Financial Performance and Corporate Citizenship: The Chicken or the Egg?

May 2008

Does good corporate citizenship lead to good financial performance, or does good financial performance provide more resources for investing in corporate citizenship?

Recently the Accenture Institute for High Performance Business looked at this question from the perspective of high performance, which Accenture has been studying for years.

The study, which included more than 800 global companies, looked at financially successful companies with the goal of finding out how they differ from their less successful peers, and evaluated their citizenship efforts and profitability over a three-, five- and ten-year timeframe.

Speaking at the Boston College Center's 2008 conference, Paul Nunes, executive research fellow at the Accenture Institute for High Performance Business, explained that the study had three main objectives:

• To analyze how "high-performing" companies perform as corporate citizens compared to their peers;
• To identify common corporate citizenship themes among high-performers that separate them from their peers; and
• To identify common corporate citizenship practices and activities that are unique among the high-performers.

Key questions asked by the researchers included:

• Should companies align their corporate social responsibility (CSR) activities with their business?
• Do all CSR activities need to be local to really matter?
• Are demonstrable measures of the impact of CSR activities critical to success?
• Is regular reporting critical to the connection of CSR and external and internal constituents?

10 Truths for High-Performing Companies

The study provided some interesting insights and lessons for companies in the form of "10 Truths for High-Performing Companies":

It is not surprising that high-performers are more aligned and strategic in their corporate citizenship efforts (Truths 1 and 2), and that they are more transparent (Truth 7).

A growing number of studies have shown that companies that align their business and citizenship efforts often identify new opportunities for growth, through new product and service development, improved reputation, expanded market share or improved employee morale and productivity. The Reputation Institute, for example, has found that a 10 percent improvement in perceived citizenship translates to 11 percent improvement in reputation and 14 percent improvement in a company's market value. Transparency builds trust among stakeholders, which can also translate to reduced costs (e.g., helping streamline the permit process for a new facility), and an improved bottom line.

Having a global corporate citizenship strategy is important. Stakeholders expect companies to apply the same standards everywhere they operate. But when it comes to charitable giving and solving social problems, local focus is the key (Truth 4). Involving employees in deciding what organizations to support has turned out to be a successful strategy for attracting and keeping talent, as Tyson Food, Miller Brewing and Intuit have found, according to Center research.

High-Performing Companies Publish Fewer Reports

One of the more surprising findings from the Accenture study is that high-performing companies have published fewer reports and are reporting less frequently than low-performers (Truths 8 and 10).

Why is that, and what does it mean for companies who are just beginning their journey in reporting corporate citizenship performance?

First, many equate reporting with producing a social report. While the number of such reports has been growing steadily, some corporate citizenship leaders such as Patagonia and Stonyfield Farm have chosen not to produce a report per se, but rather to report their social and environmental vision, impacts and actions on their Web sites.

Speaking at the Center's April 2008 executive education course, Measuring & Managing Corporate Citizenship Performance, Alex Hausman, Timberland's CSR reporting manager, told attendees that a report is great for benchmarking company progress, but Timberland has found it does not allow for collecting stakeholder feedback in a timely way that would allow incorporating it in the business strategy. Starting this year the company will switch to quarterly online reporting of 20 key performance indicators and will produce a social report once every two years.

Second, many companies begin reporting before they are fully integrated and aligned in their corporate citizenship efforts. Simply putting together a report that includes various initiatives throughout the organization, without linking these to a company's mission, vision, values and citizenship strategy, is less likely to bring business benefits and lead to improved performance. To generate value for an organization, reporting needs to be an integral part of performance management. 

High-Performers Provide Valuable Lessons

The debate about corporate citizenship and financial performance will probably continue for years. Yet with the changing business environment and stakeholder expectations, a growing number of companies face new pressures and urgency to help solve social and environmental problems while being open and transparent. The Accenture study provides some valuable lessons from the philosophy and practice of high-performing companies:

• Link charitable programs and corporate citizenship initiatives to the core business of your organization;
• Organize your reporting (online or in a corporate citizenship report) around a central theme related to your core business (e.g., mission or vision for future action, core values or principles);
• Have a global strategy for your charitable giving programs, but execute locally where employees can be involved in decision-making;
• Report on the economic impact of your corporate citizenship activities;
• Take time to align internally - through education, building a cross-functional team, mapping key risks and opportunities and developing corporate citizenship strategy and goals - before moving to external reporting
• To help build trust among key stakeholders, aim to report on all issues identified as important by stakeholders (e.g., using the GRI guidelines or industry codes of conduct);
• Include external stakeholders in the review of the information you report as a way to gain valuable feedback for your business, and build credibility.

With the changing operating environment for business, the question of what comes first - corporate citizenship or financial performance – is becoming less relevant today compared to 10 years ago. According to Center research, a growing number of companies see corporate citizenship as simply the way of doing business in the 21st century: a smart business approach that helps avoid liability, market exclusion, customer boycotts and damaged reputation, while helping differentiate from competitors and identify new growth opportunities.

Back to the May 2008 newsletter>