Corporates have in the past focused on a single bottom line of maximizing profits, with some classical economists arguing that a company’s sole responsibility is to increase value for its stakeholders. But the trend is changing, companies are now incorporating social responsibility in their practice. Shifting their concern from a single bottom line for investment returns to a triple bottom- line– of creating identity in the -3Ps- Profit, Planet and People.
But does corporate social responsibility increase corporate financial performance?
The debate on the relationship between corporate social responsibility(CSR) and corporate financial performance(CFP) is not new. Some critics have claimed that CSR is a waste of stakeholders resources, and the key objective of companies especially in the private sector should be able to grow profits. On the other hand, the proponents argue that as businesses achieve their objective- earning profits- they should not have negative effects on society and the environment. In fact, they are for the theory that engaging in CSR increases a company’s financial performance in the long run.
The equivocal status of the relationship has led to the various analysis of the relationship, where some studies detect a positive relationship, others negative, while others- no or uneven curvilinear relationships. However, despite the diversity, a positive relationship is the most common.
The financial performance of companies is quantifiable in two angles; short term returns and the long term returns. Both give important worth to the firm, as help the company to remain relevant in the business sector.
Socially responsible firms do all things in favor of its both market and non-market stakeholders. In this case, the company will not only fulfill its core business objectives but also incorporate society wellbeing into their strategy.
CRS has the incredible effect of generating finance to the firm, as it influences the company’s reputation in no- markets; the general public, NGOs and the mass media. By engaging its welfare activities-providing aids to needy persons, special donations to non-trading concerns, customer support, providing good after-sales services- a company not only augment goodwill but may also bring favorable results in financial statements. For instance, companies that engage in good social responsibility policies get more and better media coverage. Gathering good press through good works is considered one of the best ways to advertise the company.
CSR influence customers’ perceptions of a product or services offered. This ultimately affects company performance through the links in the CSR-Performance Chain. Customers are becoming more aware of local, and global issues and their buying decisions are now greatly influenced by these concerns. The company’s level of CSR thus need to lie on or above customers’ baseline (i.e. minimal acceptable level) to evade boycotts. Boycotts negatively affect company performance. In the event that a firm does not lead its operations morally and does not satisfy its social obligation, it forces the expense of the firm.
Social responsibility increases a company’s attractiveness to investors. Potential investors use CSR as criteria in deciding whether to invest in a company or not. CSR also inspires confidence in the company’s stock prices.
An analysis carried out by Johan Classon and Johan Dahlström indicated that customers are ready to boycott companies that do not behave socially responsible.
Success in creating a business that makes a real difference comes in on how best a company manages to keep key staff without losing them to competitors. Study shows a company’s commitment CRS to reduce firm employee turnover up to 50%. Companies that engage in CSR are perceived as more attractive employers than those with lower CSR. Today’s talent is also choosing purpose over perks. The millennials are now seeking to find a business that aligns their views and offers them a platform to create a difference.
Social responsibility helps build on the employees’ morale and this in return does the wonder- miracle of increasing their productivity.
Corporate Social Responsibility is quickly becoming a crucial part of any company’s long-term strategy. An effective CSR initiative enriches the community and contributes to improving the company’s culture, Keep the company abreast in the war for talent, creating a good name and building on brand value for the company, hence eventually boosting their financial performance and longevity in the business market.