The Case for CSR Brand Value Calculation in Market Uncertainties

For too long, CSR managers have been content to treat CSR as something a company did in isolation, compared to those activities that create value and add to a company’s bottom line and corporate value. Abundant evidence to the contrary does not exist, says the free market Economist magazine, which proclaimed in early 2008 that there were only two kinds of companies – those that do CSR poorly and those that do it well. Those that do it well, it said with no qualification, are likely to outperform those that do not. But CSR is still an emerging management strategy and very few companies take the rigor they bring to all parts of their business to their CSR investments.

This is particularly true in the area of quantifying CSR’s impact on profits and corporate value. It is as the old business maxim suggests: if you don’t measure it, it doesn’t exist. More practically—and because the benefits of CSR are well known if typically unmeasured—if you don’t measure it you can’t manage it and if you can’t manage it, you can’t maximize returns and impacts.

Quantification is vital, as CSR managers are almost uniformly challenged by CSR skeptics or the pro-free market Sharks of CSR disbelief. But even if an executive rejects CSR on ideological grounds, it is still unacceptable in a modern company. Questioning it for lack of quantifiable proof, however, is entirely rational. Measurement and all it implies – responsibility, accountability, room for improvement, etc. – is critical and the Sharks are right about that at least. Without it, how can the CEO’s and CFO’s guard profits and value and, hence, justify to shareholders and stakeholders any investment of time, energy and capital needs in CSR?

Very few CSR managers make the CSR business case in a way that CEOs or CFOs need for comparative investment purposes, preferring to go “intangible”; preferring to argue, as many once did, against brand value: that it is too hard to measure and therefore don’t. CSR contributions are often readily recognized, but rarely is CSR adequately explained in terms of both profitability (i.e., contributions to annual performance) and long term corporate value (i.e., balance sheet contributions).

As it was once with measuring brand value, it is now with CSR contributions. Skepticism is understandable as CSR contributions involve quantification of some pretty tough and fuzzy social and environmental concepts/impacts. There are many competing ways to measure CSR and it is far from the science that financial accounting has risen to, but to believe that it is immeasurable is simply a wrong and a seriously outdated perception.

Without a solid business case, why would any CEO be expected to approve a CSR investment, except possibly as small percentage of profits? So when times get tough and costs are getting cut, non performance defended CSR is often first on the cutting block.

If such a calculation cannot be made for all CSR activities within a company, it may be possible to estimate ROI for a representative number of CSR activities. Eco-efficiencies in the areas of energy consumption, water use, and carbon emissions are typically well quantified, particularly if a company has social and environmental reporting tools such as the Global Reporting Initiative (GRI). Other components that are relatively easy to quantify are local economic impacts such as employment generation, use of local suppliers, and in some cases, local economic multiplier effects. Smart companies use CSR management software making CSR return calculations less difficult to undertake.

The CSR manager may also want to address some seemingly less tangible but nonetheless important issues central to CSR Brand Value, one of which is absolutely vital: trust. Trust has emerged over the last 10 years as a critical company asset. Clients need to trust that a company will stand by its products and services. Employees need to trust their managers; suppliers need to trust buyers will stand by purchase agreements; buyers need to know suppliers will be solvent long enough to meet their needs; clients want to be sure companies will stand by quality and service claims; external stakeholders insist that corporations live up to their public pronouncements on social and environmental impacts.

If trust is so important to business, why do so few companies manage it well? At a time when emotions are high and change is rapid, both internal and external stakeholders are constantly recalibrating how they expect a company to behave, often without reference to a company’s articulated goals and activities. Trust is a core component to my company’s CSR Brand Value methodology and is highly sensitive to negative impacts, perceived or real. Not meeting expectations, realistic or not, can severely damage the trust-glue that holds stakeholder relationships together. This can do long-term harm to a company’s overall brand value. This is true not just for CSR strategies and activities but for any set of relationships that builds and thrives on trust.

CSR Brand Value Maintenance and Trust Management Keys

Understanding how the “CSR Brand Value” contributes to a company’s bottom line and long-term value are only the first steps to maximizing returns and impacts. CSR managers must translate return information into a cogent cost-benefit analysis for maintaining CSR resources and/or making new strategic CSR investments.

CSR Brand Value scenario planning helps identify important market sentiments and stakeholder expectations, as it will for any business investment decision. Scenario planning should focus on risks and opportunities as the operating, market and stakeholder context unfolds. Assessing stakeholder risk relative to various company performance scenarios is particularly important, as is defining “action” trigger points that help cover risk and or take advantage of opportunity.

There are few benchmark “comparatives” available on CSR risk and opportunity related to downturns, but CSR managers can access a broad range of case studies that, while anecdotal in nature, can help to establish the relative financial risks or gains a company may be facing. Social investment analysts have been tracking the relative costs of any number of CSR Brand Value variables for over 30 years. Assessing this information and related social investment indexes, may prove helpful for benchmarking and risk/opportunity assessments.

More with Less

Like all departments or activities within a firm, CRS will likely have to do more with less during uncertain economic times. Creativity is required if the opportunities offered by a volatile markets are to be realized. These are not times for conventional ideas, but for new ways of thinking that break free from experience built on ”how it was”, as those times simply do not exist any more and are very unlikely to return.

What does creative thinking mean for CSR? Examples, from simple to complex, abound. Service companies with few means of reducing carbon impacts, for instance, can invest in one of any number of alternative energy investment funds instead of simply donating carbon offsets to a third party or planting trees. This creates a new asset for the company, encourages financial capital formation for alternative energy, sustainably offsets carbons and increases the planet’s environmental capital base. Which of the two strategies is a better public relations story?

Few CSR managers have the freedom to think creatively, often because they fail to make a solid business case for investments when economies are thriving and because they can get away with being strategically and operationally sloppy. For any CSR business activity to make sense today, it must not only have a solid business case, but it must also be seamlessly integrated into a company’s broader business objectives and strategy. If the CSR strategy of simply “doing good” was acceptable in times of plenty, it will certainly be fed to the Sharks in the downturn. And rightly so!

Managing CSR Brand Value in times of Uncertainty

The experience of brand valuation in volatile times is likely the most appropriate analog for CSR. Through the 1980s and 1990s and even today, brand management budgets were/are often the first and most radically reduced during times of recession. Unable or unwilling to assess brand value contribution to overall corporate value, financial decision-makers found it easy to target brand budgets.

This is unfortunate because brand value is seen as a leading indicator of corporate value and brand perception often influences an investor’s decision-making. Not surprisingly, brand value can constitute a significant percentage of a company’s market value – think Coca Cola, Microsoft and GE. And it’s not just consumer product companies. Business-to-business companies with savvy branding programs such as Intel and Boeing, among others, also reap great returns on brand investments.

This realization has led 40% of corporations surveyed by KPMG to say they will maintain a consistent level of brand investment during current market uncertainties, while another 15% will actually increase investments in brand.

These companies understand that effective brand building is cumulative and requires constant tending during good and bad times alike. During volatility, risks are higher as there are typically fewer financial and staff resources to manage brand value. Even minor mistakes can result in significant brand value devaluation. Recall that for each negative report on your brand, 12 positive responses are required to repair the damage.

When resources are scarce, brand managers must use all available methods and channels to reinforce their brand message. Thinking creatively about client and stakeholder perspective is helpful. Some actions can be more symbolic than costly: showing up to a government bail-out request in a hybrid packed with company stakeholders instead of a corporate jet, for example. Others can be more meaningful, such as replacing expensive celebrity endorsement with programs that support for local organizations or activities important to company stakeholders such as scholarship programs for laid off workers.

Too many companies simply reduce brand and marketing investments across the board during times of market uncertainty without referring to a broader strategy. This makes little sense, particularly as many competitors are similarly reducing brand investments and creating great opportunities for those willing to take calculated risks. Smaller grocery brands in the United Kingdom, for example, which maintained higher levels of marketing than their competitors during the 2001 recession, increased market share by as much as 15%. Similarly, in a little known success story, a food company new to Indonesia introduced noodles to the prominently rice eating country during the 1991 recession by selling at cost. Grateful, and now loyal, consumers gave that company a significant share of the basic food market in the country. Matching marketing needs with cash-strapped Indonesians turned out to be a simple, yet brilliant, CSR stakeholder marketing strategy.