Corporate Social Responsibility: Doing Well, Doing Good, or Both?

Over the last few decades, the practice of corporate social responsibility (CSR) has grown exponentially. It’s not hard to understand why. Numerous studies have shown that CSR—in the form of pollution-reduction efforts, charitable giving, and the like—can boost corporate profits. On top of that, it can give an equally powerful boost to a company’s public image.

But what about the societal impact of CSR? Does it actually make a difference? And would other organizations—such as highly focused nonprofits—be better equipped to pursue social responsibility initiatives?

The answers: It depends. That’s one conclusion reached by Assistant Professors Jiao Luo and Aseem Kaul in their recent research on CSR.

“We found that CSR is financially beneficial to firms that pursue it,” Luo notes. “But while it will benefit their bottom lines, it might not always benefit society.”

Why? One reason is that firms might overstate their CSR impact. Another factor, as Luo explains, involves overlapping efforts between corporations and nonprofits. Thus, if corporations and nonprofits are doing essentially the same thing, nonprofits typicallyproduce more tangible, lasting results. Why?

“Nonprofits are often better at this type of work,” she says. “That’s why we have them in the first place. They play an extremely important role.” Where corporations are truly helpful is where they undertake activities closely linked to their existing businesses, which nonprofits would find hard to emulate.

Luo’s research has some wide-ranging implications. For consumers she suggests: “If you are looking to reward a firm for its socially responsible work, you may want to make sure that the benefits it claims are actually being delivered,” says Luo. “You also want to be sure that the firm is really providing a different and better solution than one provided by a nonprofit.”

On the flip side, Luo says firms looking to embrace CSR should weigh key questions. “It’s important to ask: Are we going to do something that only we can do—and that an existing solution provider such as a nonprofit cannot?”