Social Responsibility Writer's Prize 2007 - Tertiary Entry - First Prize

Miss Loan Banh - University of Melbourne

Corporate Community Engagement: Why strategic selection of CSR matters

In the recent era of Corporate Social Responsibility (CSR), businesses have increasingly engaged in community partnerships in order to differentiate themselves and appeal to their stakeholders. This paper will examine how previous practices such as sponsorship have not been completely effective in maximising business returns, and discuss why businesses have correspondingly engaged in deeper relationships with their community partners. Firstly, this paper will address how businesses can prosper through the adoption of CSR practices. Limitations to the returns of arm's length CSR approaches will then be discussed, followed by the description of new partnerships that have arisen as a result. Finally, this paper will argue that the partnerships allow stakeholders to perceive a proper alignment of the business with the social activity. Consequently, businesses that strategically engage with their community are able to build stronger relationships with their stakeholders and the community partners benefit from increased stability and access to a variety of resources.

The instrumental case for Corporate Social Responsibility

There has been a general consensus among businesses that they can benefit financially by addressing the concerns of a broader set of stakeholders (Freeman, 1984; Barnett, 2007). CSR "increases the trustworthiness of a firm and so strengthens relationships with important stakeholder" (e.g. customers and employees), leading to reduced agency costs and increased efficiency. (Barnett, 2007; Jones, 1995). Because this deals with problems businesses face, such as lack of trust and cooperation with stakeholders, strengthening their relationship enables a business to enhance their reputation and charge premiums n their products/services (Jones, 1995; Barnett, 2007). Moreover, CSR practices create opportunities for businesses to innovate and differentiate themselves from competitors (Crane & Matten, 2007). The Body Shop is an example of a business which has used CSR to distinguish itself from a relatively uniform cosmetics market. By promising products that do not compromise animal ethics and the sustainability of the environment, the business successfully became a global franchise within 14 years of trading (The Body Shop International, 2007). Profitability aside, businesses realise their need to address public issues in order to avoid backlashes as those reminiscent of the Nike sweatshop boycotts, and the media outcry for the 1995 sinking of Shell's oil rig (Porter & Kramer, 2006). Public attitudes have changed over time so that businesses can no longer avoid social issues, but in addressing these, they are actually improving the society in which they operate (Crane & Matten, 2007). Therefore, businesses that engage in CSR practices effectively enhance their status n the market, open up opportunities as well as manage their risk.

Limitations of the instrumental case

It has been found that when the CSR initiatives do not fit well with the business' core operations, this raises consumer suspicion of the underlying motives, and can have a negative influence on consumers' attitudes toward the business (Becker-Olsen, Cudmore & Hill, 2006). Exxon Mobil presents a good example of a business whose CSR initiatives have backfired, where rather than winning over their consumer, Exxon Mobil's print ads on environment issues provoked high-profile boycotts in 2001 (Arnold, 2001). Contingencies like these imply the link between corporate social performance (CSP) and a business' financial performance (FP) may not be consistently positive, as evidenced in several analyses (Margolis & Walsh, 2003; Griffin & Mahon, 1997). One key contingent factor out of several that influence the CSP-FP relationship is dependent upon stakeholder ability to "notice, interpret and act on the information conveyed by the CSR activity" (Barnett, 2007). Stakeholders will draw from their prior experiences and perception of the business to interpret its underlying motivation, hence depending on their history, mixed responses across businesses may occur despite similar activities (Barnett, 2007; Barone, Miyazaki, & Taylor, 2000). When Philip Morris announced its support for a campaign against youth smoking, it was the subject of much criticism from consumers due to its perception as an immoral international tobacco giant (Yeosun, Zeynep & Norbet, 2006). Therefore, in order for businesses to fully take advantage of the instrumental case, for CSR, they must be able to move beyond unrelated activities, and strategically align CSR practices with their core operations. Lackadaisical attempts for CSR would otherwise be less efficient at altering stakeholder interpretations and businesses may suffer as a result.

Changes in corporate social responsibility practices

Businesses have realised that they can no longer simply make donations to causes in the hope of becoming a leader in CSR practices. Although some consumers may be persuaded to believe in a business' good intentions via some short term campaigns (e.g. sponsorship), this does not lead to immediate changes in purchasing decision (Webb & Mohr, 1998). Rather, it is the consistent reinforcement of a business' philanthropic motivations to stakeholders that is likely to translate into purchases in the long run (Webb & Mohr, 1998). Businesses have therefore shifted to conducting their CSR practices in a more strategic manner in order to maximise their social investment returns. Effective strategies take into account external context factors significantly impacting the business' competitiveness and align the association to the business' core competencies (Porter & Kramer, 2006; Hess, Rogovsky, & Dunfee, 2002). An example of one of Australia's top institutions which applied these strategies is Westpac Banking Corporation. Par of the business' commitment to CSR involves their partnership with organisations such as The Salvation Army, where staff members play a major role in volunteer work for the services (Westpac Banking Corporation, 2007; The Salvation Army, 2007). This cause is based around community building and improvement, which addresses the business' competitive context of a financially healthy society. Another example of a successful company that has participated in strategic community engagement is Toyota Incorporated, which ahs partnered up with Conservation Volunteers Australia (Toyota Inc., 2007). Here Toyota provides the organisation with technical skill, expertise and financial support (Toyota Inc., 2007). This cause is focused on environmental preservation, which is again a competitive context issue for the company (Porter & Kramer, 2006).

Business benefits from strategic engagement with the community

The sustainable and long term nature of the new partnerships see the businesses treat their partners as valuable sources of knowledge and expertise, and hence are mutually beneficial to both the business and the community partner (Tracey, Phillips, & Haugh, 2005). Because the business' efforts are less "disjointed" and "uncoordinated" than in previous arrangements (Porter & Kramer, 2006), "it is likely to lead consumers to perceive the company as more expert and transfer more positive feelings about the cause to the company" (Hoeffler & Keller, 2002). Since these alignments display more dedication and expertise, they are more effective at continually improving the business' image and hence customer/society support and employee engagement.

Even though conducting corporate philanthropy is ideally an activity that has long term benefits for businesses, as mentioned contingency factors will always play a role in the strength of this relationship. Because the investment into a community partnership will be more extensive, and because the long term effects of such a task is difficult to predict accurately (Crane & Matten, 2007), the risk borne by these businesses will be higher. This poses a business dilemma, where managers of businesses are legally obliged to act in their shareholders' best interests (i.e. to earn profits), yet are knowingly putting large sums of money into investments without a certain rate of return (Friedman, 1970). Nevertheless, it is important to note that all businesses rely on a healthy economy, which is interdependent with society and the environment to operate (Elkington, 1997; Porter and Kramer, 2006. Because CSR aims to improve these two, it can be considered as a long term investment into a business' competitiveness.

Community benefits from corporate partnership

Correspondingly, community partners involved in the partnership alignment benefit from the access to wide financial or skill resource investments. In this scheme, the community partners are able to work jointly with the business to implement strategies of addressing the social issue(s), while keeping a degree of security and stability in their operations (Tracey, Philips, & Haugh, 2005). Conversely in previous arrangements (i.e. sponsorship) corporate philanthropy has been "poorly directed" and ineffective at providing the community with needed resources (Tracey, Phillip, & Haugh, 2005). Businesses with their large access to resources, are able to contribute to the organisation on a more personal and effective level (Crane & Matten, 2007). Organisations such as WWF-Australia believe that partnering with businesses "is constructive and solutions-oriented, [where] benefits can be mutual by combining the influence, expertise and knowledge of both business and WWF to achieve important environmental and financial outcomes" (WWF-Australia, 2007). In fact, community organisations like Lifeline Australia seek out opportunities for business partnership themselves, to enhance their own profile and gain awareness (Lifeline, 2007). In the absence of these alignments, these organisations are less likely to receive considerable funding from the government or their community, simple due to the lack of resources available (Crane & Matten, 2007).

Deeper engagement with a business is not entirely risk free for a community enterprise however. The agreement between the two parties may conversely be viewed by other stakeholders as "selling out" or a loss of integrity especially if the organisation has an existing negative image, and if the community enterprise loses their autonomy in the process (Varadarajan & Menon, 1988; Lichtenstein, Drumwright, & Braig, 2004). As a result, the enterprise may find that the trade off is a loss of support from the general public in terms of their own acts of philanthropy. On a societal level, it is likely that the schemes conducted by the businesses will favour more popular and risk free causes, and consequently less salient yet needier causes will be neglected (Varadarajan & Menon, 1988). This leads back to the argument made by the prize winning economist Milton Friedman (1970) that businesses should not engage in CSR practices because they do not have the expertise in allocating resources to society efficiently. Nonetheless it should be noted that the partnering process is essentially outsourcing CSR practices to the experts (the community partners), who are able to determine where resources are needed most.

Conclusion

It has become evident over time that the arm's length sponsorship to social causes may not consistently return benefits to businesses. They have correspondingly become more strategic in selecting activities that enable them to engage with society on a deeper level such as forming community partnerships. This new type of arrangement has enable businesses to gain a better relationship with their stakeholder by demonstrating their long term commitments. In addition, these commitments have the potential to improve the marketplace in which the business operates, and as a result improve their future market. For the community/not for profit organisation, partnerships with organisations means having access to a wide array of resources previously unattainable through simple donations. These organisations are able to benefit from being able to operate with stability and the knowledge that they have long term support. Although the CSP-FP relationship does not necessarily hold true all of the time due to various contingent factors, and although the community organisation may risk losing popularity with the public, it is still reasonable to conclude that these new partnership alignments are overall more sustainable and provide many more benefits than previous approaches.

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