Signals transmitted
Message received
Reaction making impact
Invisibly
— Rush, “Chemistry,” Signals (1982).
[This post is part of the Aid Blog Forum launched this week by J., who blogs over at Tales from the Hood. For more on the Aid Blog Forum, click here.]
J. writes:
Corporate social responsibility (CSR) is the new sexy thing in the philanthropy and humanitarian fundraising worlds. “Doing well while doing good” is the buzz phrase, and I admit — it’s got a nice, maybe even sensible ring to it. On the other hand, like many humanitarian practitioners I know, I come to the CSR conversation with a healthy dose of cynicism and skepticism. I’ve seen it be really lame a lot of the time, and I’ve seen it go really bad a few times. But the ship has also very obviously sailed. Corporate social responsibility is here to stay. It’s part of the global humanitarian context, for better and/or for worse. As humanitarian relief and development professionals we have to deal with CSR. Here’s where you come in. What do you think?
Signals
As an applied economist — more specifically as an applied economist who has done a good amount of work on applied contract theory — whenever I hear about CSR, I think about signalling, which Wikipedia describes as
The idea that one party (termed the agent) credibly conveys some information about itself to another party (the principal). For example, in Michael Spence’s job-market signalling model, (potential) employees send a signal about their ability level to the employer by acquiring certain education credentials. The informational value of the credential comes from the fact that the employer assumes it is positively correlated with having greater ability.
Not only that — the agent also has to incur a real cost in order to send the signal, otherwise the signal is simply not credible. Moreover, sending the signal need not involve any productive aim other than signaling.
For example, many people view getting an MBA degree as signalling, since it is very costly to get an MBA (both in terms of time and tuition money), and it is not immediately obvious that the knowledge acquired in business school is immediately useful in business or cannot be acquired with experience.
Back to CSR
So how about CSR? It is definitely costly for firms to be socially responsible. For example, the Wikipedia entry on CSR discusses how a given firm procures Fair Trade coffee and tea, because “Fairtrade fits very strongly into [their] commitment to [their] communities.”
Really?
To me, it’s all marketing. If a firm adopts some CSR practice, there is a real cost to it. But once that cost is incurred, it’s pretty much all upside. A CSR practice does not turn any potential client off from buying from the firm, nor does it turn any potential employee off from working for the firm, but it may attract potential clients and quality potential employees for whom it is important that the firm they buy from or work for adopt CSR practices.
Again, there is a cost to adopting a given CSR practice. If there is no cost to some practice, it is presumably not worthwhile. But in cases where that cost is offset by the expected benefits just discussed, the firm will adopt the CSR practice. Alternatively, in cases where that cost exceeds the expected benefits, the firm does not adopt the CSR practice. Like any rational decision, this one is taken at the margin: if “good for the community” means “good for the bottom line,” why would a firm willingly leave dollar bills on the sidewalk?
“But At Least We’re Doing Something!”
Some will say “Maybe it is marketing, but at least CSR firms are doing something to help the community.”
So again: Really?
It is difficult to know whether something actually “works” (in the sense of increasing recipient welfare) in the best-case scenario wherein one can afford to run a randomized controlled trial to evaluate the statement. So who’s to say that a CSR firm actually knows whether it has really increased welfare? The truth is that it does not and, in most cases, cannot afford the luxury to find out.
In short, color me cynical — you certainly wouldn’t be the first to do so — but I really think a lot of it is all just marketing. I hope some of you disagree with me and contradict me in the comments; as in many other instances, I would be very happy to be convinced that I am wrong.
No, you’re not.
Here’s the thing: it’s very difficult to separate the wheat from the chaff in corporate social responsibility. You have been particularly chaffed because of the impact of large companies whose primary motivation is marketing.
And, the calculus that many observers use is to see CSR in terms of current business models.
And, the trend of where CSR is going is somewhat obscure among all the noise.
1) Many (generally smaller) for-profit companies are focusing on social problems. These social enterprise are prepared to take risk to innovate. The Key Performance Indicators tracked by these companies extend far beyond marketing. Many are using social responsibility for product and service innovation.
2) These social enterprises are using different business models. (And innovating business models.) For example, developing better customer-centric processes to improve solutions. They leverage different cost and value structures (blue ocean strategy) whereby they can scale better than traditional businesses. (It also helps to differentiate – there’s a marketing byproduct).
3) Sustainability in business is more than supporting environmental programs. It’s also about making products and services financially sustainable by customers. Some traditional businesses extract too much value from customers.
4) Recruitment and employee retention. A truly socially responsible company gets and retains better employees.
It is our experience that “CSR as core” has helped our company completely re-organize to better serve customers, to make our products more affordable (including reducing the power footprint), and innovate by better understanding where our customers are going. We do precious little marketing. Never advertise. We blog – but we share good practices. (Sure, we have press releases etc.) We are attracting good people who want to be part of what we do.
The financial results? Sustained growth for the past 5 years through the financial crisis at rates higher than our industry average. Something is working.
Yes, the majority of CSR efforts seem to be marketing-inspired. (Some clever stuff at that.)
Thanks Marc, I share your views. In fact if you read Porter and Kramer (e.g. http://hbr.org/2011/01/the-big-idea-creating-shared-value) they say CSR is supposed to be profitable in the end.
I am currently writing a policy brief on this issue with a colleague based mainly on economists’ thinking about the subject, no theoretcial or empirical models (yet).
Thank you for your comment, Linda, as well as for reading. I’ll be interested in reading your policy brief and in commenting on it when it is ready if you’d like. Are you in DC this fall?
[…] Corporate Social Responsibility: Marketing By Any Other Name … Corporate social responsibility (CSR) is the new sexy thing in the philanthropy and humanitarian fundraising worlds. “Doing well while doing good” is the buzz phrase, and I admit — it's got a nice, maybe even sensible ring to … Source: marcfbellemare.com […]
Hi Marc. I agree with your basic reduction that, in the end, all CSR is simply marketing. But private profit can, of course, contribute to public good. E.g. you allude to education as being about expensive signalling, and yet there are real benefits of education, some of which do not so much accrue to the employer as to society at large. I’m a cynic too, but I appreciate the utility we can extract from CSR too, see my response to J’s challenge: http://bottomupthinking.wordpress.com/2011/09/23/csr-and-tropical-conservation/.
Thanks for your comment, MJ. No doubt in my mind that CRS can do good, even if it’s motivated by someone’s bottom line. It’s just that it’s very difficult to know when it does do good given that we do not observe the counterfactual. In the example of the firm procuring Fair Trade coffee and tea, it is certainly possible that Fair Trade makes tea and coffee growers better off (although here, too, I have my doubts, and some empirical evidence says they are no better off than non-Fair Trade producers), but it’s just that we don’t know that’s the case. I think the case of education, with its spillovers on society at large and potential for causing endogenous growth, is a very good example of private signalling gone right.
[…] los vinculados a intervenciones de humanitarias y de desarrollo. Ejemplo de ello es el aporte de Marc Bellemare, -economista, evaluador y músico- quien asocia directamente los esfuerzos de RSC con marketing […]
If you are caring AND looking at the reality as it is and not as the conventional wisdom of the day wants to color it, people call you cynical.
In general, I am as critical. This does not mean there will nobody who gets it right.
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