Corporate Social Responsibility (CSR). It used to be just nice. Then it became wise. Now it is a must. It used to be done on the quiet, but now large events are organised and awards given for companies that excel in the area.
In times past, a CSR activity never registered anywhere on the company’s list of important things. These days, companies pay to have their CSR activities published for all to know that the organisation is doing good out there. It is now common wisdom that the better the CSR of the business, the better its chances of standing out in the market place. CSR has therefore become a good differentiator from the competition.
Defined by many as an actions by businesses to integrate social and environmental concerns in their business operations and interactions with their stakeholders, CSR is now a staple on the books of many organisations. To many others, CSR activities are a business’ attempt to look good in the eyes of society. Not surprisingly, many businesses are taking advantage of CSR to polish their images.
The days are far over when all the business has to do was to make money for its shareholders. These days, society demands that the business do more for the good of all. Businesses can no longer take from the communities they work in, make loads of money and just walk away—without giving anything back. There are expectations on organisations to be more conscious of the surroundings.
In some jurisdictions, it is even mandatory for all businesses to have clear-cut CSR policy agenda. Mauritius was one of the first countries to have made corporate philanthropy mandatory. India is also one of those countries where businesses that are of a certain net worth, with minimum turn overs of a certain amount and who make a specified minimum net profit in a given year are mandated by the Companies Act to undertake CSR activities.
China’s Company Act also has a clause that requires companies to undertake social responsibility. France also has something similar. For the French, a company with more than 5,000 employees in France or more than 10,000 employees worldwide must have a plan that identifies and prevents human rights violations and environmental damage in the course of the operations of the said company.
In Ghana, there is currently no such legislation, as yet, that compels all companies in the country to set aside resources for CSR. However, there are attempts to get certain industries to make CSR activities mandatory. For instance, there are attempts to pass a new mining law that would make it compulsory for all mining companies to engage in CSR.
A portion of the draft law reads as such:
“A holder of a mining lease shall sign a community development agreement (CDA) with the communities that may be impacted by mining operations of the holder within six months after the grant of a mining lease in a manner as prescribed in regulations.”
Laws and regulations definitely help in getting businesses to do good. However, it is a fact that legislating morality is always a challenge. People will always try to beat the system. If the law becomes the only reason, or the only motivation, business have for engaging in good deeds for the society, there will always be those who will attempt to find loopholes in the law. This should not be the case, though, especially for businesses who want to be in the good books of their customers.
Businesses should not wait to be compelled by legislation to do good because doing good is actually good business. Doing good must become a part and parcel of the business’ existence. Even for businesses already doing good, it makes sense for them to do more. There are several reasons why doing good is good for business.
The first reason is that doing good, in whatever area the organisation chooses, is beneficial to the recipients. Plain and simple. The residents of a village that just receive a borehole from a business with a head office on the High Street are not concerned about the dictates of the Company’s Act. The clean water they now have access to, right in the middle of the community, is all they are interested in. The number of individuals who will no longer suffer from water-borne diseases are more important for the residents in that community than what happens in the boardroom of that company. Those in the community where a new hospital has been built are grateful to the company whose CSR initiative brought the health facility and that is all there is to it. The lives that would be saved in that facility are all that matter.
However, beyond the good that CSR initiatives brings to deprived and underprivileged communities, there is something else that CSR brings to the table. This benefit should get business leaders, who see CSR activities as unnecessary expenditures, quite excited. The additional benefit of CSR is that it makes customers feel good about the business—and that good feeling comes with extra benefits.
The good feeling that comes from knowing that you are doing business with a company that is doing good is what is commonly referred to as Warm Glow. Warm glow actually refers to those pleasant feelings we associate with doing good generally. If you gave money to the beggar and you felt good about yourself, that is warm glow right there. If you saw someone’s wallet fall out of his pocket and you alerted the one, and thereafter felt good, that was a warm glow moment. If you met someone in distress and offered help, and as you walked away you felt like an angel, that fuzzy feeling is warm glow.
For customers, the warm glow translates into other positive responses. For instance, it has been said that when customers feel good about the good the business is doing, they are willing to pay more for the product or service. It is true that for a customer the best way a business can show that it is fair is to offer its product or services at a most affordable rate. However, what the warm glow of CSR does is to mediate the customer’s natural inclination to pay as little as possible. It is reasonable to surmise that customers would not mind paying more because we are want to do good, or at least, want to help others do good, if we cannot do the good directly.
Although there is proof that customers are aware that companies will transfer the cost of the CSR initiatives on to the price of the product—and some customers would even resent it—the positives of the warm glow outweigh the negatives of paying extra.
One of the things that research has found customers dislike is the idea that they get to pay for the CSR activities of organisations while those organisations get to take all the credit. If the business will be able to bring its customers into the CSR initiative, all the better. If the CSR activity involves a donation or something of that sort, the business can invite some of its customers to be present at the donation. By so doing, customers will love to be part of whatever the business is doing.
By extension therefore, another benefit of the warm glow is that it has been found to enhance customer loyalty. Customers are willing to pledge their future to a business or brand that is out there doing good.
There is a study that was published early this year, in a January 2021 edition of the Journal of Business Research that asserted that even when there is a service failure, organisations that engage in CSR are given a free pass by aggrieved customers, albeit under certain conditions. Titled “Customers need to relate: The conditional warm glow effect of CSR on negative customer experiences”, the study found that the two conditions that mediate the relationship between the customers’ responses to failed service encounters are the customer’s need for relatedness and whether the experiences involve human interaction versus a Self-Service Technology (SST).
There was another study published in the June 2021 edition of the Journal of Business Ethics titled “Beyond Warm Glow: The Risk-Mitigating Effect of Corporate Social Responsibility (CSR)”. This particular study argued that warm glow mitigates customers’ perceptions of purchase risk. In other words, customers will still do business with a business that engages in CSR even when the conditions are not too favourable.
According to the report,
“under conditions of greater purchase risk (i.e., recessions, a service context, and longer-term consumer commitments), CSR positively impacts both sales and customer purchase intentions to a greater extent than in conditions of lower purchase risk.”
There is however one study that gave a word of caution. That study was published in the September 2020 edition of International Review on Public and Nonprofit Marketing. The title of the study was “Cause-Related Marketing: Scepticism and Warm Glow as Impacts of Donation Size On Purchase Intention”.
According to results of the study, the size of the donation, or the amount used in the CSR activity can backfire. Though the amount does not directly contribute to the purchase intention of customers, the bigger the amount spent by the organisation, the greater the chances that the warm glow might be replaced by scepticism.
From the above, it is clear that businesses, in the very least, should give serious consideration to CSR. It is no more a nice thing to do. Clearly, it is now much more. It is now a customer retention strategy. Businesses out there that are having second thoughts about committing time and resources to some CSR venture should reconsider. There is enough evidence that the cost of that initiative would eventually be paid off, if not by the goodwill of those who receive the good; it would be paid off in increased customer loyalty.