More and more companies are recognizing that a formal commitment corporate social responsibility is now a business imperative. But as more companies embrace the need for CSR, many are finding a frustrating absence of standardized measures—criteria on which to benchmark against competitors and measure the business impact of their efforts.
To address that frustration, Edelman Public Relations Worldwide—one of several major public relations firms looking to make a mark in the CSR arena—partnered with the U.K.’s Cranfield School of Management to create “an empirically based framework to help businesses link their CSR programs to business and social outcomes.”
Says Steven Voien, executive vice president and director U.S. operations for Edelman’s First&42nd consulting subsidiary, “Companies have poured a lot of resources into CSR, but it isn’t very good at measuring results, because there is no agreed upon framework on how to do so. The field is at a crossroads, because unless it can find a way to demonstrate ROI companies may lose interest.”
Companies are frustrated, Voein says, because they have been overly focused on process and results, and haven’t taken the time to figure out who they are responsible to, and what they are responsible for. In other words, they’ve plunged into CSR initiatives without thinking carefully about their audiences and areas of responsibility.
As a result, there is dissatisfaction about measurement and reporting both within business and the activist communities, with both sides unsure about the ultimate impact of their current CSR efforts upon business performance and social-environmental outcomes.
The new report, Corporate Social Responsibility at the Crossroads, written and researched by Stan Maklan and Professor Simon Knox of Cranfield School of Management, says companies must take a larger look at their efforts by asking three fundamental questions: For what are we responsible? To whom are we responsible? What is the case for change: how can we link CSR to business performance?
According to the authors, “The issues behind this dissatisfaction will not disappear with time, nore will ‘best practice’ emerge automatically…. Failure to answer these questions, and to develop a comprehensive framework approach based on the answers, may result in CSR becoming an expensive exercise in compliance with minimal impact.”
Commonly held views about the business case for CSR are incomplete and “at times highly assumptive,” say the authors. Based on both literature and field research, the report proposes a framework that links CSR to business outcomes in a clear, structured manner: establishing a pathway from CSR, through changes in attitudes and stakeholder behaviour, to business and social outcomes.
The authors studied business case literature and management models dealing with financial theory, brand marketing, corporate reputation, customer relationship management and strategy and undertook in-depth interviews with senior-level CSR managers at six major multinationals that are seen as CSR leaders in their industries.
“The results show that companies feel responsible for more than just profit and to more stakeholders than shareholders alone,” they say. “But that they are uncertain how to define the extent of that responsibility and set priorities among stakeholders. As these unresolved issues cascade, they create practical CSR reporting problems by making it difficult for companies to know what is material and to whom it is material.”
Encouragingly, the study found “near universal agreement that a business is responsible for more than just profit and to more stakeholders than shareholders alone. But the consensus is not clear as to the extent of that responsibility and the priorities between stakeholders.” Respondents also agreed that CSR reporting had helped them improve management processes and information gathering throughout their companies.
There was also widespread agreement that a “one size fits all” approach to measuring CSR—an approach that relies on metrics defined and measured by third parties—was inappropriate. Companies “will listen to the points of view of NGOs and social auditors, but all reserve the right to report on what they feel is most relevant to their situation,” say Knox and Maklan.
“All are frustrated with the proliferation of social and environmental assessments, what one respondent called ‘questionnaire fatigue.’ CSR and financial executives feel inundated with requests for information from NGOs and ethical investment analysts, each addressing similar issues with different information demands.”
The survey also found some confusion about which stakeholder groups to emphasize. While most companies were able to identify their most important stakeholder group, they had not prioritized the others.
Says Voien, “The failure to think carefully about and prioritize stakeholders makes it difficult for companies to decide what information is material when they communicate to stakeholders. This is particularly evident in social-environmental reports, which are becoming longer but not better.”
To address these concerns, Knox and Maklan suggest three important elements of a CSR framework:
· Study stakeholder behavior as well as attitude. Companies “develop CSR programs consistent with their vision and values, manage it through employees and corporate branding, and measure stakeholder perceptions. However, this is not carried through to robust analysis of shareholders’ behavior and business outcomes,” say the authors. Adds Voien, “CSR needs to be measured by business outcomes; it’s currently practiced more as a protective or reactive function.”
· Integrate risk management into business activities. Companies need to identify potential risks and “allocate a potential impact to the business for each event…. Summing up the risks as a weighted average of events and outcomes provides some measure of the total risk facing the company.”
· Conduct more formal assessment of social outcomes. “While vision and values drive policy making… social outcomes need to have tight objectives as would any area of policy.”
Says Knox, “The prize is worth the effort. CSR at the Crossroads shows that CSR practitioners who are trying to tackle this agenda have learned that CSR is really about creating a breakthrough in business performance, albeit defined more in the context of long term, sustainable performance.