Corporate social responsibility is a wonderful thing, simultaneously helping companies as well as society. But can multinational corporations capitalize on their social responsibility investments when they expand overseas? Can multinationals profit in foreign markets this way? Or are these initiatives a costly distraction for companies embarking on international ventures?
Companies investing in corporate social responsibility programs outside their domestic markets are, on the one hand, increasing their legitimacy and reputation. However, they could also lose money and lose the cost advantages available overseas.
Cyril Bouquet, a professor at IMD in Lausanne, Switzerland, Andrew Crane, a professor at York University in Toronto, and Yuval Deutsch, a professor also at York University, investigated the relationship between corporate social performance and companies' abilities to achieve profitable sales outside their domestic markets. The researchers looked at social performance ratings and accounting and financial data for more than 8,000 U.S. public companies between 1991 and 2003.
It turns out that companies with either low or high levels of social performance encountered more international success than those that had moderate levels. The relationship between social responsibility and profitable sales in foreign markets thus takes on a U-shape. Companies with low commitment reaped cost benefits. Those with high commitment to programs built strong reputations for good citizenship, which made a difference in international markets. But those in the middle struggled to reap the benefits of their overseas corporate social responsibility investments.
This means that these investments need to really succeed, which may require managers to radically rethink their social performance, pursuing it more aggressively such that they build greater international social capital. Or these companies might want to stop investing in social initiatives abroad and focus on those at home.
However, while cutting back on overseas efforts may seem logical for those companies with average social performance, it may also be risky. People may resist the falling away of effort if companies are already active in certain communities. In fact, it may be more effective for corporations to consider anew why they invest in social responsibility initiatives: Making a business case is not as effective as making a moral one. Emphasizing the latter might motivate the company to do more. Companies also need to display more aspiring leadership. In practice, that means aligning action more with words, with promise. Further, it means investing with more focus in the areas that count. To be credible, social initiatives should be related to the company's core business and be part of a long-term strategic agenda.
Toyota Motor Corp., for example, does not just periodically throw money at good causes: It uses its expertise in energy efficiency to strengthen a hybrid car concept that will help reduce greenhouse gas emissions and improve the company's social reputation. Corporate social responsibility works best when it leverages what makes a company unique.
This article is adapted from “The Trouble with Being Average,” by Cyril Bouquet, Andrew Crane and Yuval Deutsch, which appeared in the Spring 2009 issue of MIT Sloan Management Review. The complete article is available at http://sloanreview.mit.edu/smr/.