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When Does Being Socially Responsible Hurt Your Business?

When Does Being Socially Responsible Hurt Your Business?
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Should entrepreneurs focus solely on growing their business or also be concerned about social causes such as sustainability, women's empowerment, equality or the local economy?

Some people argue very passionately that the "business of business is do business" and everything else is an avoidable distraction. Others argue just as passionately that businesses enhance their long-term success by being socially responsible.

While large businesses can spare some extra cash for social causes, entrepreneurial firms of the lean-startup kind cannot afford to be distracted from their core mission, and therefore must be even more deliberate in picking their social commitments.

Here are three questions to ask yourself before taking on a social cause as part of your business strategy:

1. How naturally does a cause line up with your company's goals?
While it is tempting to be at the forefront of every social issue you care about, as an entrepreneur, you are better off choosing only those causes that naturally align with your organizational mission. This focused approach helps you use your limited resources for improving credibility and building relationships with key stakeholders.

We know from research out of Ivey School of Business that involvement in social causes helps only when it leads to improved stakeholder relationships. General participation in every possible social issue is not of much help to the bottom-line.

Think of it this way: When you are trying to put together the pieces of a puzzle, you want to see a coherent picture at the end. As soon as you see a picture beginning to shape up, you know you are on the right track.

Similarly, social causes you take on are an important part of your "strategy picture" for your consumers, investors and other stakeholders. They are more likely to be convinced if they see a natural fit between your organizational mission and social causes. It is for this reason that "clean coal" is an oxymoron. You can convince stakeholders about coal's employment and economic benefits, but it is bit of a hard sell to claim coal is good for the environment. No Sweat Apparel, on the other hand, can easily rail against sweatshops in developing countries. That is the mission they were founded to address!

2. Are you willing to put in the time and commitment?
If you are going to pursue some social cause, commit to it whole-heartedly. A recent study published in Strategic Management Journal shows that as firms get involved in more socially responsible practices, they also get better at developing credibility with their stakeholders. While consumers might be initially skeptical, thinking of greenwashing, for example, they gradually become more accepting of such practices as legitimate endeavors. This research also indicates that firms need to take a long-term view on the investments they make in social causes. In other words, while it may not pay back immediately, over the long run, it would likely prove good for the bottom line. If, however, you have little ability or desire to wait for pay-offs, don't get involved in the first place. Your half-hearted attempts would likely not provide any returns at all.

Researchers at the Ivey School of Business found that most new ventures in their study performed poorer when they were involved in social causes, except if they had a long-term orientation. In this case, socially responsible activities helped create business value, develop strategic resources and insure against risks.

3. Can you convince employees first?
Before you go convincing the rest of the world, remember charity begins at home. You cannot pursue social causes cynically. Window-dressing or wrongfully-motivated pursuits fail to convince anyone. George Burns's famous quote "Sincerity: if you can fake that, you've got it made" does not apply to this situation. You cannot fake caring for the environment if all your business practices reek of utter disregard for it. You will be found out.

Also, remember, your employees play a critical role in convincing other stakeholders of your sincerity. Research shows that when employees are convinced, you are far more likely to gain from investing in social causes. They are the people who take your message home and elsewhere. Ambivalence on their part does not signal well to others. Thus, focus on convincing them first.

Your social causes need to fit together well with the rest of your strategy picture. Only a focused, long-term, inclusive approach will help your business down the line.
 

The author is an Entrepreneur contributor. The opinions expressed are those of the writer.

Punit Arora is assistant professor of strategy and entrepreneurship at the Colin Powell School of Civic and Global Leadership, City University of New York. He is also a strategy consultant for several business and international organizations.

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