Want Corporate Social Responsibility to Pay Off in the Long Term? Tell Your Story

There’s good news and bad news for firms investing in corporate social responsibility initiatives in a recent article published in the Journal of Business Ethics co-authored by Wenbin Sun, Ph.D., associate professor of marketing in the Helzberg School of Management.

The good news — companies are rewarded for undertaking efforts to improve their relationship to the environment, to their labor pools, and to consumers more broadly. The upside to those types of efforts are quantifiable, according to Sun, in terms of shareholder value, which tends to increase as companies invest more in these areas.

The bad news — according to Sun and his partners’ research, the assumed linear relationship between corporate social responsibility initiatives and financial benefits for a company doesn’t necessarily hold up to their detailed analysis of available data from companies between 2000 and 2010. Others have quantified the value of corporate social responsibility, but Sun said looking specifically at shareholder value yields very different readings of the longterm effect of those efforts.

“Shareholder value is one of the main benefits and goals of a company,” he said. “That is why it’s really rewarding to link this kid of corporate social responsibility and shareholder value.”

Their paper states the relationship between corporate social responsibility and shareholder value can perhaps be better thought of as an inverted U-shape. On one side, shareholder value and corporate social responsibility increase at a similar rate. After peaking, however, shareholder value starts to go the other way, even as corporate social responsibility investment continues to increase. Initiatives aimed at “doing well by doing good,” as Sun put it, consume company resources that could be used to drive value elsewhere and are easily replicated by other companies.

Luckily, Sun and his research partners, Shanji Yao and Rahul Govind, say, there is some other good news for companies in the results of their paper, titled “Reexamining Corporate Social Responsibility and Shareholder Value: The Inverted U-Shaped Relationship and the Moderation of Marketing Capability.” One factor, they found, can mitigate the negative effects of this relationship — companies need to build up their marketing capability to make the most of the social responsibility efforts.

That makes sense, he said, because each company can leverage the positives of corporate social responsibility to the customer in ways that foster long lasting relationships, whereas many corporate social responsibility efforts in and of themselves are similar from one company to the next. In other words, it might actually be good to brag a little bit when it comes to communicating with customers about the good things a company is doing.

“The firm’s shareholders expect a consistent image of the firm. A firm with high corporate social responsibility involvement but with a low ability to manage its operations is likely to give customers really confusing perceptions,” he said. “So that’s why high corporate social responsibility and high marketing competence are so important to match together.”