'Leveraging Corporate Responsibility': The Stakeholder Approach to Maximizing Business and Social ValuePublished: June 05, 2012 in Knowledge@Wharton
"Do well by doing good" is now a mantra for many leading companies. Consumers and other stakeholders demand that companies conduct themselves in a socially responsible way to improve society and the environment. Meanwhile, successful business like Ben & Jerry's and leading academic researchers like Michael Porter and Mark Kramer have shown this makes good financial sense. In Leveraging Corporate Responsibility: The Stakeholder Route to Maximizing Business and Social Value, coauthors C. B. Bhattacharya, Sankar Sen and Daniel Korschun draw on research to show that very few stakeholders -- including consumers, investors and employees -- are aware of what companies are doing to be socially and environmentally responsible.
In their book, they lay out a framework for understanding how stakeholders think and feel about social or corporate responsibility initiatives. The authors also discuss how to build a communications strategy that raises awareness and a corporate strategy that maximizes the triple bottom line. Wharton management professor Witold Henisz spoke with two of the authors, Bhattacharya and Sen, about why caring about the social and environmental concerns of your stakeholders makes good business sense.
Following is an edited transcript of that conversation.
Witold Henisz: It is a pleasure to have this opportunity to talk with you, CB and Sankar. I really enjoyed reading your book on corporate responsibility. I think it offers a great framework and a strong evidentiary base spanning lab experiments, the recent headlines and financial economics. I would like to start by asking you why you think CEOs, board members and more broadly, stakeholders are increasingly focused on corporate responsibility and hungry for the framework that you provide in Leveraging Corporate Responsibility?
CB Bhattacharya: One of the reasons is that stakeholders today are increasingly conscious of not just buying a good product, but also of where the product comes from. That is something that we have seen in the consumer space. There is increasing pressure on companies to deliver and make themselves look responsible in the eyes of the market, in the same way employees today don't want just a paycheck. They want something more from a company. They want a sense of fulfillment in terms of where they work. Even in a reactive mode, companies have to get into the act of being good corporate citizens. There is an investor movement as well. Multiple stakeholders, or you can say society as a whole, have risen up to the idea that we need to be more responsible as organizations and as corporate citizens. All of that, [including] the global warming and the climate change movement [and] human rights, has come together to suddenly catapult corporate responsibility to the forefront.
Henisz: What motivated you personally to meet this demand by writing this book? How did you personally become interested in the topic?
Bhattacharya: I met the [co-founder] of Ben & Jerry's, Ben Cohen, in the mid-1990s. He asked me a very interesting question. He said, "Can you tell me when the consumers would buy our brand rather than a competitor's brand because of the things that we are doing in the social and environmental realm?"
Being a marketing scholar, this was clearly a marketing question. But I had never thought of social responsibility as a driver of consumer purchase. That's when I looked to my good friend, and I said, okay, maybe we need to do something about this. Indeed that was our first dive into this area of corporate responsibility and how stakeholders react to a company's corporate responsibility initiatives.
Over the years, there are many other companies who came to us with similar questions: Procter & Gamble (P&G), General Mills, Target, Dannon. All of these companies seemed to have similar questions in mind, so our body of work just kept growing. Plus the whole space was wide open, so there was question after question that one could [explore]. At some point it looked like, hey, we've got a portfolio here; perhaps we can distill and disseminate the findings to a wider audience than those who read scholarly journals.
Sankar Sen: As an academic, one of the things I saw that was the missing in the space is what CB talked about, which is an academic or conceptual perspective and rigor to a lot of the work that we were seeing in this area. We thought that was a really interesting opportunity to bring some of that, as academics, to the questions that were raised in this area.
Henisz: How does your book differ from some of the other research done in this field?
Bhattacharya: The stakeholder perspective is, of course, a big differentiator of this book from others. Prior to this, no one really had studied consumers and employees to find out, in the eyes of the beholder, if you will, what they feel about a company's corporate responsibility. If you look at websites every company says that they are doing great work and fantastic work, but this was an opportunity to look at it from the other side. What we found was, as you can tell from the book, quite telling.
Henisz: I was curious about the labeling. There are so many labels thrown around: responsibility, social responsibility, sustainability. How do you differentiate corporate responsibility from these other labels?
Bhattacharya: Corporate responsibility is a means to an end, and the end would really be sustainability where we are thinking of the people and the planet, and as businesses, of course, we're thinking of profit. That triple bottom line is where we want to get to. Companies are but one of the agents that can take us there. When companies engage in what it takes to fulfill that triple bottom line, we call that corporate responsibility. We've clarified that in the book in very simple terms.
We are not dealing with the other actors, such as responsible consumers -- that's a big field in and of itself that's emerging now -- or any social entrepreneurship. We figured that corporate responsibility was perhaps the best label and the most honest label for us in this book.
Henisz: You ground a lot of the analysis in the book at the level of the individual, drawing on psychological research and experiments, including many you have conducted yourself. Can you highlight some of the key insights that came out of this research for people who are interested in corporate responsibility?
Sen: From the beginning, we took a very contingent approach in trying to understand stakeholder reactions. Our basic premise was that not everyone is going to react the same way, which is very consistent with our understanding of how human beings behave and think and react to not only what companies do, but what happens in the world around them.
What we found, as it's summarized in the book, were some key insights. The first is that a lot of the people whom we talked to do not really fully understand what exactly companies were doing. Awareness was very low. We found that even when they knew what was happening, there were certain dimensions of their understanding that really mattered when it came to how stakeholders or particular consumers react to what companies do. That included things like what attributions they made about why a company's doing what it's doing, which is very key in this space. It also related to what expectations they had coming into what a company should be doing. Finally, one of the key things we found that really mattered is, are the consumers feeling that what the companies are doing really does something for them personally? That's very much in line with the entire perspective on consumer needs and things like that.
Bhattacharya: In simple terms, we are able to distill this into the form of a model that folks might find easier to remember. We call it the three Us model. And we label them: understanding, usefulness and unity. Unity is really the sense of belongingness between the company and the individual, which drives outcomes such as loyalty, positive word of mouth and resilience to negative information.
We studied outcomes that are really of interest to businesses. Businesses have coveted these outcomes for a long time. Through this micro-psychological perspective, we are able to show that corporate responsibility, indeed, can contribute to these outcomes even when you hold all else constant. We are able to show fairly convincingly that this is an additional driver of marketing- and business-coveted outcomes.
Henisz: One of the things that is interesting is that you are able to draw a contrast; you are able to say it's not just what the company is doing that may or may not be responsible, but how it is perceived. The perceptions among consumers and employees are really what drives outcomes. That gives a real prominence to the media strategy and the communication strategy that the company employs. Can you speak a little bit about your findings there?
Bhattacharya: Communication becomes absolutely key. As I said, first of all, we found awareness to be low. A very simple truth is that if people don't know what you are doing, there is no way that they can reward you. Companies will have to work on increasing that awareness. However, that's a slippery slope because in our research we found that stakeholders oftentimes receive these messages as propaganda from companies or self-promotion. One of the implications that we highlight in the book is that when it comes to talking about your corporate responsibility, tell don't sell. Don't try to make more of it than [appropriate], but rather get the facts out there.
What we find is that stakeholders really want companies to be outcome-focused rather than input-focused. What that means is, don't say that we are spending hundreds of millions of dollars on solving this crisis, but rather say that we have saved 100 lives or we have kept 200 people warm from the cold winter. If you focus on what you have achieved as a company in the corporate responsibility realm, that makes a much bigger difference than if you just keep on saying, yes, we are trying.
When it comes to corporate responsibility, there is far more skepticism, and in the communication strategies, we suggest ways to navigate this path and achieve a good outcome for the companies.
Henisz: What form of media? Are we talking about using broadcast media, using print media, using social media? How do you integrate these different forms of the communication strategy to target individual stakeholders with the message of the outcomes and your efforts in this area?
Bhattacharya: It spans all of them. In our book, we did not get into that level of media planning strategy and at what point or with which target segment a particular media strategy might be more effective than another. That would have to be on a case-by-case basis depending on the company and the context.
Sen: One of the key points we make is that when it comes to your media strategy you have to segment your stakeholders and your market in terms of what messages you want to go to which group at what stage of the evolution of your corporate responsibility initiatives. If you take Nestlé as an example, they identify thought leaders in the space and they send them personal communications, [in addition to] general ads and corporate responsibility reports. If an NGO attacks them in the social media space, they would have to be savvy enough to address that issue in that space.
Henisz: Throughout the book, you provide a wealth of great anecdotes and experiences of individual companies with which you have worked. I wonder how different you feel the perception in the C-suite is about the importance of corporate responsibility from the classroom, from future managers? And what explains that gap?
Bhattacharya: Recent evidence suggests that the C-suite is taking notice of what's going on. There was a recent study by Accenture published in Businessweek where they surveyed CEOs and C-suite managers, and they all had very strong, unequivocal concerns about sustainability and the important role that sustainability would play in the corporate world in the years to come.
Are they actually going to take note of the details? No, perhaps not. For the C-suite, the message from our book is very simple. The message is that the only way corporate responsibility makes a difference, both to society as well as to the bottom line of the company, is if it is fully integrated into the strategy of the company. If you give it that respect and if you think about it [in the same way as] you would think about your business strategy overall, then and only then can you actually create value.
One important message that we emphasize is that the only way to create business value through corporate responsibility is to create social value first. Creating social value -- and when I say "social," I mean environmental as well -- is a prerequisite to creating business value through corporate responsibility. In other words, there are no shortcuts.
Henisz: This bears a lot of similarity to Michael Porter's recent work on shared value with Mark Kramer. It's a seductive appeal to say we can do well, create profits and create value for all stakeholders. But at the end of the day, we also have to capture that value for our shareholders, capture our share of it. If we just create social welfare, if we just create total benefits, how do we know that in the end we will sustain ourselves as a company? What advice do you have to make sure that the company captures its share of the value it's creating, as opposed to it all being distributed to external stakeholders?
Bhattacharya: In the approach we take, if a consumer is more loyal to the company's products or says good things about the company, then that value accrues to the company. In our framework, we are looking at social and environmental value, and we are looking at business value. Our statistical models, as well as the conceptual frameworks, are able to demarcate between creating value for society as well as creating value for the company.
When an employee stays longer at the company or is going to be more productive, which we're also able to show statistically, then that value is essentially being captured or is accruing to the company, and we don't see the danger of it being lost.
Sen: I think it comes back to the basic premise of our book, which is that there's a demand for corporate responsibility and sustainability from the external stakeholders. If a company [responds to] that, then the stakeholders will reward them because their needs are being fulfilled.
Henisz: It is also obvious from reading the book that you are drawing on a lot of statistical studies and lab experiments. I wonder if there is a particular study or experiment that really shaped the way you perceive the importance of these initiatives or that really has an impact on managerial audiences?
Sen: The one that stands out for me always is the work that we did with yogurt brands. We contrasted Stonyfield, which is very well known for its work in the corporate responsibility space, with other brands, which actually are, you could argue, equally involved but are not fully identified with that. What we found was very interesting in that the consumers of Stonyfield felt much closer to the brand, identified and felt more unity with the brand, and ultimately rewarded the brand more than consumers of the other brands, even though all the other brands were quite actively engaged in corporate responsibility.
To me, that really encapsulates the essence of the book, which is that if you really understand your stakeholders, if you really know what they are looking for and if you can deliver on that as part of your corporate responsibility initiatives, then going back to your previous question, that's going to help you capture more of the value than if you were just doing it in a scattershot way.
Henisz: What do you think is the most important point managers need to remember about corporate responsibility that should guide their actions today and in the future?
Bhattacharya: They should remember that corporate responsibility has to be thought of in terms of a long-run strategy. It's not something that gives immediate returns. You cannot make a difference in the immediate run. And you have to work hard at it. If there's one thing we learned from the book, it is that it pays to be responsible only when your stakeholders perceive that there is some difference that you are making to the community and to the environment.
It's that the sincerity of the firm absolutely has to be unquestionably there. If you make that difference, then and only then, you can reap the value. We say that there is value to be extracted, but it's not there to be grabbed. It's not simple. You have to work hard and make a difference to society and the environment to get that value out. But it's a win-win for all. The triple bottom line is not a zero-sum game, in other words, which seems to be a belief in the corporate world that if we do invest in corporate responsibility, we're doing that at the cost of our business. I think our book clearly shows that that's not the case.
Sen: The only thing I would add to that is to understand and respond to your stakeholders. It is easy to say, but I think it is quite challenging at the operational level. If companies can figure out how to do that effectively, that will make a big difference.