06 Oct. 2015 | Comments (0)
A persistent challenge for corporate responsibility (CR) executives has been to provide concrete evidence on the return on investment (ROI) of CR efforts. A definitive answer to the question of how much value CR provides to the business has long been elusive, but a new report commissioned by Verizon and sponsored by Campbell Soup Company offers hard data to show that a well-designed CR program lifts sales, increases shareholder value, and improves employee productivity.
Steve Rochlin, co-founder and co-CEO of IO Sustainability, led the research in partnership with the Lewis Institute for Social Innovation at Babson College. Rochlin kindly answered my questions about the research.
Q: Can you give us an overview of the research process and some of the key findings?
A: We started by interviewing C-suite executives from Fortune 1000 companies. They said they wanted to see what the weight of the evidence suggests the value of CR is. They wanted research that could be communicated in dollars or metrics that businesses use. We then looked primarily at research conducted in the last five to ten years through a peer-reviewed process. We reviewed over 300 studies and conducted analysis to assess the likely range of value CR provides. We were prepared for the answer to be zero or negative but that’s not what we found.
Some key findings are that well-run CR programs have the potential to:
- Increase market value by 4-6 percent
- Reduce cost of equity by 1 percent
- Increase sales up to 20 percent
- Provide risk protection of 4-7 percent of company value
- Increase employee productivity up to 13 percent
- Reduce employee turnover rate by 25-50 percent.
Q: Did you expect to find such a positive ROI for CR practices? What surprised you about the findings?
A: Truthfully, I’m both surprised by some of the numbers and I’m not. This work really should be valuable for companies. Beyond the numbers there were lots of surprises, but two stand out:
- CR leaders tend to deliver higher financial returns than CR laggards. Companies that generate the lowest returns are those that make an uneven commitment to CR and are half in and half out. It makes sense to me now—these companies get punished by stakeholders for not doing enough and by markets for dabbling in “soft” CR activities.
- CR is likely another “intangible asset” in the same vein as reputation, brand, talent, and innovation. The conventional wisdom was that CR supported these well-known intangibles but didn’t have intrinsic value. Our research suggests that you may one day be able to ascribe value to a company’s CR stature like some are trying to do for reputation.
Q: The report places importance on the fact that CR practices should be “properly designed” and have “sufficient investment.” Do you have any guidelines for achieving those criteria? How does ROI compare if CR practices aren’t that robust?
A: The research suggests that to get value a company needs to manage CR well. Effective approaches start with the way companies fit CR into their company. This means viewing environmental and social issues through the lens that a company would look at business planning, by asking questions such as: “In what ways do these issues relate to market development?” and “In what ways do they pose competitive risks?”
These are the questions to start with. Too often a company will take the other approach and ask, “Where’s the pressure coming from?” or “How extensively do we need to respond to it?” Alternatively, a company might say, “We have to give back, and a particular issue that’s in the news is pulling at my heart so let’s help out.” Unfortunately, these approaches risk generating either no, or negative, ROI.
For example, research suggests that when investors think a company has over-committed to a cause that doesn’t intuitively fit the business they punish it with lower valuations. One example is a high-tech company that launched a major campaign in its headquarters community around preventing teen pregnancy. It was well-intentioned, but community leaders and investors alike were puzzled. They asked, “You’re a high-tech company. Why aren’t you working on something related like STEM education?” In this case investors can better understand the fit and strategy and they’ll likely reward the company. The report provides a lot of guidelines to develop well-designed approaches with sufficient investment.
Q: Is there any evidence to show certain CR activities provide a higher ROI than others?
A: In general the key is to design approaches that fit your strategy and business. That said, there’s evidence that all things being equal, consumers and investors respond better to initiatives that support people rather than the planet. This doesn’t hold for industries with obvious environmental impact. And companies can get around this if they communicate their approaches actively and effectively. Definitely don’t be shy about communicating, including advertising. Just don’t act conceited. Having the proper tone to messaging is crucial.
Q: What should companies do with this knowledge?
A: Many large companies are in a funny place with CR. The C-Suite accepts CR as a must-do. Their resistance comes in integrating CR and sustainability thinking into governance, strategy, management, decision-making, and performance measurement. When asked to integrate, an old skepticism comes to the fore: “Why are we throwing away money on all these activities?”. Our research says we have to change our perspective. We need to apply business management discipline to our approach to CR and expect it to generate returns that we will track and measure. If it doesn’t deliver then we need to improve our approach. This is the thinking we’d recommend for companies. Project ROI gives extensive guidance on this approach.