3 Ways CSR Can Increase Bottom Line

It has become de rigueur for major companies to embraced corporate social responsibility as a strategic imperative. CSR can create some social good and enhance brand reputations; but there remains a question over whether including social and environmental aims in a company’s core strategy actually improves corporate performance.

A recent study by Professor Kamel Mellahi and colleagues, asks: can organizations do well while doing good? And identifies three common factors that ensure CSR initiatives can add to a company’s bottom line.

Previous research studies have reached varied conclusions on the impact CSR has on performance, with some finding CSR had a negative effect. So to clarify this, Kamel Mellahi, of Warwick Business School, Jdrzej Frynas, of Middlesex University, Pei Sun, of Fudan University, and Donald Siegel, of University at Albany SUNY, 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, they argue that the proper use of CSR can improve a company’s performance and so add to the 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 organization 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 organization does, it needs to be committed to CSR.

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.”

(A prime example being Volkswagen’s professed intent -“Living up to our social responsibilities is at the core of our corporate culture” – which came back to bite VW badly last year.)

The study also highlights the negative impact of CSR initiatives driven by the egos or personal concerns of business leaders. “If an organization’s CSR is just an indulgence of the CEO then it produces a negative effect on performance,” said 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 organization’s performance though and can alienate other stakeholders….. 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.”