—RIT Business Professor Clyde Eiríkur Hull
For decades, scholars have argued about how social responsibility—companies taking care of their employees, the environment, their communities, and generally being proactive about doing the right thing—affects company bottom lines.
In other words, does being good pay?
Yes, it pays to be socially responsible—but more for some companies than others, according to Clyde Eiríkur Hull and Sandra Rothenberg, business professors in the E. Philip Saunders College of Business at Rochester Institute of Technology.
Understanding the effect of social responsibility on firm financial performance has been a challenge for researchers, according to their recently published article in the Strategic Management Journal. “First, the problem was that no one had objective data,” says Hull. “But a lot of effort went into solving that, and we’ve had good data for a long time. Our model is more complex than its predecessors, incorporating the direct and moderating effects of innovation and industry differentiation.”
It took some detective work to figure out how the relationship actually worked. The culprit? Innovation. Innovation is such a strong driver of firm performance that it hides the effects of other things, such as social responsibility. And many of the most innovative companies are also very socially responsible.
Google, for example, is strikingly innovative and also famous for its social responsibility. Would it be as successful if it were just as innovative but not so responsible?
When you’re innovative, social responsibility doesn’t much affect your success, explain the authors. But when you aren’t as innovative, social responsibility can help your performance a lot.
“Innovation typically spikes and drops—most companies don’t come out with an earthshaking new product every Monday,” says Hull, assistant professor in management at RIT. “Social responsibility, on the other hand, endures. Google innovates a lot and while it’s not the most innovative company on the block, most people stay loyal because it’s a ‘good’ company.
“Then when Google leapfrogs the competition again, it doesn’t have to regain those customers—it can focus on gaining new ones. Innovation takes you up and social responsibility keeps you there.”
They found that social responsibility balances more than 80 percent of the drop in performance a company might otherwise suffer by losing its innovation edge.
According to Rothenberg, associate professor in management at RIT, the results have important managerial implications as well. “For companies deciding to become more socially responsible, this means that good social performance can actually help the bottom line,” she notes.
“Perhaps even more important, CSP appears to be a way to differentiate your company and, in turn, enhance financial performance. This may be particularly significant for companies with low levels of innovation and in industries with low levels of differentiation.”
Hull agrees. “Now managers know that there isn’t a zero-sum game. You can improve your company’s social performance without hurting the bottom line. In fact, properly managed, like at Google, social performance can set your company apart and really boost your financial performance.”
Professors Clyde Hull and Sandra Rothenberg are available for media interviews. Feel free to contact them directly at (585) 475-6794 or firstname.lastname@example.org and (585) 475-6032 or email@example.com.