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European Scientific Journal May 2016 /SPECIAL/ edition ISSN: 1857 – 7881 (Print) e - ISSN 1857- 7431

Maximizing The Benefits Of Corporate Social

Responsibility. How Companies Can Derive Benefits
From Corporate Social Responsibility

Nora Michel
Stephen A. Buler
University of South Dacota

Abstract
Corporate Social Responsibility can be used as a business strategy by
firms to improve many different areas of their business. Research has shown
that, if implemented correctly, the benefits of CSR tend to outweigh the
costs.

Keywords: Corporate social responsibility, benefits

Introduction
Corporate Social Responsibility (CSR) has recently been receiving a
lot of attention by many companies looking to improve their businesses.
There have been countless studies conducted to determine the costs and
benefits of CSR, including Lin, Yang, and Liou’s 2009 study of businesses
in Taiwan and research conducted by Porter and Kramer (2006). Even with
this information, some companies are hesitant to fully commit to CSR
initiatives. These companies could be missing out on many opportunities,
such as increased profitability, competitive advantage, and various long-term
benefits.
Most companies are continually searching for ways to improve all
aspects of their business. This can include profitability, competitive
advantage, employee satisfaction, company reputation, and many other
facets. There are many ways that each of these things can be individually
improved but it is sometimes difficult for companies to improve one area
without harming another. For instance, if a company tries to increase
profitability by cutting corners and decreasing quality, their reputation will
most likely suffer. By putting some time and effort into CSR, firms can
expect their businesses to improve.
It can be very problematic for a company to focus on improving
certain areas of their business while not taking into consideration the

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consequences there could be to other areas of business. Companies need to

look at the big picture in order to become successful although this can be
difficult. There are only a few strategies that a company could implement
that may be able to address most or all facets of their business.
Although the idea of Corporate Social Responsibility has been
around for decades, it has been recently been gaining popularity as a strategy
for management to use in order to improve the company as a whole By
properly implementing CSR, companies may be able to increase
profitability, competitive advantage, employee satisfaction and their
reputation. Many studies have shown that the benefits of engaging in
Corporate Social Responsibility tend to far outweigh the costs.
In recent years, Corporate Social Responsibility has gained
popularity among firms that are looking to improve many facets of their
business. This can include increasing profitability, creating better
competitive advantage, improving customer satisfaction, and improving
company reputation. Unfortunately, many firms still have not realized the
potential positive influence that CSR can have on their business. This can
either stem from improper implementation of initiatives or hesitation to fully
integrate CSR into their company because of costs.
Although many companies may believe that they are saving money
by not implementing CSR initiatives, the opposite may actually be true. If a
company’s competitors are engaged in CSR, they may have a better
reputation, higher employee satisfaction, and therefore higher profits.
Companies without CSR are not able to keep up with their competitirs and
can incur higher costs these costs include poor reputation among customers
which decreases revenue, higher costs due to employee turnover, and higher
environmental costs.
In order to remain competitive, it is becoming essential that
companies engage in CSR activities. By educating management of the
benefits versus the costs of Corporate Social Responsibility, they will be
better equipped to implement initiatives properly so that they will benefit the
company as a whole. CSR education should also include how to involve
employees so that they are aware of how their actions influence the
company, the community, and the environment. By giving management and
employees the tools to understand and engage in CSR, they are more likely
to succeed and in turn, improve the company as whole.

Definition of CSR
The World Business Council for Sustainable Development defines
Corporate Social Responsibility as “the continuing commitment by business
to contribute to economic development while improving the quality of life of
the workforce and their families as well as of the community and society at

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large” (Watts & Holme, 2000, p. 3). CSR has also been defined as a
business strategy or management approach in which the company takes all
stakeholders’ interests into account during the course of business (White,
2006). Although there is no single universally accepted definition, CSR
essentially means companies acting for the benefit of others, while also
improving their own business.

CSR as a Business Necessity

With all of the attention that CSR has garnered in recent years, it has
become something of a business necessity. All else being equal, many
customers will choose a company with CSR initiatives over one without
when choosing whom to give their business to. Similarly, potential
employees, especially recent college graduates, are looking to work for
companies that are involved in CSR and seem to care about society and the
environment. CSR may also attract more investors, which can result in
increased capital and potential growth. Those companies without CSR may
find that they are behind the curve and suffer from decreased competitive
advantage (Carroll & Shabana, 2010)..

Objections to CSR
There are many reasons why companies may be hesitant to
implement Corporate Social Responsibility into their firms. Some of the
major objections include cost, time and effort of implementation, and lack of
quantifiable benefits. It can be difficult for some companies to justify the
costs of CSR when they do not know how to properly quantify the gains.
Other issues arise when companies try to implement CSR initiatives, but do
not fully understand how to derive benefits from them.

Costs
One of the first reasons companies cite for not engaging in CSR is the
cost to do so. For many CSR activities, the initial costs can be seen by
management as too high to even think about taking on, before even looking
at potential benefits. Many companies hold onto the argument presented by
Milton Friedman (1962) that a company’s sole responsibility is to maximize
profits and that social issues should not be a concern of that company
(Carroll & Shabana, 2010). By looking at the problem from this view, the
costs associated with implementing CSR will only dilute profits for owners
and shareholders. Many companies also view the cost of time and training as
too extreme to make CSR activities worthwhile.

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Unrealized Potential Benefits

Many companies fail to fully understand the potential benefits that
could be generated by CSR. There has recently been a lot of research about
the relationship between CSR and profitability, but there have been varying
and inconclusive results (Lin, Yang, & Liou, 2009). Without having strong
evidence that CSR engagement can increase profitability, some businesses
are hesitant to begin such a venture. It can become quite complex when a
company tries to put a dollar value on the potential benefits derived from
CSR initiatives. This can lead to the view that since the benefits cannot
easily be monetized, they do not add to profitability. Companies trying to
value the benefits of CSR may need to look beyond dollar amount and take
into consideration non-monetary, intangible benefits. Some researchers have
found that by applying the Balanced Scorecard, companies can make
decisions “based upon values and metrics that can be designed to support
these long-term cognizant benefits” (Jena & Chowdhury, 2006).

Improper Implementation
Another reason why companies may be failing to see the benefits of
CSR is due to improper implementation. If a company has tried to
implement CSR initiatives in the past and has failed, they may be hesitant to
try again. When a company’s business objectives do not align with their
CSR activities, an increase in profitability is not likely and could even
become a liability (Lin, Yang, & Liou, 2009). Lack of training or ineffectual
training can also be a source of improper implementation. When managers
and employees do not understand the objectives of CSR activities, it is
difficult for them to align their actions towards those goals (Jena &
Chowdhury, 2006). Without proper execution, it could be hard for
companies to realize the potential benefits that CSR can provide.

Benefits of CSR
Companies that have effectively incorporated corporate social
responsibility into their firms have been able to reap many benefits.
Research has shown that CSR can have a positive effect on financial
performance, competitive advantage, employee satisfaction and retention,
and overall reputation (Carroll & Shabana, 2010). Other benefits of CSR can
include various positive long-term effects as well as the creation of
intangible assets. By aligning business objectives with CSR, companies can
expect many benefits, both monetary and non-monetary (White, 2006).
For instance, Dhaliwal, Li, Tsang and Yang find direct benefits to
Corporate Social Responsibility Reporting (2011). The find firms benefit
from a lower cost of equity capital if they introduce Corporate Social
Responsibility disclosures. The evidence is consistent with their predictions

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that a reduction in the cost of equity capital motivates firms to publish stand-
alone CSR reports. Furthermore, these firms are more likely to conduct
equity offerings in the two years following the introduction of CSR reports
(p. 61).

Financial Performance
Many companies have noted improved financial performance as a
direct result from implementing CSR. Although it can be hard to determine
the exact effect on financial performance, most researchers agree that the
effect is a positive one (Carroll & Shabana, 2010). In a study on multiple
Taiwanese companies, Lin, Yang & Liou 2009 found that socially
responsible activities can “have a strong economic rationale in certain
conditions of earning profit and serving society” (Lin, Yang, & Liou, 2009,
p. 62). Improved financial performance can result from the positive effect
that CSR has on efficiency within the company, which leads to decreased
operating costs (Nurn & Tan, 2010). Although there seems to be a positive
correlation between CSR and corporate financial performance, there are
some inconsistencies within the current research (Weber, 2008). With time,
more research will be done on this matter to determine the cause and effect
relationship.

Competitive Advantage, Employee Satisfaction, and Reputation

Corporate Social Responsibility also seems to have a positive effect
on competitive advantage, employee satisfaction and retention, and overall
company reputation. By using CSR-driven product or market development,
CSR can result in revenue increases from higher sales and market share
(Weber, 2008). This increase in revenue and market share can lead to an
increased competitive advantage over a company’s rivals. Research has
shown that CSR can have a positive effect on employee satisfaction and
retention (Weber, 2008). This can stem from better working environments,
increased motivation from participation in CSR activities, and overall
increased company reputation (Weber, 2008). CSR can also lead to better
employee recruitment as potential employees view the company more
favorably as a result of their socially responsible actions (Weber, 2008).
CSR has also been shown to improve reputation and legitimacy in the eyes
of customers, employees, and stakeholders (Carroll & Shabana, 2010). By
engaging in corporate social responsibility, companies can experience a
positive domino effect. With an improved reputation, more consumers will
choose their products or services over competitors. Employees will also be
more satisfied within their jobs, leading to improved efficiency and quality
of work. With an increased market share, the company will experience a

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greater competitive advantage. Many benefits that are derived from CSR are
inter-connected and can multiply these positive effects.

Long-term Benefits
Continued research has shown that CSR has provided many long-
term benefits (Carroll & Shabana, 2010). Many companies are beginning to
believe that it is in their best interest to be socially responsible because “if
business is to have a healthy climate in which to function in the future, it
must take actions now that will ensure its long-term viability” (Carroll &
Shabana, 2010, pp. 88-89). These long-term benefits can be both tangible
and intangible. Long-term tangible benefits can include reduced costs and
risks (Weber, 2008). By engaging in certain CSR activities, companies can
decrease their impact on the environment and therefore reduce the risk of
future environmental costs. Intangible benefits can include brand value,
reputation, and trust and capacity to innovate (White, 2006). Although hard
to quantify, intangibles can play a pivotal role in value creation (White,
2006). CSR can help companies achieve long-term sustainability through
capital formation in terms of financial, human, and natural resources. This
can also lead to long-term wealth creation. As Allen White stated, “the
continuous evolution and enhancement of non-financial capital is not only a
core purpose of business, but a prerequisite to its durability and vitality.”
(Business Brief: Intangibles and CSR, 2006, p. 8)

Deriving Benefits from CSR

There are many factors that can inhibit a company from reaping the
benefits of corporate social responsibility. If companies can overcome these
obstacles, they may be able to secure a future for themselves. Following are
a few ways that companies can ensure that their CSR activities are effective
and benefit the company. These include initial proper implementation;
communication, disclosure, and transparency; and employee education and
engagement. By putting in the time and effort to implement CSR correctly,
firms can obtain many of the benefits that were previously discussed.

Proper Implementation
When a firm first decides to implement one or more CSR activities, it
is most important that they properly implement them. Researchers agree that
in order for CSR implementation to be successful, the company’s business
objectives must coincide with the CSR activities.
In their CSR implementation process, organizations must redefine
their essential business objectives. These objectives must be aligned with the
strategy of the company and have to be coherent with the change in
organizational culture that CSR represents. The new attitude, forms and

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perspectives should be the result of a deep internal reflection that will

increase the core value of the firm (Souto, 2009).
If done correctly, CSR can be used as a business strategy, similar to
research and development, to benefit the company. Although this may
require significant initial costs, it should be considered a long-term
investment into the company’s future. As Porter and Kramer contend,
“organizations that make the right choices and build focused, proactive, and
integrated social initiatives in concert with their core strategies will
increasingly distance themselves from the pack” (Porter & Kramer, 2006, p.
13).

Communication and Disclosure

Communication is also a key factor in successful CSR
implementation. This involves communication with customers, employees,
and stakeholders. Some recent studies have shown that awareness of CSR
activities among internal and external stakeholders is usually low (Du,
Bhattacharya, & Sen, 2010). This can result in lost opportunities to reap
benefits that should be derived from strategic CSR activities. Another
challenge is to decrease stakeholder skepticism about a company’s CSR
engagements (Du, Bhattacharya, & Sen, 2010). Disclosure and transparency
can help to alleviate this skepticism. Two of the biggest questions that
companies must ask themselves are what and where to communicate about
their activities. This can require some time, research, and effort on the part
of management to determine the correct message to portray and how to do
so.

Employee Education and Engagement

The final factor that can help ensure a successful CSR venture is
employee education and engagement. Through engagement and learning in
CSR, firms can “develop new or better competencies, skills, and knowledge”
(Nurn & Tan, 2010, p. 363). Higher levels of organizational learning, such
as those competencies that are acquired internally through the CSR process,
can also lead to increased efficiency and organizational commitment by
employees (Nurn & Tan, 2010). By engaging and educating employees on
why and how the company is investing in CSR, the company can expect
benefits that include increased employee motivation, retention, and
satisfaction.

Conclusion
There are many potential benefits that companies can derive by
implementing CSR. This is not to be considered a fool-proof way for
companies to improve themselves, though. Companies must put in the time

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and effort to make sure that their business objectives align with their CSR
initiatives. It is an ongoing process that needs to be continually monitored
and adjusted based on the company and its environment. By doing this
efficiently and effectively, firms may be able to see improvements in many
different facets of their business that can lead to increased profitability and
market share, among many other benefits.

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Social Responsibility: A Review of Concepts, Research and Practice.
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