Corporate social responsibility (CSR) initiatives have gained much prominence as of lately, and according to some, are already changing the face of the business world. Still, in order to gain a deeper insight into the nature of the relationship between CSR and profitability, we have to access the impact of corporate social performance (CSP) on sales, branding, customer satisfaction, and gross margin. Can the fine balance be achieved, or are these opposing forces fighting for the heartland of the business landscape?
There is certainly a remarkable shift in the way we look at CSR. The prevailing liberal wisdom used to dismiss the CSR programs as an unnecessary burden for the corporate money making machine: They bring increased expenditures and make you stray from the quest of maximizing profit. Some other theoreticians were prepared to accept the sacrifice in profits, but endorsed a cautious optimism towards the issue. Today, on the other hand, well-known and respected companies lead the pack, incorporating CSR into their core operations.
Now, we strive to debunk the common myths and do away with biases that impair the rational debate. The first step is to define the concept of CSR: It is a business action which advances a social good, and looks beyond the mere financial interest. The affirmative deed may benefit the society, environment, employees and other stakeholders. For example, McDonald’s is renowned for its sustainable chain practices, corporate philanthropy, and consumer wellbeing. Of course, many other enterprises have contributed a significant increase in the number of CSR initiatives.
It is evident that a strong effort is made in order to enhance the responsibilities of corporations across the globe, and tie their aspirations to the common interest. This is partly the result of the public backlash after some unethical procedures and scandals were brought to light. Even corporate giants were under strong pressure to adopt CSR measures and mend tarnished reputations. One of the outcomes was a rapid increase in charitable foundations, although corporate philanthropy is still hindered on many fronts.
Since a bulk of organizations across all industry sectors embraced innovative green programs, the progress has been made in the area of environmental awareness as well. This proves that the CSR practices have not only grown in popularity, but also evolved into balanced, multi-dimensional strategies. However, without taking the corporate financial performance (CFP) into account, it is impossible to make a strong case for CSR. So, let us take a look at how CSR can add value and create profit.
The majority of theoretical and empirical studies make it clear that CSP and CFP have a positive relationship. There are some who dispute the findings and underline that the connection is disrupted by the host of intervening variables. Regardless, it has been found over and over again that aligning the social and financial goals is possible, and that stakeholders don’t have to worry about their needs being unmet. Namely, there’s much evidence to support the claim that customers want to pay a premium for products and services of a company which carries out CSR initiatives.
Furthermore, a positive public image goes a long way in spreading brand awareness and establishing meaningful connections with the customers. Take the example of the dazzling success of social issue ads that has demonstrated the appeal of social responsibility for customers. These socially-sensitive campaigns drive the customer loyalty and enable the organizations to harness profit from recurring purchases. That is why many economists assert that nowadays, CSR programs serve as powerful revenue generators.
Yet, others are concerned about possible setbacks in managing cash flows, due to CSR-related expenditures. Although this is true to some extent, there are many ways to avoid the negative impact. To tackle the money shortages and hurdles in financing operations, one can employ an invoice finance strategy that aims at supporting the CSR priorities. Getting the money sooner rather than later can make all the difference when you need to reconcile social mission with budgetary constraints. Thus, for a resourceful and prudent entrepreneur, CSR doesn’t pose a threat to optimal financial performance.
Numerous examples and studies have paved the way for CSR programs to gain traction, and we expect the trend to continue in high gear. After all, CSR has traveled a long way from being regarded as a redundant addition to being hailed as a critical business function of today. It pays off to be good, just remember that not all components of CSR are quantitative, and some benefits are virtually impossible to measure. At last, without proper marketing to spread the word around, the CSR initiatives can prove to be immaterial, and fly under the radar of stakeholders.