Corporate Social Responsibility Comes In Threes
A lot of things in life are better in threes; Stooges, for instance. Or, coins in a fountain. Or, little pigs. Or, Bee Gees. Or, Great Pyramids at Giza. Or laws of motion.
it’s becoming increasingly clear that when it comes to corporate social responsibility the great brands do three things lesser brands don’t: they treat their employees well/act ethically;
they have a strong commitment to greening the world; and, they engage in corporate philanthropy and cause marketing.
Time was when companies that face the consumer could pick one of the three and have a perfectly defensible position. But since 2008, give or take, consumer expectations of what constitutes meaningful corporate social responsibility have changed. By which I mean, they’ve gotten a good deal stiffer.
Part of this is due to outstanding examples of corporate social responsibility like Starbucks, which has had the effect of altering consumer expectations and redefining terms. Starbucks pays its employees fairly and offers full health care benefits, even to part-timers. It sells fair-trade coffee to benefit its farmer-suppliers. It works to lessen its environmental footprint. And it does smart cause marketing and corporate philanthropy.
Like no other large company, Starbucks practices what I call the “holy trinity” of corporate social responsibility.
Starbucks, along with Coke, Amazon, Fedex, Apple, Target, Ford, Nike, Southwest and Nordstrom all made the April 2012 cover of Entrepreneur magazine as the “10 most trusted brands” today.
Entrepreneur’s list represents, for the most part, companies that actively engage in the holy trinity of corporate social responsibility.
Coke, Target, Ford, Fedex, and Nike practice all three elements of corporate social responsibility to varying degrees.
Apple does cause marketing with (RED) and is getting greener. But the recent and ongoing worker suicides at factories where Apple products are made are both a human tragedy and a corporate black eye.
Neither Nordstrom nor Southwest are particularly renowned for being green or engaging in cause marketing. But both have celebrated internal cultures.
Amazon is, I think, the exception that proves the rule.
Certainly Starbucks has been riding high these last few years in terms of cause marketing. In November 2011 the company launched a well-received red, white and blue wristband called “Indivisible” that generates funds to be loaned to small businesses nationwide.
Since Howard Schultz returned to the top leadership post at Starbucks in 2008 after an eight-year hiatus, the company’s financial results rebounded impressively. After a restructuring in 2009, revenue, same-store sales, and dollars per transaction were up in 2010 and 2011 at company-owned stores. The stock currently trades at around $55 per share, up from less than $10 in 2009.
Fortune magazine characterized Schultz as having the conviction of a preacher
when he was asked about Starbuck’s approach to corporate social responsibility. “Companies should not have a singular view of profitability,” Fortune quoted him as saying.
“There needs to be a balance between commerce and social responsibility… the companies that are authentic about it will wind up as the companies that make more money.”
Research confirms Schultz’s assertion; companies that interact directly with consumers tend to make more money in practicing corporate social responsibility than those that don’t.
In a study called “A Model for Corporate Philanthropy,” the authors found that there was a positive correlation between profitability and corporate philanthropy in industries where there’s plenty of competition and advertising.
In low-advertising industries -- for instance, B2B services or defense contractors -- the correlation was negative; meaning that financial results actually declined for such companies that engaged in corporate social responsibility.
The study’s authors, Raymond Fisman and Geoffrey Heal of Columbia Business School and Vinay Nair at Wharton Business School, came to their conclusions after comparing financial data for publicly held companies in the Compustat database against a second database of positive social actions with datapoints related to a company’s environment, social and governance records.
Fisman, Heal and Nair hypothesize that corporate social responsibility is a kind of signaling device for consumers that the company and its products can be trusted.
I think it’s an apt theory. While it’s true that companies have never been bigger, it’s also true that consumers have never had more power. Trust is what hangs in the balance.
And companies that practice well the holy trinity of corporate social responsibility demonstrate that they can be trusted.