Corporate Social Responsibility and Company Performance

Introduction

Multinational companies take pride in advertising how they are protecting the environment in fields such as offshore exploration. Steps taken by a mining company to restore a site to its original natural beauty are often the subjects of powerful documentaries broadcast on international channels. This public information campaign is necessary to enhance a company's reputation. Indeed, interaction with the community directly influences a company's success (Pawlowski, 2005).

Corporate Social Responsibility (CSR) has not always been strongly felt. Not so long ago, the same multinational — and local — companies were involved in exploiting resources and the environment to a point beyond redemption. Increased awareness, regulatory restrictions, and global media coverage have done a great deal to change activities that were previously not considered the responsibility of the corporate sector. Communities, non-governmental activist groups, and governments now expect companies to follow consistent standards throughout the world. Donnelly et al. (2000) report on the public-interest agendas of companies in two countries and compare how the internal structures of those companies are shaped by particular political understandings of the public interest. Studies of this kind demonstrate to the corporate sector that the general public monitors their involvement in the community.

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

Large multinationals are also expected to play a positive role in the communities in which they operate. High-performing businesses are held to higher standards. Huselid's study (1995) confirms that investment in high-performance practices results in lower employee turnover, greater productivity, and better corporate financial performance.

The benefits from community-related activities directly impact a company's business. They allow companies to expand into new markets, improve their brand image, and increase goodwill within 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 outcomes directly affect profitability while helping the local community develop. Lesser and Storck (2001) found that in some companies, communities of practice are recognized as a valuable organizational asset.

Australian mining companies discovered that it was to their advantage to work with Aboriginal communities to exploit the mineral resources of their reserves. The CEO of Rio Tinto Australia recognized that operations on Aboriginal land could only continue with the Aboriginal community's support and consent (CEO Forum, 2005). It was a clear business imperative for the company to support the local community in order to operate in that region. Rio Tinto's positive policies in one Aboriginal reserve made it more acceptable to other Aboriginal communities and helped it expand to additional mining sites. It is simply good business for larger companies to have the community on their side.

In order to protect their interests, businesses do not merely support local development projects. They also seek to have legislators on their side, supporting powerful individuals and political parties to maintain a sympathetic economic climate. Cultivating local leaders to secure a peaceful working environment around their operations is another common strategy — and it helps their business.

Support for government functionaries can help companies win business. In one widely reported case, 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 people. The nomadic community, unaccustomed to this lifestyle, vehemently opposed the move. An international media investigation revealed that the tribe had been forced to relocate in order to allocate the area for mining by an international company. The project was ultimately shelved due to negative publicity.

This kind of negative publicity damages the image of large multinational companies. Examples of such damaging coverage include the environmental contamination case against Norsk Hydro, the marine ecology case against Shell, the sexual harassment case against Mitsubishi Motors, the genetically modified organisms case against Monsanto, and the child labor case against Nike (Frozley, 2003).

Responsible businesses are now expected to demonstrate corporate social responsibility — a continuing commitment to behave ethically and contribute to economic development while improving the quality of life of the workforce, their families, and the local community and society at large. Corporate citizenship is increasingly considered a business strategy that shapes the values underpinning a company's mission and the choices made daily by its executives, managers, and employees as they engage with society (Mirvis et al., 2005).

Community Consciousness and Successful Businesses

When corporate involvement in external community work is examined, it becomes clear that companies performing exceptionally well tend to have the strongest sense of external community engagement. This is especially true in capitalist economies, where being seen to work for the community is understood to be good for business. Struggling or non-performing companies are typically too absorbed in mere survival. They lack the resources to invest in community projects and have no immediate incentive to do so. Companies focused on survival do only enough to meet regulatory requirements and stay on the right side of the law. If regulations require the installation of water treatment or air filtration systems to protect the community, they will meet that requirement — but no more.

To be fair to these small or unprofitable companies, this is precisely what today's business giants did during their own development stages. Even into the 1970s, multinational giants knowingly relocated their plants to developing countries when they found that environmental regulations in their home countries could no longer be circumvented. They could more easily operate in countries with corrupt governments and minimal environmental regulation (Corruption and Bribery, 2005). A strong sense of external community responsibility would have prevented such moves.

In some cases, these businesses willingly closed operations in developed countries with no regard for the unemployment created in those communities, shifting production to East Asia for higher profits. They tolerated unscrupulous business partners, sweatshop production facilities, and showed little concern for their new workforce communities. It is clear that concern for the external community must make good business sense — either in the near term or at some point in the future — before companies will embrace it voluntarily.