Corporate social responsibility is the duty of a corporation to create wealth by using means that avoid harm to, protect or enhance societal assets.
“Since the U.S. is a developed country, people are more sensitive about not only the quality of products but also the actions of the corporation,” says Ekin Alakent, an assistant professor in the Department of Management, College of Business and Economics, at California State University, East Bay. “This is even true for companies that do not act responsibly in other countries where the public does not have the opportunity to voice an opinion.”
For example, the negative reaction to Apple, Inc., which was criticized for working conditions at the Foxconn factory in China a few years ago.
So how do corporations counteract a negative image?
One strategy is to get involved in public policy, by investing in lobbying, establishing political action committees or making soft money contributions, to offset negative corporate social responsibility records.
Smart Business spoke with Alakent, who researched this topic, about her findings.
How are corporate social and corporate political strategies interrelated?
Both corporate social and political strategies are considered nonmarket strategies, which deal with a company’s engagement with society. Therefore, both strategies have uncertain outcomes, and it’s very difficult to measure their effect on profitability.
To further cloud the causality, smaller companies can indirectly benefit from the investment of a larger company in the same industry. They may also belong to a chamber of commerce that has political action committees to lobby on their behalf.
However, in most cases, companies use both strategies simultaneously.
Which companies are more likely to use political strategy to improve public opinion?
One consideration is what issues are relevant. If there’s an upcoming election and a proposed regulation that would increase business costs, that year a company might heavily invest in issue advocacy groups.
In addition, companies that have poor social responsibility records tend to spend more money on political strategies to offset their negative image in society, such as those in oil and tobacco. Other factors that increase political strategy spending are available resources, size, industry and the extent they depend on government subsidies or support. For example, sugar, energy and agriculture all spend a lot of money on political strategies because they are directly affected by public policy.
Businesses that are more visible, measured by their advertising, care more about their public image, and tend to spend more money on political strategies.
Are there negative side effects to using corporate political strategy?
There is that possibility. Companies that heavily invest in lobbying — and that data is available, who invests and how much, on the OpenSecrets.org database — can be perceived as buying politicians. But, overall, the effect of not investing in political strategy is much bigger.
Corporations tend to overwrite the possible negative image. In fact, businesses spend more money on lobbying than other political strategies.
What do you think business leaders can learn from your research?
An important implication is that political involvement can benefit organizations in many ways. It helps them pre-empt unwanted regulation that could significantly increase their operating costs and improve their public image.
Since both formal institutions, such as laws and regulations, and informal institutions, such as social groups and nonprofit organizations, influence companies, they need to engage with their social and political environment. Be active in shaping the rules of the game. Being proactive with nonmarket strategies can help companies have strong brand reputation and forestall costly legislation.
By using these strategies, businesses are actually investing in a safer, better-educated and healthier society. It shouldn’t only be about offsetting negative public image, greenwashing or having a window dressing. It’s in their best interest to invest in their communities and act responsibly. ●
Ekin Alakent is an assistant professor in the Department of Management, College of Business and Economics, at California State University, East Bay. Reach her at (510) 885-2076 or [email protected].
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