December 20, 2014

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Opening the Black Box: Why Assessing CSR Creates Drivers for CSR

To boost trust among consumers and investors, companies need to assess their CSR programs first.

Dorothee_baumann-pauly

By Dorothée Baumann-Pauly

Part of the Managing Corporate Legitimacy series

The development of an assessment tool for CSR can be fueled by different motivations. In this post, I examine why assessing CSR is critical for driving CSR. Some of the reasons for assessing CSR also motivated my own study.

Assessment Rationale One: To Establish The Status Quo

To date, we have no comprehensive overview of what the discourse and practice of CSR has achieved.

A massive research effort in the European Union recently made headlines with disappointing findings. The study, entitled CSR Impact, concluded that CSR has not made any significant difference for the EU economy, society and environment. Sixteen research centers at universities and think tanks assessed over 5,300 small- and medium-size enterprises and over 200 large firms on a budget ofImpact_logo 2.7 million Euros.

After over a decade of upbeat CSR talk, the European Commission’s interest in measuring the impact of CSR for the EU is understandable. Yet, drawing conclusions from the findings of this study is difficult. For instance, do these findings suggest that CSR is dead and we should give up on the idea of integrating corporations in the solution of global problems? Are there viable alternatives?

Is CSR Dead? Or Do We Need Better Measures?

Before throwing the baby out with the bathwater, we need to better understand why the impact of CSR has been non-measurable in the EU study. After all, many factors could explain these findings. They may simply reflect that the concept of CSR is weakly defined and is hence hard to measure; the study’s research methodology could have flaws; measuring impact of CSR may still be premature.

To be able to interpret such studies, we first need to have a better understanding of what corporations are actually doing in the context of CSR. How have business models and organizational structures and procedures changed as a result of CSR? What are the typical implementation patterns of companies committed to CSR?

Assessment Rationale Two: To Name And Shame. Or To Learn

Developing an assessment tool that enables us to look behind the façade of corporate activities that are labeled CSR may reveal that much of what is called CSR is not really CSR. At best, some of these so-called CSR activities are well-intended philanthropy. At worst, they are strategic greenwashing.

The assessment tool that I developed in the context of my study, however, is built on an organizational learning model that takes into account that the organizational implementation of CSR evolves and advances over time. Based on empirical observations, corporations typically go through five stages of development before they fully embrace their role in society.

Five Stages of Development of Corporate CSR

  • In the initial defensive stage, corporations refuse to accept any responsibility beyond generating profits.
  • In the compliance stage, corporations accept that they have to ensure that they adhere to laws and regulations in all their business operations.
  • In the managerial stage, corporations start addressing societal concerns through their core business processes.
  • In the strategic stage, corporations realize that doing CSR can be a factor that makes their business more competitive and sustainable.
  • In the final civil stage of development, corporations have fully established organizational structures and procedures that ensure a systematic implementation of their commitments. They also initiate and drive collective action to change industry standards and share good practices.

An assessment based on such an organizational learning model has a better rate of showing whether measurementa corporation is a beginner or advanced in CSR strategy. Its purpose is not to call out companies but to show there is a path to further improvements.

Assessment Rationale Three: To Analyze And Communicate Progress

CSR costs time and money. Assessing CSR programs in detail generates insights for corporations that highlight organizational strengths and areas that need further attention.

In my empirical research I was surprised to learn that to date very few companies have designed metrics and benchmarks that would allow measuring the progress and impact of the efforts that go into CSR activities. Even fewer companies have transparent (self-) assessment methodologies.

Without such data there is no evidence of systematic progress – equally useful for corporations and critical stakeholders – and any communication about CSR will lack credibility. The findings provide a basis for dialogue and engagement. Corporations can shift focus to areas that are least developed and/or most relevant for stakeholders; stakeholders can hold corporations accountable.

Assessment Rationale Four: To Empower Consumers And Investors

Consumers and investors play a critical role in driving CSR. Both have the power to reward and punish companies.

To date, public information about CSR performance is scattered, incomprehensive, and unreliable. For example, popular company rankings like the Dow Jones Sustainability Index largely rely on company-own data. As a result, these ratings measure how well the company communicates about their CSR commitment but not how well it has indeed implemented CSR in core business processes.

To date, consumers and investors have no easily accessible and reliable source of information that would allow differentiating between good and bad companies. Particularly companies that are at advanced stages of organizational development in the context of CSR should have a strong interest CSR-road-signin such differentiation.

Meaningful Transparency

Setting up transparent self-assessments that can be verified by independent third parties could be a first step towards creating meaningful transparency in CSR performance. Such information would empower consumers and investors to make informed buying and investment decisions.

At this point, it should be clear that we’ve come full circle: assessing CSR creates strong drivers for CSR. Opening the black box and assessing what’s going on inside corporations after they publically committed to CSR is key to understanding what needs to be done to turn CSR into a concept that has measurable impact.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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