Michael Ledecky

Corporate social responsibility (CSR) encompasses all the business practices that companies pursue to advance charitable and activist goals that benefit their internal and external communities. Over the last decade, leading corporations have increasingly invested in their CSR activities. Fortune 500 companies spend about $20 billion specifically on CSR initiatives per year. 

Business leaders agree that corporate social responsibility is a moral obligation or simply “the right thing to do.” But there are other reasons that make CSR essential. Benefits of corporate social responsibility include enhanced reputation, better talent recruitment and retention, improved innovation, customer loyalty, and capital access. Above all, CSR positions a company for success by orienting its purpose. 

Reputation, Brand, and Customer Loyalty

Warren Buffet famously said, “It takes 20 years to build a reputation and five minutes to ruin it.” He also once wrote to managers of his Berkshire Hathaway subsidiaries, “We can afford to lose money — even a lot of money. But we can’t afford to lose reputation — even a shred of reputation.”

It is not a coincidence that the Oracle of Omaha is among the wealthiest people in the world. Reputation is not an asset that shows up on a company’s balance sheet, but it has real impacts. 

Community investment allows a company to build its reputation with customers, government officials, and other stakeholders. Enhanced reputation can boost a company’s bottom line in meaningful ways. 

Consumers no longer see corporate social responsibility as a nice-to-have — many customers insist on it. In a 2019 survey by Clutch, 71% of consumers said that it is important for a business to take a stance on social movements. 68% of consumers considered social responsibility among the most important attributes of a company, while only 44% of consumers cited price as the most-important attribute. 

In another survey, 76% of consumers said that community engagement is important to a company’s reputation. 66% of respondents said that companies have an obligation to invest in the future workforce through education.

Meanwhile, companies can realize CSR’s benefits through improved government relations. A revealing 2011 study of publicly-traded gold mines showed that positive relationships with local governments and NGOs were worth two times the price of mined gold. Firms with negative local government relations paid unforeseen costs, such as longer wait times for permits.

Recruiting and Empowering Talent

Corporate social responsibility can serve as a key pillar for employee recruitment and retention. Cause-motivated talent are more likely to join an organization, stay longer, and achieve more if they perceive the organization as socially responsible. In these ways, social responsibility can help companies lower recruiting and retraining costs. 

These observations hold particularly true for the largest and fastest-growing segments of the workforce. A 2016 employee engagement study shows that  76% of millennials consider a company’s social and environmental commitments before deciding where to work. 64% of millennials say that they will not accept a job with an employer that does not have strong corporate responsibility practices.

Corporate social responsibility also empowers current employees. Empirical studies have supported the observation that CSR efforts have a positive effect on employee engagement.   

The most effective CSR programs actively include employees as part of the solution. Employees derive meaning from their work when they can use work-related skills and talents that benefit causes they care about. Companies can engage employee resource groups to develop CSR initiatives that employees find meaningful. 

The benefits of an engaged and satisfied workforce are readily apparent. Companies regularly included on Fortune’s Best Places to Work List outperform competitors 2% to 4%. This is a significant difference: the S&P 500 has grown roughly 7% over the last 10 years.

Orienting Purpose for the Long Term

Improved brand reputation and employee engagement are symptoms of a greater benefit of corporate social responsibility: CSR orients a company’s purpose for the long term. 

A robust CSR program allows a company to define what it stands for and why it does business. CSR reinforces a company’s values, allowing the company to better serve all stakeholders, from customers and employees to suppliers and shareholders.

Values-driven companies avoid myopic decision-making. A well-defined corporate purpose serves as guardrails that prevent leaders from pursuing short-term gains that diminish stakeholder value.

A 2017 McKinsey study found that companies managed for the long term consistently outperform their peers. Companies focused on the long term had 36% greater earnings, 47% higher revenues, and an increased market capitalization of $7 billion compared to companies focused on the short term. 

Another study identified 28 publicly-traded companies that create long-term value for stakeholders. These companies outperformed the S&P 500 by a factor of 8 to 1 between 1996 and 2006.

The Big Picture

At the end of the day, companies should pursue corporate social responsibility because it is the right thing to do. If your employees or other stakeholders perceive ulterior motives, your company will struggle to implement a CSR program that generates value for everybody

On the other hand, if your company prioritizes impact over optics, your company will realize the full benefits of corporate social responsibility. These benefits include reputation and brand loyalty, talent acquisition and development, and long-term orientation of purpose.

Maximize Your CSR Impact

To make implementing your CSR initiatives easier, we put together our Investing in Impact white paper. This definitive guide to CSR strategy shares best practices and trends that will help ensure your success in making an impact.