Want to Lead in CSR? Follow Your Customers

What do Lego, Google, Microsoft, and the Walt Disney Company have in common? They are among the world’s best companies when it comes to corporate social responsibility (CSR) – at least in the eyes of consumers who view them as leaders in areas such as governance and corporate citizenship. But according to new research, coming out on top when it comes to CSR isn’t a matter of luck or circumstance: it is directly tied to a company’s overall strategic orientation.

The research indicates that firms with a more customer-focused orientation – where the corporate culture is primarily focused on understanding and being responsive to customer needs – tend to lead the pack when it comes to CSR.

“Firms that are customer oriented have more social responsibility generally and, in particular, more commitment to social responsibility directed at secondary stakeholders, including community groups and environmental causes, without a direct material impact on its bottom line,” says Jacob Brower, an assistant professor in marketing at Smith School of Business who has been studying CSR for more than a decade. He describes primary stakeholders as the customers, suppliers, employees, and investors who engage directly with an organization.

The research, which Brower conducted with Katie Rowe, now a senior communications officer with the Canadian Broadcasting Corporation, involved a survey of 115 senior executives at large publicly-traded firms in the U.S. It included data for those firms relating to CSR dimensions such as community relations, employee relations, product issues, corporate governance, diversity, and environmental performance.

“If you’re looking at what your competitors are doing, you’re less inclined to do something socially responsible than if you listen to what your customers or shareholders are demanding of you”

The study found that those firms that are primarily shareholder oriented also had a strong CSR orientation, though it tends to be directed at improving the bottom line. By contrast, firms with a competitor orientation – that is, a focus on monitoring and comparing themselves to their competition – tend to have a lower overall focus on CSP, as do firms with an inward-facing or process-focused orientation.

For Brower, some of the results are surprising.

“Traditional research indicates that firms that are more shareholder oriented would tend to do less CSR overall, but that doesn’t seem to be the case,” he says. “They tend to have more CSR overall, but it’s focused on things that improve the bottom line, like improving relationships with employees, suppliers, and customers. It can include things like creating less waste and using less energy, reducing greenhouse gas emissions, or doing things to improve the supply chain.”

Customers As Complex Stakeholders

On the other hand, Brower explains, it was traditionally believed that companies with a competitive orientation would also gravitate towards CSR initiatives as a means of staying ahead. That doesn’t seem to be the case.

“If you’re looking at what your competitors are doing, you’re less inclined to do something socially responsible than if you listen to what your customers or shareholders are demanding of you.”

At heart, Brower says, customers are complex stakeholders who may also be community members, parents, employees, investors, and consumers. “For companies, figuring out what drives them to make a decision is much more complex and multifaceted than just looking at your competitors who are trying to win in the marketplace,” he says. Paying attention to customer demands will, by extension, bring about a broader range of CSR initiatives designed to meet the needs of a more varied group of stakeholders.

“My results suggest that customers don’t seem to be pushing firms to do things that are necessarily good for their bottom line,” says Brower. “What they are looking for are things that have a broader impact beyond just the bottom line. They want to see things that have a positive impact on community, a better impact on the environment, and a better impact on the treatment of humanity.”

—Meredith Dault