Corporate Social Responsibility and Company Performance

Introduction

Large multinationals are well known for their involvement in supporting the communities they operate in and for their backing of sports, humanitarian, and social causes. The profitability and high visibility of these companies in external community activities certainly creates the impression that external community involvement and exceptional company performance go hand in hand.

A closer analysis of community relations, however, shows that in many cases such involvement is an extension of business activity. The multi-billion dollar profits of exceptional performers give them the ability to cultivate the goodwill of political parties, news media, and the community in general — all in service of their present and future interests.

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

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.

Community Consciousness and Successful Businesses

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).

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.