For instance, when are firms and social movements more likely to engage in private discussions to enact practices consistent with activists’ demands? And when do they resort to public politics to prevent them through, say, lobbying?
It is becoming common practice that social movements and firms engage to achieve social and political goals, but we have very limited knowledge about the performance implications of such interactions.
For instance, we know little about the capabilities that firms must possess and the critical resources that social movements must possess to facilitate the development of effective collaborative strategies.
Building political ties in developing economies
Multinationals operating in emerging and developing economies often need to engage with governments and develop political ties to be able to do business, obtain the support of the local governments, access critical resources, and shield themselves from the perils of political extortion.
This is because firms are highly dependent on governments. As a result, firms may have to pursue social objectives that are aligned with those of the government. But this may lead to a backlash from their stakeholders at home, and may damage the reputation of the firm when an adverse political shock occurs.