Does CSR pay?

Here's the second entry from Orgtheory.net.

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Today, I’d like to return to my previous topic of reputation management and critically examine a dogmatic belief that underlies many academic and popular texts about corporate ethics. It goes something like this:

“It makes economic sense to pursue ethical goals because consumers reward ethical behavior over the long term.”

It would be comforting to believe this. However, I have found little evidence that this would be the case in any generic sense. I do believe that

1. Expressly non-ethical behavior can pose a severe reputation risk.

What I find problematic is the argument that it always pays to be perceived as more ethical or virtuous than your rivals. Would it not make sense to stay close to the ground, avoid misbehaving but not be the model student either? I do believe, however, that

2. There are contexts in which ethical leadership over competititors.

Some companies invest enormous sums of money in good deeds, as well as in good presentations to promote the public image of being a responsible company. Many pharmaceuticals companies, for instance, have invested large sums in various kinds of virtuous projects. A well-known example is provided by Merck & Company, which has played a major role in treating so-called “river blindness” caused by parasites in sub-Saharan Africa. River blindness is a painful ailment that often leads to permanent loss of vision. Merck & Company has distributed free of charge over 250 million treatments, each of which costs more than one euro (BBC News article “River blindness drug revives village life” 15 September 2002, here). The treatment was discovered by Dr. William Campbell, a veterinary researcher at Merck & Company who was studying parasite-inflicted illnesses in animals. The company developed the treatment in cooperation with the World Health Organization. Sub-Saharan Africa was and still is a poor region. After failing to receive funding from the US government and several other bodies, Merck & Company decided to donate the treatment to everyone in need of it for as long as the disease prevailed. The company has maintained its commitment for over 20 years. (www.merck.com) Swiss pharmaceuticals giant Novartis has been similarly active, donating enormous amounts of medications to developing nations and the poor in 2004. The company invested a total of EUR 440 million in socially responsible projects around the world. These projects had an effect on over 4 million people. Even small deeds count. Novartis Finland sponsors an annual “Community Partnership Day” with the Finnish Federation of the Visually Impaired. The Novartis Finland website describes the project as follows (www.novartis.fi):

“The basic ideology of Community Partnership Day is that company employees donate one-day’s labor for a community project of their choosing. Community Partnership Day is organized by Novartis worldwide and is part of the company’s Corporate Citizenship. Last year over 10,000 Novartis employees in 45 countries participated in Community Partnership Day.”

These examples are inspiring, no doubt. The reason for them being inspiring, however, is that they are exceptions...

Read the whole entry and the discussion here.

Can you outsource reputation management

Last November, I was invited to guest blog at Orgtheory.net. The community literally sizzled with action and I got to engage in a number of fascinating discussions. I wrote two entries that are relevant to the current arena. Here's the beginning of the first one:

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The topic I would like to discuss today reputation management, a topic which has been studied stateside for instance by such people as Charles Fombrun and Violina Rindova, and in Europe by Majken Schultz and others. I’d like to introduce a phenomenon which Pekka Aula, my co-author and I have been looking at lately, the outsourcing of reputation management by some firms.

Reputation building: doing good stuff

At the intuitive level, you create a good reputation by

1. Doing good stuff

2. Doing it to parties who are in a good network position to spread the word

3. Being communicative about the good that you do.

Charles J. Fombrun begins his book Reputation, which many consider the rallying call to managers regarding the importance of reputation:

“Do you recall the last time you hired a contractor to make improvements to your house or apartment? Or the last time you called on a travel agent for assistance in planning a trip? […] If you are like most people, you didn’t just pick their names out of a phone book. You probably went to them because they were recommended to you by a family member, friend or someone else you trust. If so, you hired them based on their reputation.” (Fombrun, 1996, p. 1)

Choosing hairdressers, dentists, carpenters, real estate agents and so on in our personal lives is a tangible example of, not just how reputation can be an asset to a business, also how it is built in a network. Herein lies one of the key messages of reputation management (I think): when building your reputation, do not try to communicate promises that you will not keep, either now or in the future. In a recent paper in Strategic Organization (5/1, 2007) Rindova, Petkova and Kotha build an inductive account of how new businesses build reputations in the media. They argue that firms build reputation on three kinds of action patterns:

• Symbolic actions
• Innovative actions
• Action level and composition

Read the Rindova et al. paper if you want to know these mean, and how the process or reputation building is mediated by stakeholder cognitions. My point is just that reputations are built fundamentally on actions, not in PR or marketing. Indeed, my coauthor Pekka Aula once noted that: “marketing increases reputation risk.”

Can you outsource the good stuff?

That’s the moral we would like to believe, isn’t it? You get rewarded for doing good things and punished for doing bad things. Indeed, reputation can be used as a motivator for corporate social responsibility and other forms of business ethics: do good stuff or pay for it. The soup thickens somewhat when we look at the arrangements companies make to “buy reputation”, or “outsource reputation.” Indeed, I would argue that there is a whole business for reputational outsourcing. I am not talking about PR or marketing agencies who make companies look good, but assurances that you can acquire that your actions are moral or benevolent.

Read the complete entry and the discussion here.

It's done!

Strategic Reputation Management examines the ways in which organizations achieve "goodness" through reputation, reputation management and reputation strategies. It presents a contemporary model of strategic reputation management, helping organizations and stakeholders to analyze the business environment as a communicative field of symbols and meanings in which the organization is built or destroyed. We introduce the eight generic reputation strategies, through which organizations can organize their stakeholder relationships in various ways. They illustrate their arguments using real-world examples and studies, from the Finnish Ski Association to Philip Morris International.

This book serves as required reading in advanced courses covering public relations practice, advanced topics in PR, corporate communication, management, and marketing. Professionals working in PR, business, management and marketing will also find much of interest in this volume.

About Us

Pekka Aula is Professor of Communication at Department of Communication, University of Helsinki, Finland. His research interests lie in the problematic of formation and reformation, construction and reconstruction of communicative processes in and between complex organizational networks. He has published and edited several books, and published articles in national and international journals. He is also adjunct professor at the University of Jyvaskyla.

Saku Mantere is acting Professor of Management and Organization at Swedish School of Economics and Business Administration in Helsinki, Finland. His research is focused on understanding organizational strategy as a social phenomenon, e.g., its discourses, practices and social positions. He has published in journals such as Organization Science, Journal of Management Studies, Strategic Organization and Journal of Organizational Change Management and Business & Society and Scandinavian Journal of Management