The Halo Effect: Companies With A Conscience Really Do Perform Better

Analysis, Business 2697 views

Corporate Social Responsibility

There’s now clear evidence that a company’s corporate culture can have a significant effect on its long term economic performance. Paying attention to more than just returning profits to shareholders can result in a huge payoff, not only in terms of positive feelings from customers, but also in terms of actual profits and better customer service.

According to an estimate last year by consultants EPG, it’s estimated that the largest firms in America and Britain together spend more than $15 billion (£9 billion) a year on Corporate Social Responsibility (CSR). (And by CSR here I mean when companies include social and environmental considerations in their business operations on a voluntary basis – so not just philanthropy, but an ongoing and integrated practice).

Now that’s a lot of money, but companies like Microsoft, Google, Walt Disney, Apple and many others all reap the rewards of a positive reputation that a strategic CSR programme can bring. But as Kaiser Wilhelm II once famously said: “Morality is all very well, but what about the dividends?”

Well, increasingly it’s now being shown that as well as creating a warm fuzzy feeling, CSR can actually add value to businesses, and there are several reasons why this is. Firstly, consumers tend to take CSR spending as a sign that a company’s products are of a high quality and that the company as a whole occupies an upmarket position in the market. Secondly, customers may be more likely to buy a company’s products as an indirect way of donating to good causes themselves, while feeling part of a wider community.

Thirdly, there’s a ‘halo effect’, whereby a company’s good deeds can earn it a greater appreciation and positive feedback from customers, which in turn can lead to greater customer loyalty and less churn. And, finally, several studies have shown that employees really do prefer working for companies that ‘do the right thing’ and that affects the way that they interact with customers. Engaged employees are more enthusiastic and committed and that makes them more productive.

A recent study from Drexel’s LeBow College of Business has shown that frontline employees – those dealing directly with customers – become more motivated to serve customers better and engage them in conversation about their company’s ethical stance when there is a CSR programme in place.

Researchers Daniel Korschun of Drexel University, CB Bhattacharya of the ESMT European School of Management and Technology, and Scott D Swain of Clemson University surveyed more than 200 employees at a Global 500 financial services company. They found that those who do gardening or household chores for the less fortunate as part of a CSR programme find they have something positive and engaging to talk about with their customers and that creates a positive connection.

Another recent study from global HR consultants Hewitt & Associates looked at 230 workplaces with more than 100,000 employees and found that the more a company actively pursues worthy environmental and social efforts, the more engaged its employees are. Add all to this to the fact that companies with highly engaged employees have four times the earnings per share of companies with low engagement, and you’ve got a compelling business case for CSR as a real business game changer.

And incidentally, it’s not only the customer experience that benefits; in a recent study by Harrison Hong of Princeton University and Inessa Liskovich of the University of Texas and reported by the Economist, a company’s corporate social responsibility efforts can also reduce its liability if it finds itself in the unfortunate situation of being prosecuted for corruption. The study found that ‘among prosecuted firms, those with the most comprehensive CSR programmes tended to get more lenient penalties.’ So, all in all, some very good reasons for CSR to take centre place in your business plan.

Nicholas Mitchell

Nicholas Mitchell is MD, EMEA, at intuitive customer experience company [24]7. Nick has a background of delivering IT supported, business transformation programs, along with providing differentiated customer service solutions. With [24]7 he works with some of Europe’s most prominent brands to deliver a more intuitive and omnichannel customer experience.