When and How to Drive Real Value with CSR
Skip to content
Social Impact Mar 4, 2013

When and How to Drive Real Value with CSR

Executives can improve their bottom lines by using CSR in targeted circumstances.

Managing corporate social responsibility (CSR) efforts carefully has become increasingly important for multinationals like Walmart—which has faced steady criticism for its practices related to labor, the environment, and other areas—and smaller, less controversial players alike. CEOs increasingly rank CSR as a “central” or “important” concern, as reflected in the rising tide of improved labor practices (Adidas, IKEA), animal welfare policies (McDonald’s), and other socially beneficial corporate initiatives and policies. The underlying idea is that corporations can better achieve their business objectives by acting more responsibly. Mounting evidence, however, suggests that, on average, CSR initiatives fail to create their intended economic value or actually destroy this type of value.

Add Insight
to your inbox.

Still, CSR can drive economic and reputational valuein targeted circumstances and, improve a company’s bottom line. To make CSR a value-generating strategy executives must understand the contexts in which responsible practices are more likely to pay off and implementing the practices with specific principles, including competence, in mind. In this sense CSR works like other dimensions of strategic positioning, such as the quality of products or services offered. Pursuing a strategy focused on high quality does not make sense for every company in every situation, but it can yield value in some contexts.

Where CSR Creates Value

Many of the economic benefits CSR drives for corporations fall in the domains of operational and regulatory risk. Within operations, a focus on responsible practices can yield process improvements that reduce costs and boost the bottom line. This is especially true of environmental practices. For example, BP’s adoption of a greenhouse emissions cap and corporate emissions trading system in 1997 both reduced emissions significantly and yielded a $600 million increase in net income by improving operational efficiency. The CSR focus helped management identify and decrease the flaring of natural gas from some wells, among other improvements. Such uncontroversial forms of CSR should be adopted by any company seeking operational improvements, as these can uncover sources of value creation that executives might otherwise miss. Sustainability initiatives often hit the “sweet spot” of generating tangible operational and environmental benefits simultaneously.

CSR may also be used strategically to manage various risks, again creating value or preventing its loss. Rather than developing operational efficiencies, the goal here is to avoid negative attention from stakeholders including social and/environmental activists, politicians, the courts, and the media—in other words, to avoid competitive disadvantages associated with reputational damage. Collectively, the values held by influential stakeholder groups yield “rules of the game” for corporations that go beyond formal laws and regulations, vary significantly by market, and tend to be ever-changing. Consider how animal welfare policies were rare among US corporations until the early 2000s, but have become standard today. Investment in socially responsible practices to lower the costs of reputational damage may include voluntary adoption of practices preempting regulatory action, such as the spirit industry’s advertising restrictions and the entertainment sector’s ratings systems.

The markets reward responsible practices perceived as a good “insurance policy” against risks. Research shows that companies with strong records of responsible practices lost $600 million less in market value when facing product recalls than peers with limited CSR activities. Conversely, other research demonstrates that environmentally focused activism against a company increases the perception of risk associated with the firm, negatively affecting its financial performance.

A third domain where CSR may create value is in the “market for virtue.” In this arena, firms aim to compete for customers, employees, and investors by satisfying an explicit or implicit demand for products, services, and practices that address the common good. While many corporations continue to pursue this strategy, there is only anecdotal evidence to support it broadly, and mounting findings show that it may in fact destroy economic value, as suggested earlier. In this context, challenges include the difficulty of discerning whether addressing customers’ social values translates into a higher price point or increased volume, and understanding how best to protect a socially responsible brand from imitation by competitors.

Daniel Diermeier explains the recent evolution of CSR View all CSR videos on YouTube

Good Samaritan-ship and Other Principles of Effective CSR

Once managers understand the contexts in which CSR can drive economic value, they need to think about how best to deploy responsibility initiatives to capture that value. Recent research has uncovered several principles that corporations need to mind to generate a positive stakeholder response. One example situation related to these principles is where the firm has no perceived causal role, such as natural disasters. In such situations we can apply the Good Samaritan Principle, based on the biblical story of the Samaritan who helped an injured robbery victim others had merely passed by. Like the Samaritan, companies offering their help should be seen as motivated more by altruism than self-interest. Similarly, firms are judged by the competence and warmth they demonstrate when helping; in a disaster situation individuals view the company as a community member, rather than a provider of goods and services in exchange for benefits. Laboratory experiments confirm that people evaluate firms more positively when they see evidence of competence and warmth—for example, having executives assist victims personally is viewed far more positively than just donating money. So it is not just the thought that counts, but the way CSR efforts are carried out.

To maximize reputational and economic value, businesses can look to several principles when deploying responsibility efforts as related to natural disasters and other situations.

In the specific context of natural disasters, the strategic fit of responsibility efforts with companies’ core products or capabilities is less important. A “well-fitting” response may even be viewed negatively. For example, if a beauty company were to send cosmetics or skin moisturizer to victims needing clean water, the public would likely pan them for it, seeing the move as self-serving. Communications represent another potential pitfall for CSR efforts. In 2000, when Philip Morris spent $150 million on advertising to publicize the $115 million it had contributed to battered women’s shelters and other causes, the company was attacked widely. Blowing one’s own horn too loudly leads the public to suspect ulterior motives. In contrast, Walmart’s communications strategy around its efforts to help Hurricane Katrina victims in 2005 highlighted the corporation’s competence (for example, delivery of water and other supplies well before the federal government’s relief effort) and warmth (such as store managers voluntarily distributing nonperishable items), yielding large reputational benefits. Walmart allowed store managers and truck drivers to talk directly to the media. The emotional impact of their personal stories of neighbors helping neighbors played an important role in boosting positive perceptions of Walmart and energizing the business’s employees.

In short, to maximize reputational and economic value, businesses can look to several principles when deploying responsibility efforts as related to natural disasters and other situations:

Authenticity: Actions should be seen as motivated more by altruism and caring than self-interest • Competence: Actions should reflect skillful handling of the situation that demonstrates understanding of target groups’ needs; this is more important than strategic fit • Communication: Communication about actions should reflect their warmth and competence, and avoid even the appearance of self-serving motivations


Companies face increasing expectation that they will not only maximize shareholder value but also contribute to their broad communities on multiple dimensions. That means executives need to understand when CSR efforts can drive economic and reputational value, and how to implement them to maximize that value. Taking this approach can transform CSR from a potentially value-destroying product of good-but-misguided intentions to a real value-generating strategy.

Featured Faculty

Faculty member in the Department of Managerial Economics & Decision Sciences until 2014

About the Research

This article is adapted from chapter 5 of Daniel Diermeier, Reputation Rules (New York: McGraw-Hill, 2011).

“The Strategic Samaritan: How Effectiveness and Proximity Affect Corporate Responses to External Crises.” Business Ethics Quarterly 22(4): 621–649.

Read the original

Most Popular This Week
  1. Will AI Eventually Replace Doctors?
    Maybe not entirely. But the doctor–patient relationship is likely to change dramatically.
    doctors offices in small nodules
  2. What Is the Purpose of a Corporation Today?
    Has anything changed in the three years since the Business Roundtable declared firms should prioritize more than shareholders?
    A city's skyscrapers interspersed with trees and rooftop gardens
  3. What Happens to Worker Productivity after a Minimum Wage Increase?
    A pay raise boosts productivity for some—but the impact on the bottom line is more complicated.
    employees unload pallets from a truck using hand carts
  4. 3 Tips for Reinventing Your Career After a Layoff
    It’s crucial to reassess what you want to be doing instead of jumping at the first opportunity.
    woman standing confidently
  5. Why We Can’t All Get Away with Wearing Designer Clothes
    In certain professions, luxury goods can send the wrong signal.​
    Man wearing luxury-brand clothes walks with a cold wind behind him, chilling three people he passes.
  6. Why You Should Skip the Easy Wins and Tackle the Hard Task First
    New research shows that you and your organization lose out when you procrastinate on the difficult stuff.
    A to-do list with easy and hard tasks
  7. Which Form of Government Is Best?
    Democracies may not outlast dictatorships, but they adapt better.
    Is democracy the best form of government?
  8. 6 Takeaways on Inflation and the Economy Right Now
    Are we headed into a recession? Kellogg’s Sergio Rebelo breaks down the latest trends.
    inflatable dollar sign tied down with mountains in background
  9. How Are Black–White Biracial People Perceived in Terms of Race?
    Understanding the answer—and why black and white Americans may percieve biracial people differently—is increasingly important in a multiracial society.
    How are biracial people perceived in terms of race
  10. When Do Open Borders Make Economic Sense?
    A new study provides a window into the logic behind various immigration policies.
    How immigration affects the economy depends on taxation and worker skills.
  11. How Old Are Successful Tech Entrepreneurs?
    A definitive new study dispels the myth of the Silicon Valley wunderkind.
    successful entrepreneurs are most often middle aged
  12. How Has Marketing Changed over the Past Half-Century?
    Phil Kotler’s groundbreaking textbook came out 55 years ago. Sixteen editions later, he and coauthor Alexander Chernev discuss how big data, social media, and purpose-driven branding are moving the field forward.
    people in 1967 and 2022 react to advertising
  13. Why Do Some People Succeed after Failing, While Others Continue to Flounder?
    A new study dispels some of the mystery behind success after failure.
    Scientists build a staircase from paper
  14. How to Get the Ear of Your CEO—And What to Say When You Have It
    Every interaction with the top boss is an audition for senior leadership.
    employee presents to CEO in elevator
  15. Understanding the Pandemic’s Lasting Impact on Real Estate
    Work-from-home has stuck around. What does this mean for residential and commercial real-estate markets?
    realtor showing converted office building to family
  16. Immigrants to the U.S. Create More Jobs than They Take
    A new study finds that immigrants are far more likely to found companies—both large and small—than native-born Americans.
    Immigrant CEO welcomes new hires
  17. Podcast: What to Expect When Joining a Family-Owned Business
    There are cons—but a lot of pros, too. On this episode of The Insightful Leader, we’ll explore what it’s like to work at a family business when you’re not a family member.
More in Social Impact