Yes, Responsible Companies Perform Better

Companies can bank social responsibility on their bottom line
by Shel Horowitz

roundtable-csr

Study after study shows that companies known for sticking to their values perform better on financial metrics. While this may be a surprise to some, it actually makes total sense that socially responsible investments do better. Several factors increase the likelihood that conscious companies perform well:

  • Clean-hands companies don’t have to pay expensive lawsuit settlements around pollution, safety violations or discrimination.
  • Brands that tell only the truth don’t worry about being caught in an embarrassing and profit-killing lie.
  • When customers believe that a firm has their best interests at heart, they come back again and again — and since it’s far more profitable to bring back an existing customer than to bring in a new one, the profit ratios on repeat business are much higher.
  • If faced with a choice between a company known as an ethical leader and one that is not, many consumers will choose to place their shopping dollars with the values-based company.
  • Companies with a stellar reputation find it much easier to market.
  • People like working for good companies with strong values and excellent working conditions; these companies waste a lot fewer resources on hiring and training because they retain the people they have, and those employees will be quick to recruit their friends when the company needs to hire.
  • When customers fall in love with the way a company does business, they start recruiting other customers — they actually become that firm’s unpaid sales force, and that leads to greater profits through reduced marketing expenditures (we’ll talk more about this later).
  • Ethical, eco-friendly companies are much more likely to build a lasting business, and build it more easily.
  • Joint ventures are much easier to organize, because the other partners expect that they’ll be treated ethically and respected for what they bring to the enterprise.
  • The high value of goodwill will be factored into the sale price if the business is sold.

And the No. 1 reason …

  • Ethical companies never have to worry about seeing their CEO pictured on the front page, in handcuffs.

Need a practical example? Consider superpremium ice cream. How is it that a funky, hippie company in northern Vermont, whose founders had no experience in either making ice cream or running a business when they started, grabbed almost half the market in a crowded field?

My theory is that Ben & Jerry’s succeeded precisely because of its branding as a socially conscious brand. Customers who knew about the company’s projects to help farmers, disability-friendly hiring practices, and commitment to renewable energy would choose Ben & Jerry’s over competing brands right next to them in supermarket freezers precisely because they wanted to support a company that supported the community.

Not surprisingly, socially and environmentally responsible companies perform well in the financial markets, too. Merrill Lynch put the value of “values based investing” (VBI) at $6.57 trillion by the end of 2013. Earlier Merrill Lynch reports noted, “companies that ranked high in responsible economic, environmental, social and corporate governance issues demonstrated lower volatility globally and provided higher dividend yields in the U.S. than those with lower scores” and “the question, then, is no longer about whether VBI is profitable but about how individual investors can define their priorities around sustainable investing.”

In other words, corporate social responsibility (CSR) policies reduce investment risk. Which leads to wondering: Would Merrill Lynch have gotten into so much trouble in 2007 and 2008 if the company, itself, had pushed an agenda of economic, environmental and social responsibility?

Top-tier consulting company Deloitte wrote an entire white paper on the advantages of strong CSR programs and the disadvantages of environmental liabilities during mergers and acquisitions. Risk assessment and due diligence lead to lower prices for companies whose acquisition could bring in toxic “assets” that result in lawsuits and negative publicity — while companies have increased their worth to a buyer by exercising CSR and environmental leadership, especially if they market these virtues properly. A grocery retailer, for example, paid more to acquire a company known for its community focus and sustainable approach to procurement, store operations and distribution, and community involvement programs. —Adapted from Guerrilla Marketing to Heal the World by Jay Conrad Levinson and Shel Horowitz

Shel Horowitz, known as “The Transformpreneursm,” is co-author of Guerrilla Marketing to Heal the World. This book, Horowitz’s 10th, shows how to profit by going greening, fixing hunger/poverty/war/climate change, and marketing these commitments. 

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