In a recent Harvard Business Review blog post, leadership expert Frances Hesselbein wrote about the critical importance of corporate responsibility – not just as a means to provide visibility to companies, but as a way to nourish deep pools of talent within the community. She wrote:
For leaders in all three sectors there is a new appreciation that when we build the healthy community, it is for the greater good. And even for a leader with little concern about the greater good, there is the reality that a sick and ailing community cannot produce the healthy, energetic, productive workforce our enterprises demand if indeed they are to be viable and even present at the end of this turbulent decade.
Hesselbein was writing in 2010, when, mired in a recession, companies were cutting the budgets of any corporate program that didn’t seem crucial in the short term. She cautioned against this, explaining that leadership had the ability to instill a dedication to corporate responsibility in a high-performing workplace culture.
She also said that the commitment to corporate responsibility must not be superficial, but rather a deep and earnest effort on behalf of the corporation. She writes:
“Ignoring externalities threatens excellence, ethics, and engagement in organizations, but addressing these externalities can transform challenges into opportunities. When we truly focus on the common good, service is a privilege —not a chore but a remarkable opportunity.”
A new study confirms that notion – and goes further. Not only must corporate leadership truly believe in its corporate responsibility efforts for them to have an impact on stakeholders, but the company has to be respected in the marketplace as a high value company as well.
In a new book, Leveraging Corporate Responsibility: The Stakeholder Route to Maximizing Business and Social Value, CB Bhattacharya, Daniel Korschun, and Sankar Sen reveal that corporate responsibility doesn’t have a positive effect on stakeholders unless the company is already good at what they do.
They illustrate this notion in a recent McKinsey Quarterly article, in which they point out an experiment they performed. When consumers were asked to rate how likely they were to purchase a product after learning about the company’s quality reputation as well as its corporate responsibility activities, they were slightly more likely to purchase when the quality was high and when the company engaged in corporate responsibility activities. On the other hand, when the quality was low, they were even less likely to buy the product when the firm engaged in corporate responsibility.
It seems that corporate responsibility is viewed cynically when a firm is known for poor quality. The authors note that this phenomenon is reflected in a similar study that showed that Fortune 1000 companies do better financially than less valuable companies when they engage in corporate responsibility activities.
“Stakeholders are remarkably open to the business case for corporate responsibility, as long as initiatives are appropriate given what stakeholders know about the business, and as long as companies genuinely pursue and achieve the accompanying social value.”
Additionally, their research revealed that it’s important for the benefits of corporate responsibility initiatives to be valuable in a way that makes sense for stakeholders. They continue:
“Likewise, stakeholders are drawn to companies whose corporate-responsibility activities produce solid benefits, which can be tangible (such as improved health in local communities) or psychological (for instance, volunteer programs that help employees better integrate their work and home lives).”
For programs to have an impact on stakeholders, they also have to be realistic within the scope of the companies abilities and marketplace perception, and they should be measurable as well. The authors comment, “A company should assess its initiatives regularly to ensure that they foster the desired unity between its own goals and those of stakeholders.”
Similarly, Hesselbein wrote, “Ensure that your actions are congruent with your values.” When companies engage in corporate responsibility activities that don’t seem genuine to stakeholders – customers, employees, shareholders – those activities aren’t likely to gain much traction in the long term. It’s important that companies engage in the corporate responsibility practices that best match their skills, values, and needs.