Employees and community crucial for companies looking to CSR to turn a profit

Companies need to look to their employees, the community and local residents if they want to ensure their social responsibility initiatives make a profit, a Deakin University researcher has found.

As a result of the research, Dr Taghian and his co-researcher Dr Clare D'Souza from La Trobe University have called for better regulation of CSR claims to ensure they are accurate and protect people from being misled.

"Businesses are motivated and indeed urged to become socially responsible because they expect it to benefit them commercially," Dr Mehdi Taghian from Deakin's Business School explained.

"So, we looked at 203 Australian companies' practices to see if there was evidence to support this."

Dr Taghian and Dr D'Souza looked at the companies' relationships with regulatory authorities, employees, the public, media and unions. They also looked at whether the companies' market share or overall profitability changed as a result of their CSR activities.

"Companies are said to act in a socially responsible manner when they align their behaviour with the norms and demands embraced by their main stakeholders," Dr Taghian said.

"Interestingly only two groups – employees and the community - were crucial in creating the CSR characteristics necessary for the company to in turn develop a positive reputation.

"Relationships with the media didn't seem to be important, nor were those with the unions.

"It was really the people who made a decision about a product that was important.

"It may be that the regulatory stakeholders have no control or interest in what can be interpreted as CSR activities and the media reflect the public's sentiments rather than directly contributing to them.

"Similarly unions support the conditions of the employees and are not necessarily involved in the strategic reputation of an organisation."

Dr Taghian said there was a significant link between a company's CSR activities and its reputation. Organisational reputation was also linked to market share.

"The results suggest that an organisation can develop a positive reputation through its relationships, with its employees and the public.

"This in turn influences the performance of its market share which in turn affects its profits."

Dr Taghian said the influence of the two groups over a company's viability raised concerns about the accuracy of company's CSR claims.

"Many firms these days include a section in their annual report that detail items classified as CSR activities, for instance being environmentally responsible," he said.

"These activities need to be verified in terms of their relevance and accuracy.

"Especially if they lead consumers to favour one company over another when they choose particular products."