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Stakeholder to Shareholder Alchemy: The Promising Relationship Between Social and Financial Performance

Submitted by: Abhishek Ranjan

Posted: Mar 02, 2016 – 06:00 AM EST

Tags: csr, philanthropy, profit


Over my last posts, we’ve looked how CSR is transforming both corporations and communities. We’ve mapped the ways in which a whole range of factors play together to drive CSR practices. Now, let’s look at the bottom line, the numbers game, the argument-clincher: profit.

Profit and philanthropy have always had enjoyed a curious relationship. Historically, philanthropy has often been enabled by profit. However, profit has also sat at odds with philanthropy in many cases. The evolution of CSR as we know it today represents a renewal in the equation between the two. There has never been more compelling evidence to suggest that profit and philanthropy can, in fact, feed off each other to benefit both corporate and community. CSR contributes actively to stakeholder and shareholder satisfaction. Companies are sharing in awards and rewards for their social consciousness, they are meeting local and global standards, and moving towards fully integrating CSR with corporate operations.

The relationship between social and financial performance is a mutual one, shaped by an outcome-driven approach to profit and philanthropy. Good corporate social performance often amounts (quite literally) to good corporate financial performance, which in turn contributes to a good corporate reputation. The nature of the equation can vary depending on the dynamics between social and financial performance – so social performance can impact financial performance and vice versa – but the outcome is ultimately a good corporate reputation, which contributes to overall brand storytelling in measurable ways.

CSR also sends the right signals to investors. When investors see a company devote significant resources to CSR initiatives, they tend to infer that its executives are acting on private information about future earnings and cash flows. This is a powerful message to send, given that such initiatives are likely to come from businesses that expect to have excess cash further down the road. It is not a just a matter of perception. Companies that invested in and communicate their purpose as a socially conscious enterprise tend to have information in their accountability reports that may be used an accurate predictor of future financial performance. The positive financial effects of CSR are also a consequence of the improvement in operating performance, employee satisfaction and productivity levels. Thanks to an increasing consumer focus on sustainable and ethical practices, CSR is going a long way to showing customers that they are willing and able to be responsive to their customer’s social consciousness.

As with everything else business-related, CSR also needs to have measurable outcomes. Does outcome equal impact? Most definitely not. Just as a business measures its success by its profits, mission-driven CSR programs need to be able to measure their success through their impact.  Impact can only truly be measured when the CSR program is assigned well-defined milestones and specific goals. Corporates need to identify and outline the parameters or yardsticks to measure the impact of the money spent on the CSR initiative. This needs to be done in the early stages of the project.

This critical defining of milestones and quantitative/qualitative parameters for CSR success goes a long way towards making the jump from merely ‘feel good’ window dressing to actually facilitating good governance. At the end of the day, that’s what it’s all about: the impact.  The BSE has proposed a CSR Index to help listed companies tighten the process and measure their CSR success.  This will help measure impact, which in turn will be most significant for determining the Return on Social Investment. Corporates will also need to factor in a Satisfaction Index based on End Beneficiary feedback.

But what about the bottom line: profit? While many believe that profit is a bad word when it comes to CSR activities, there are a number of success stories that prove otherwise. CSR activities make for great conversations to enrich brand storytelling. It can also do wonders for retention, and give aspiring recruits a view of the core values of the company. Zensar recorded a decrease in attrition from 11.4 percent in the previous fiscal year to just 8 percent among employees engaged in CSR.  Thanks to the growing popularity of sustainability and ethics in the corporate space, a sound CSR strategy does not just do good, it looks good too. The future is brighter for the integration of these two worlds: Corporates and communities – and there is every reason to believe that great things will come of it. Communities profit from CSR, and corporations profit from doing the right thing.  That’s why CSR makes such good business sense – and that is the new bottom line.

It pays to be good. CSR helps Corporates outperform competitors – not only is CSR a low risk investment with fantastic growth prospects, it also comes with a sound record of profitability 

In conclusion, we can draw a number of encouraging insights from the unfolding relationship between CSR and financial performance. CSR is enabling a win-win situation for corporate and community. Corporates benefit across the board with both internal and external stakeholders. CSR improves their ability to recruit, develop and retain staff. Greater employee satisfaction drives productivity, which in turn impacts operational efficiencies and cost savings. CSR offers new ways to access capital and improve supply chain relationships, thereby driving innovation, competitiveness and enhancing market positioning. Corporates can also enjoy a more robust social license to operate within the community. With an enhanced ability to address change, corporates can now establish themselves as catalysts for responsible consumption.

On the whole, CSR and corporates represent a coming together of two potent forces for change – the end and the means – and the numbers are looking good.

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

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