Corporate social responsibility (CSR) is complicated. The public frequently dismisses it as “greenwashing.” A company’s reputation and bottom line take a hit when goals on environmental and other social efforts aren’t met. Conversely, when a company gets it right, the brand and business performance get a boost.
Many companies have made CSR a cornerstone of their strategic vision and shareholder engagement efforts. In 2018, 86 percent of companies in the S&P 500 index published a CSR report, up dramatically from just under 20 percent in 2011.
But compliance can be tricky for any firm, and a new study suggests that CSR is especially complicated for multinationals. After all, managers at subsidiaries are often culturally or geographically distant from the home office. They have to make trade-offs between the social objectives espoused by top executives and the short-term, profit-related realities of running a local business unit. Indeed, prominent firms have suffered damaging social and economic consequences after a headline-generating breach of CSR policies by subsidiary managers, who can be tempted to cut corners. Further, breaches can also result from a simple lack of coordination.
CSR is especially complicated for multinationals, and breaches can result from a simple lack of coordination.
To provide guidance for multinational firms, the study’s authors built a game-theory model of global CSR coordination, which allowed them to simulate and test the complex interactions involved in establishing, implementing, and monitoring real-world CSR policies.
Multinationals can improve their CSR coordination, the authors found, by overinvesting (relative to typical levels) in their social brand — which differs from typical brand marketing in that it also reflects a firm’s commitment to social and environmental issues. The idea is to make it more costly for subsidiary managers not to comply.
As the authors note, CSR marketing is often viewed as a PR-related insurance policy against lapses in managerial judgment. But the authors advise firms to think of investment in the social brand as a way to “avoid, rather than cushion,” the fallout from misbehaving or misguided managers.
However, this tack works only up to a manageable number of subsidiaries, which differs from firm to firm. Once a multinational expands too broadly, the resulting headaches in trying to coordinate a cohesive CSR policy cause firms to lower their investment; as a result, subsidiaries may slack off.
One way the authors found to monitor subsidiary activities in a visible way without increasing internal funding or staffing is to work with social activists and nongovernmental organizations at the local level. Companies can also hire managers who are motivated by sustainability.
“Our results show that CSR engagement coupled with a strong social brand can be either a source of competitive advantage driving MNE [multinational enterprise] growth, or a constraint for international expansion,” the authors write. “The severity of CSR coordination challenges thus plays a crucial role in making CSR investment a blessing or a curse in internationalizing firms.”
Source: “Orchestrating Corporate Social Responsibility in the Multinational Enterprise,” by Christian Geisler Asmussen and Andrea Fosfuri, Strategic Management Journal, June 2019, vol. 40, no. 6