Does a Strong Sense of External Community Correlate With Exceptional Company Performance?

¶ … strong sense of external community correlate with exceptional company performance?

Large multinationals are well-known for their involvement in supporting the community they work in and also for their support for sports, humanitarian and social causes. The profitability and high visibility of these companies in external community activities certainly makes one believe that external community involvement and exceptional company performance go hand in hand.

A closer analysis of the community relation exercise shows that in many cases such involvement is an extension of business activities. The multi-billion dollar profits, of course give the exceptional performers the ability to buy the goodwill of political parties, news media, and the community in general to look after their present and future interests.

Whatever the motives, external community involvement shows that the company is performing well and has greater ambitions. External community involvement is also a result of increased social awareness and there are cases where profitability of good performers allows them to be generous for purely humanitarian reasons.

Introduction

Multinational companies take pride in advertising how they are looking after the environment in fields such as offshore exploration. Steps being taken by a mining company to restore the site to its original natural beauty are often the subjects of powerful documentaries telecast on international channels. This public information campaign is necessary to enhance the companies' reputation. In fact, interaction with the community influences companies' success [Pawlowski, 2005].

The Corporate Social Responsibility has always been not strongly felt. Not so long ago the same multinational, and local companies too, were involved in raping the resources and the environment to a point beyond redemption. Increased awareness, regulatory restrictions and global media coverage have done a great deal in activities that were previously not considered the responsibility of the corporate sector. Now communities, non-governmental activist groups and governments expect companies to follow consistent standards throughout the world. Donnely et al. [Donnely et al., 2000] report the public interest agendas of companies in two countries and compare how the internal structures of the companies' are constituted by particular political understandings of the public interest. Studies of this kind show the corporate sector that general public monitors their involvement in the community.

Importers of goods from developing countries are demanding the new standards for social accountability. It is no longer acceptable to use child labor in carpet and sport-manufacturing industries in Pakistan. The carpet-weaving companies have had to involve themselves in community projects such as supporting local education to satisfy foreign buyer. Thus, the business requirements of local companies are making it necessary to open schools for workers, pay decent wages to female employees and follow environmental standards, which do not harm the community and workers.

The large multinationals are also expected to play a positive role in the community they are working in. The high performing businesses are expected to measure up to higher standards. Huselid's study [Huselid, 1995] confirms that investment in high performance practices results in lower employee turnover, greater productivity and better corporate financial performance.

. The benefits from the community-related activities directly impact the company business. They allow the companies to expand into new markets, improve their brand image and increase goodwill of the communities. Community activities also give companies' access to more skilled and better-educated labor and help to retain employees [Global Community Investment, 2005]. All of these activities directly impact the profitability of a company and help the local community help itself. [Lesser & Storck, 2001] found that in some companies communities are recognized as a valuable asset to their organizations.

Australian mining companies found out that it was to their advantage to work with the aboriginal community to exploit the mineral resources of the Reserves. Cusack, the CEO of Rio Tinto, Australia, recognized that their operations in aboriginal land could only continue to operate with the Aboriginal community's support and sanction [CEO Forum, 2005]. It was a very clear business imperative for them to support the local community to operate in that part of Australia. Rio Tinto's positive policies in one aboriginal reserve, of course, made it more acceptable to other aboriginal communities and helped it expand to other mining sites. It is good business for larger companies to have the community on their side!

In order to look after their interests, businesses, do not just support local development projects. They also like to have legislatures on their side and support powerful individuals as well as political parties to have a sympathetic economic climate to operate in. They buy local leaders to obtain peaceful working environment around their work location too. It helps their business.

Support of government functionaries helps companies in gaining business. Recently, when an African tribe was relocated from their ancestral land in the name of progress, the government provided civic facilities, schools and other amenities for the relocated tribe. The nomadic people were not used to this lifestyle and vehemently opposed the move. An international media investigation revealed that the tribe was being forced to move to allocate this area for mining to an international company. The project had to be shelved because of this negative publicity.

This kind of negative publicity spoils the image of large multinational companies. Examples of this negative coverage include the environmental contamination case against Norsk Hydro, marine ecology case against Shell, sexual harassment case against Mitsubishi Motors, genetically modified case against Monsanto and child labor case against Nike etc. [Frozley, 2003].

The 'good' businesses are now expected to show Corporate Social responsibility, which means that the companies are expected to show continuing commitment to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. Corporate citizenship is now considered the business strategy that shapes the values underpinning a company's mission and the choices made each day by its executives, managers and employees as they engage with society [Mirvis et al., 2005].

Community Consciousness & Successful Businesses

When we correlate the corporate involvement of the companies with involvement in external community related work, we will always find that companies that are doing exceptionally well have the strongest sense of external community involvement. This is definitely true for the capitalist economy where the companies find that it is good for business to be seen to be working for the community. The upcoming or non-performing companies are often too involved in survival of the business. They neither have the resources to invest in community projects, nor any immediate interest in them. Companies involved in the business of survival understandably only do enough to meet the regulatory requirement and stay on the right side of the law. If the regulations demand that the company installs water treatment or air cleaning systems to protect the community, they will meet this requirement. To be fair to these small or non-profitable companies, that is exactly what the business giants were doing when they were in the development stages. Even until the 1970s, the multinational giants knowingly shifted their plants to third world countries, when they found that environmental regulations in their own countries couldn't be circumvented. They could easily operate in third world countries with corrupt governments and non-existent environmental regulations [Corruption & Bribery, 2005]. A strong sense of external community would have prevented them from doing so.

In some cases, these businesses willingly closed down their operations in developed countries without any regard to the unemployment it would create in those communities and shifted their operations to third world countries of East Asia. For higher profits they tolerated unscrupulous business partners, sweatshop production facilities and showed hardly any concern for their new work community. It is clear that concern for the external community has to make good business sense either in the near-term or at least some time in the future.

Socialist Commune System

It is not the intention to compare the various economic systems practiced in the world, but in order to see what motivates any business to develop a strong sense of external community, we perhaps need to study the commune system of a socialist economy. The communes were no international business giants; we perhaps would not be able to name one commune that operated in a social system with community as its focus [China, 2005]. These multi-activity organizations operated a variety of businesses and ploughed the profits into the community by looking after all of the needs of the external community. They ran hospitals, schools, subsidized shops and a social security system: basically, the entire network required by the communes population. The commune's involvement in the external community was a matter of government policy, which wanted to promote a certain philosophy - Communism. The communes had to be profitable to be able to expand but they were certainly no financial giants.

A cooperative system of business has often been promoted in third world countries to better serve the community. It favored the community in which the system operated but due to corruption and inefficiencies, the system failed miserably. A sense of strong community involvement is therefore not the domain of exceptionally performing companies only. The economic system and government regulations may also influence the participation of the business sector in external communities.

Reasons for Active Community Participation of Successful Companies

We do not need to be too critical of large business giants and discredit their participation in the external community activities. Exceptional business success of any company needs to be appreciated. Successful companies contribute to the national economies. Corporate tax being paid by successful businesses helps keep the economy afloat. Successful businesses are required to support any community. They generate both direct and indirect employment in the area and just by their presence in an area they are serving the community.

Human beings in general have become more conscious of their social responsibilities. Philanthropists have always served the communities they live in and now in the global sense serve the global community. When Ted Turner [Ted Turner's Donation, 2005] of Turner Broadcasting donated $1 billion in 1997 to the United Nations, his contribution was the largest ever contribution by an individual to the United Nations. This amount was meant for UNICEF children related projects. Publicity of such events motivates others to do similar noble deeds for the humanity. Even those who do not know anything about Mr. Turner will acknowledge that he must be very successful to contribute such a large amount to a noble international cause. When someone spends on community projects, which are not regulatory obligation of that person or company, we equate this expenditure to a sign of affluence or success.

The community related projects supported by successful companies enhance their product image. Pepsi Cola [Pepsi Pads Up, 2003] supports cricket in many a cricket playing nations. The test and one day games give the Company television exposure for several weeks. The sporting community benefits from this sponsorship and the TV advertising has made Pepsi Cola the number one drink in India and Pakistan.

When cigarette advertising was banned on television, many tobacco companies bypassed the restriction by sponsoring a variety of sports. The motorboat speed racing, Formula-1 Grand Prix and Cricket were sponsored by cigarette brands such as Marlboro and Wills [Effect on Sports, 1998]. This kind of support for the 'sports' also shows the principal motive behind the community support and sponsorship of any kind is business.

For successful businesses, sponsorship and support for community project often serves the business interest. If a company is located in a small town and has difficulty in finding educated manpower, support for quality schools in the area would not only serve the community but it will also ensure that the company will have educated manpower available for its operations. Similarly technical schools provide technically trained manpower to the community and the industry.

Involvement at a local level creates positive reaction from the community. It helps the business operators understand the local social customs and avoids misunderstandings that can spoil the work and community environment.

The corporate social responsibility requires that the businesses do not merely donate a small amount to local charities every year but it requires them to be ethical in all their transactions. It is a common practice in the third world countries to hire temporary labor and relieve them of their jobs before they complete the probationary period. These workers are often rehired after a break of a month or two. This allows the company to keep non-unionized labor for production activities, save on social security and employee benefits such as provident fund and pensions. This practice is widely used even by the highly profitable companies. It would be unfair to expect that the community would have a very high respect for companies involved in this kind of business practices. They will of course continue to present themselves for rehiring due to severe unemployment in most third world countries. The social corporate responsibility requires humane treatment of workers and the environment of the area in which the business operates.