Corporate Social Performance – measuring performance on a social scale
We all have our own share of daily tasks to keep track of and the greater the task, the greater the responsibility. So if you are a company, more precisely a corporation, how do you quantify and measure responsibility? How do you know if you are performing well, from a social sustainability viewpoint?
This is where two terms come in handy – CSR and CSP. CSR refers to Corporate Social Responsibility and is defined by business editor Nicole Fallon, in her article What is Corporate Social Responsibility?, as being ”a business practice that involves participating in initiatives that benefit society.” CSP stands for Corporate Social Performance and is basically a measurement of CSR – how is your company faring in the great sea of social responsibility, towards its employees and consumers.
The interest in investing towards CSR-oriented objectives has come a long way and for many leading companies in the world today, it is a major focus point. An Accenture – UN Global Compact study from 2010 revealed that out of the 766 CEOs included in the sample:
- 93% declared sustainability as either ”important” or ”very important”;
- 81% declared that sustainability-related programs and issues are embedded into the general strategy and operations of their businesses.
Having this in mind, we can only ask ourselves – what precisely is the driving mechanism behind it all? What motivates companies to outperform their competitors on the CSP scale?
According to a research endeavor made by Ioannis Ioannou, from the London Business School and George Serafeim, of the Harvard Business School, country-level institutions weigh in heavily on a company’s engagement in socially responsible actions. Legal, political, labor market and capital market institutions all influence, in lesser or greater degree, the final CSP score.
If we take a look at the first category of institutions, namely country-level organizations, their study depicts a somewhat negative interaction between finances and CSR: countries with regulatory structures that promote strong competition between firms also tend to tolerate lower CSP scores. This means trading a bit of social responsibility performance for a bit of economic efficiency.
It is, by no means, as bad as it may sound, due to the fact that the same companies which engage at first in this sort of tradeoff will subsequently garner a healthier financial pool from which to invest in sustainability-related objectives. Furthermore, countries with low levels of corruption tend to attract more companies willing to contribute to the aforementioned objectives.
A surprising fact was noted by Ioannou and Serafeim when looking at political institutions. In states where the majority in congress, or the upper room were proponents of left-wing ideology, companies tend to engage less in CSR-driven tasks; the reasoning behind this could be the high level of corporate taxation and as such, businesses encounter a lack of funds for such tasks.
Moving on to labor market institutions, we can find two of the most significant determinants of CSP – labor union density and availability of skilled labor. A greater tolerance and thus, presence, of labor unions will cause firms to be way more invested in social sustainability causes.
Moreover, if highly-skilled employees are scarce, companies will double on that investment, in order to retain valuable personnel. This type of behavior is encountered even if there are enough workforce members to go around – in recent years, companies have shifted their focus from streamlining employees to keeping the constant outperformers in-house.
Lastly, capital market institutions matter relatively less when we compare them to the other institutions, the study not finding any significant connection between this variable and CSP.
What can we learn from all this information? Well, for starters, this is the first study to actively engage in finding out what drives social performance scores. Another aspect is that companies score better on this scale in countries with solid legislation, low levels of corruption and if they wish to keep their MVPs; having a mostly right-wing legislature is an added bonus, apparently.
All in all, from a business manager’s point of view, one has to take notice of multiple factors when considering their sustainability performance – responsibility is multifaceted and as such, it requires a high level of attention to details and clear decision-making.
This was a general presentation, based on professors Ioannou and Serafeim’s study, but if you are interested in finding out how to translate the information in this article into practice, continue to the following article on Performance Magazine. It contains details on how ATOS, a business technology company, manages their CSR programs in order to attain as high a CSP score as possible, by linking KPIs to legal and labor market institutions and regulations.