In 2006, Andrew Winston and Daniel Esty wrote in Green to Gold that building corporate reputation and trusted brands is one of the ways smart companies can profit from sustainability. “The better a company does at protecting its reputation and building brand trust, the more successful it will be at gaining and maintaining competitive differentiation,” they wrote.
Six years later, MIT Sloan Management Review and BCG asked 2,600 executives, “What are the greatest benefits to your organizations in addressing sustainability?” The first reply on the list was none other than “improved brand reputation” (40 percent).
So it got me wondering if this is really true – are sustainability and CSR a path to brand reputation management? While it does seem logical and there is no shortage of anecdotal evidence to support it, I decided it was worth checking if this hypothesis is also supported by academic research.
First, let’s be clear about what we talk about when we talk about reputation. Christine Jacob provides an excellent definition in her paper, ‘The Impact of Financial Crisis on Corporate Social Responsibility and Its Implications for Reputation Risk Management’:
“Reputation can be defined as ‘a stakeholder’s overall evaluation of a company over time,’ this evaluation is made up from the stakeholder’s experience of the visible behavior of the company, as well as the images based on the company’s communication and in addition its symbolism in comparison with its major competitors (Gotsi & Wilson, 2001).”
What factors make up a company’s reputation? Key drivers of a good reputation, explain Katinka Gyomlay and Stefan Moser include vision and leadership, products and services, financial performance, treatment of staﬀ, social and environmental responsibility and emotional appeal. These factors, they explain, change over time, reﬂecting changes in society in general and business in particular. Yet, the researchers add, it’s important to remember that “even if the drivers of reputation are in place, a company’s reputation depends on how stakeholders perceive the different aspects of its performance and behaviour.”
It’s especially interesting how stakeholders see companies in situations of crisis and if a solid CSR performance can make a difference then. Jay Janney and Steve Gove checked if company’s CSR initiatives helped companies when dealing with corporate governance scandals. They looked specifically at the stock option backdating scandal that shook Wall Street a couple of years ago and found out that “firms with enhanced overall reputations for CSR are partially buffered from scandal revelations.”
Yet, this rule has an exception, “when firms possess an enhanced reputation for CSR associated with corporate governance, violations pertaining specifically to governance are viewed as hypocritical and more harshly sanctioned,” Janney and Gove add.
Other studies also provide evidence for the idea that CSR can act as insurance by protecting reputation in the face of adverse events. Dylan Minor and John Morgan looked for evidence in S&P 500 companies following product recalls, and found that “firms with better CSR ratings fare better than those that do not.” John Peloza writes that firms viewed as having weak CSR suffered stock declines twice the size of firms viewed as having strong CSR after riots surrounding 1999 WTO meetings in Seattle. CSR, he adds, “can provide incremental gain during good times and subsequent mitigation of negative publicity.”
In a way, CSR helps companies to become more resilient not just to climate change risks, but also to negative information about the company. C.B. Bhattacharya and Sankar Sen, who described this phenomenon, write that “consumers’ motivations to downplay or minimize negative information about a company (e.g., in the event of a crises) that they perceive to be socially responsible is a key reason why investing in CSR is akin to “building a reservoir of goodwill.”
And what about regular times, when companies don’t face one crisis on another? How valuable is CSR then? Apparently, it still makes a difference. CSR “creates a reputation that a firm is reliable and honest,” Abagail McWilliams and Donald Siegel explain. The fruits of this approach can be seen in the relationships between the corporation and consumers. Henri Servaes and Ane Tamayo wrote in a paper published last year that “customers take into consideration firms’ CSR activities when making purchase decisions.”
While consumers might not be willing to pay higher prices for greener products, they will more likely purchase goods from firms that are more socially responsible. The problem is, according to Servaes and Tamayo, that consumers are often not aware of a firm’s CSR activities, which limits the extent to which CSR reputation actually makes a difference in customers’ decisions.
Interestingly, consumers are not just interested in the existence of CSR activities, but are also interested in why companies engage in CSR and even more importantly, as Bhattacharya and Sen write, “are generally wary of the sincerity of a company’s CSR motives.” They quote a survey respondent who said, “Just because a company supports a cause, doesn’t mean they care about anything but a proﬁt. It’s just a tax write-off. Fake images like that turn me off to them.”
In all, it looks like studies support the notion that CSR can impact companies’ reputation positively, helping them improve their reputation with stakeholders and be more resilient in times of crisis. Still, companies need to work hard to make sure stakeholders are aware of their efforts and that these efforts are sincere. Only then the promise of CSR-reputation relationships can be fully realized.
This article was originally published on Triple Pundit
Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and Parsons the New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.