Few concepts today have so totally captured the corporate consciousness the world over as the twin ideas of corporate responsibility and sustainability. Prof. CB Bhattacharya explores the true meaning behind the well-used acronym, CSR.  The CR concept connotes that nowadays, a company’s long term success and perhaps even survival is tied to the stewardship of not only its own wellbeing but also that of the natural and social environment in which it operates.

With stakeholders such as employees, consumers and investors paying increasing attention to companies’ social and environmental footprints, CR efforts have moved into uncharted management territory. We see companies supporting social causes through employee volunteer programs, lobbying for human rights and reengineering supply chains to make them “greener”. This is valuable evidence for the importance of corporate responsibility and a great help for the beneficiaries in the social and environmental realm.

“To make a boardroom case for continued investment in CR, the real challenge for companies going forward is to understand the conditions under which stakeholders react favourably to corporate responsibility initiatives”

At the same time, all this hoopla means that the low-hanging fruit of corporate responsibility is mostly picked. Mere engagement in is no longer enough to differentiate a company from its competitors in the eyes of employees, customers and other important corporate stakeholders. It is also not enough for managers to make a business case for corporate responsibility by merely demonstrating the economic value of resource conservation. To make a boardroom case for continued investment in CR, the real challenge for companies going forward is to understand the conditions under which stakeholders react favorably to corporate responsibility initiatives and reward companies through coveted behaviors such as loyalty and positive word of mouth. Without such understanding it will be difficult to drive competitive advantage through corporate responsibility.

No wonder then, that successful companies are increasingly construing corporate responsibility in terms of the interests of a specific but large and diverse set of stakeholder. These efforts are shaped by the strong belief that endeavors in the corporate responsibility domain can elicit company-favoring responses such as greater employee loyalty. But how is a manager to know whether stakeholders will indeed respond positively to his/her CR initiative? In the book “Leveraging Corporate Responsibility: The Stakeholder Route to Maximizing Business and Social Value” CB Sankar Sen, Daniel Korschun and I have integrated over a decade of research that spans multiple global companies and thousands of stakeholders to shed light on the conditions under which “it pays to be good.” The key premise of the book is that corporate responsibility offers opportunities to foster strong stakeholder relationships that create value not only for a company but also for society and the environment.

To find out the stakeholders’ real needs and expectations the authors delved into the psychological underpinnings that govern stakeholders’ relationships with companies. The focus was particularly on customers and employees, the two stakeholder groups widely recognized to be the most important1. The authors identified the psychological levers that drive coveted stakeholder behaviors and identified the conditions under which these psychological levers produce such desired behaviors.

The research identifies three interdependent psychological levers that drive stakeholder reactions to corporate responsibility: Understanding, Usefulness, Unity (the 3U’s model). The first lever is a stakeholder’s Understanding of a company’s CR initiatives. The first component of Understanding is awareness. Most customers and even many employees are not aware of a company’s actions in the CR arena. The simple implication is that if they don’t know, there is no possibility that they can reward the companies for their CR initiatives. Once a stakeholder becomes aware of a corporate responsibility activity, he or she often questions the company’s motivations for engaging in CR: Is the company seriously trying to help the community or is it just about profit? Notably, stakeholders are remarkably supportive of profit or market motivations on part of the company as long as the company shows genuine interest and makes a difference to the social cause as well. As one focus group participant put it: “It [the market motive] is good because they are going to help us along with themselves.”

The second lever underlying stakeholder reaction to corporate responsibility is Usefulness. Usefulness refers to the degree to which a CR initiative provides benefit to the stakeholder. Much like products and services, CR initiatives also fulfill certain fundamental needs for stakeholders. The needs that they fulfill and the concomitant benefits they provide can either be functional in nature (e.g., energy savings from more efficient appliances) or psycho-social (e.g., better integration of work and personal life from working for a socially responsible company). Consider this quote from an employee at a global consumer goods company: “One of the things that I’ve been putting a lot of thought into the last few years personally and trying to move more and more in the direction of, is trying to overcome this complete separation of work and non-work life. I don’t want to leave here for them to say I have been selling soap. It is probably not quite what I am after. So, the better I can meet the personal purpose and pair it with my professional work, the more satisfied I am because then I see I can better combine the two. It is not the choice do one or the other.”

Understanding and Usefulness work together to create a sense of Unity (the third lever in the described framework) between the stakeholder and the company. Unity can best be described as a sense of belongingness to or connection between the stakeholder and the company. Stakeholders develop a sense of Unity with a company based partially on whether and how they Understand its corporate responsibility activity and how much they find the activity Useful. Given a choice, stakeholders tend to deepen their relationships with companies with which they feel a sense of connection based on an overlap of values and withdraw from companies with which they have a mismatch in values. Armed with the insight of the 3U’s and how they work, HR managers can develop and implement compelling corporate responsibility programs that drive positive employee reactions. When these levers work harmoniously, they produce the greatest value for both the company and society, maximizing the triple bottom line: people, planet and profit.

One key implication of this framework is that managers need to eschew the idea that corporate responsibility must be enacted in a top-down way. In spite of a strong stakeholder involvement rhetoric, most companies continue to develop and manage their corporate responsibility as a top-down process. In a recent survey, 71 percent of the participating companies reported to the United Nations’ Global Compact that corporate responsibility policies and practices are currently developed at the CEO level.i But in today’s environment, there is a strong demand for co-creation. The author’s research shows that the best way to improve Understanding of corporate responsibility activities, to make activities maximally Useful to stakeholders and to foster Unity is to actively involve stakeholders in corporate responsibility activities whenever this is possible. Through co-creation, stakeholders become part of the solution, thereby reducing gaps that exist between their expectations and the firm’s response. When most decisions are made by the HR managers themselves, many employees are left feeling unempowered, unmotivated, and sometimes even disillusioned and disengaged. Another key implication to leverage corporate responsibility is that communication needs to become more prominent. As mentioned above, awareness of CR initiatives is quite low for many companies: frequently in the low double digits for consumers and around 50 percent for employees, even at companies that invest huge resources and enact major sustainability programs. even among employees. Too many companies limit their corporate responsibility communication to an annual report and a few electronic repositories. Just note this quote by an employee who participated in a focus group: “We actually do have a volunteer website that gives you the organizations you could go to, but it’s obviously not well-publicized. It’s just sitting there on the ‘L’ drive.” This leads to the fact that awareness Therefore, corporate responsibility management needs to be accompanied by a communication plan that clearly articulates how effective programs are, how they fit into the company’s strategy and how corporate responsibility can benefit employees and other stakeholders. Finally, companies that want to maximize corporate responsibility value must measure stakeholder responses with more discipline than they do at the moment. While it is quite common to spend much money measuring, employee engagement or job satisfaction, only few use the same disciplined approach when assessing the value generated by corporate responsibility. The above described framework provides three leverage points (Understanding, Usefulness, and Unity) that managers need to track and subsequently relate to stakeholder behaviors as part of assessing reactions to corporate responsibility among stakeholders. In short, the answer to the often asked question, “Does it pay to be good?” is a resounding, “It depends!” Investments in the CR and sustainability realm are rewarded by stakeholders only under certain conditions as articulated above. But there is value to be extracted for those who get the strategy right. The article is based on the recently published book “Leveraging Corporate Responsibility: The Stakeholder Route to Maximizing Business and Social Value,” written by CB Bhattacharya, Sankar Sen and Daniel Korschun and published by Cambridge University Press.

1 “McKinsey survey of 391 UN Global Compact participant CEOs” (2007), available at http://www.mckinsey.it/storage/first/uploadfile/attach/139881/file/cest07.pdf accessed November 2, 2011.
CB Bhattacharya Professor in Corporate Responsibility
ESMT European School of Management and Technology
www.esmt.org/eng/faculty-research/cb-bhattacharya/