The art of courting popularity
Companies, SMEs and multinationals all need to portray an image of social responsibility. This image is based not only on how effectively their advertising commends the quality and price of their products, but also on the perception and appraisal of external players, including trade unions, consumer organisations, environmental NGOs and ethics lobbying groups. Researchers involved in the European RESPONSE project have been analysing this key aspect, which underpins any company's ‘social performance.'
According to a survey conducted in 2004, only 32 % of Europeans believe that companies carry out their business in the interests of society, while 64 % think that multinationals make no attempt to do so. The public's poor view of corporate social responsibility (CSR) is not the result of a lack of willingness among firms, which in fact strive to accommodate this concept, if not in their business, at least in their communication activities. Researchers involved in the European project RESPONSE (1) have spent three years conducting surveys and studies to examine this discrepancy between company managers' understanding of society's expectations and the understanding of external actors who, whatever their strategy, also help to build corporate images. For this we need to take on board the concept of ‘cognitive alignment.' RESPONSE project leader Maurizio Zollo, a professor at Università Luigi Bocconi (Milan, IT) and the European Institute of Business Administration (INSEAD), in Fontainebleau (FR), explains that "the cognitive alignment deficit of company managers stems mainly from their tendency to adopt a defensive strategy of reaffirming that their business is not harmful to society, rather than by actively seeking to understand their social partners' viewpoints and underlying motivations in order to affirm their positive social responsibility - as they would if they were to adopt a cognitive approach."
A conservative management approach
After interviewing 210 managers in 19 multinationals who were rigorously selected to ensure relevant comparisons, as well as 217 representatives of more than 180 interested social organisations, the researchers carried out an in-depth analysis of the survey results. They distinguished between the different business sectors and geographical locations of the stakeholders and societal contexts in order to identify the various areas of contention associated with the CSR concept.
The results point to a conservative trend among managers in the perception of their own responsibility. Managers strive to avoid any negative impact on the company rather than to proactively seek to exert a positive influence.
Their approach, often confined to abiding by ethical and legal rules, is worlds away from that of social organisations, which look for a broader vision of the company and its responsibilities, accommodating all interests as far as possible.
According to Maurizio Zollo, "this gap is due not to a lack of willingness or of communication between the parties, but to a lack of understanding." The researchers have identified a set of factors, both internal and external to firms, which are responsible for this ‘alignment failure.'
Differentiation improves CSR
A strong product differentiation strategy generally implies good cognitive alignment. For firms to develop original products effectively, they need to listen to customers and to society as a whole to improve their understanding of society's expectations. This is further confirmed where firms opting for differentiation operate in socially sensitive sectors (such as new technologies), where they have to deal with contention in such areas as employment and hidden risk.
Their capacity for innovation tends to make such firms score better on social dialogue than firms in sectors that have always faced conflict (chemicals, energy) but tend to produce standardised products. A differentiation strategy generates positive feedback from the public, resulting in better social performance.
‘Win-in' strategies... over the long term
More generally, the RESPONSE results show that company strategies focusing on cost and risk reduction, and on maximising sales are a poor way of improving their alignment. The researchers recommend a strategy that mainstreams CSR into the entire management structure.
Is it really possible to juggle CSR with financial performance? According to a study carried out by the stock exchange consortium Euronext, 65 % of financial analysts think that the short-term impact of a socially responsible strategy would be slightly negative for a firm's economic situation... But only 5 % believe that this would be true over the long term. Maurizio Zollo goes a step further, stating "no study has found an inverse correlation between financial and social performance, and the two can be incorporated and developed side by side." He confirms that good CSR integration can generate financial gains by encouraging innovation and attracting new customers and partners, as well as by improving production safety and efficiency and product quality.
Dynamism is a key factor
Factors external to firms are also sources of misalignment, such as lack of dynamism in a firm's business sector or in the region where it is based. According to the researchers, this explains the excellent public perception of companies in the United Kingdom, exceeding that of Nordic countries, even though the latter have such an excellent reputation for corporate social responsibility. One reason is that the dynamism of British industry encourages openness towards society. Another is that Nordic companies are not incorporating the avantgarde CSR visions of stakeholders and are failing to take on board changing social attitudes because they are already credited with good social performance.
The researchers have pinpointed another external factor that favours good alignment - the pressure exerted by social organisations, which tends to correct poor CSR in corporate processes by highlighting the non-proactive approach of some managers who merely react to external pressure.
Social responsibility is fundamental to companies
To bridge the alignment gap and improve firms' social performance, the first step that managers must take is to recognise and understand the nature of this misalignment. The researchers' recommended next step is to mainstream CSR into management fundamentals, rather than considering it as a factor external to the organisation and its strategy. They also suggest giving CSR managers a more prominent role in order to establish regular stakeholder dialogue and to set up joint participation.
Human resource managers are also asked to project a broader vision of CSR in in-service training curricula and to convey these expectations to the education sector. "By focusing managers on economic performance to the detriment of other concepts, business schools are partly responsible for the poor alignment of some firms," says Maurizio Zollo. In his view, allowing room for the personal values and sensitivities of managers encourages socially responsible behaviour. The study has identified some highly positive results where managers have attended introspection sessions or used certain forms of meditation.
Is it just a pious hope that firms can be made more human and less cut off from society?
Maurizio Zollo is already drawing on the conclusions of the RESPONSE research to hold discussions with future managers in business schools and striving to get the education world to take its results on board.
- Understanding and responding to societal demands on corporate responsibility, a research programme led by the European Academy of Business in Society, in partnership with four European Business Schools: INSEAD (FR), Copenhagen Business School (DK), Università Commerciale Luigi Bocconi (IT), Leon Kozminski Academy of Entrepreneurship and Management (PL)