How to evaluate CSR impact: The importance of corporate social responsibility evaluation
If you knew a teenager in the early-2010s, there is a fair chance they had a pair of TOMS. The casual, trendy canvas shoes took the footwear market by storm in 2011, where its ‘one for one’ corporate social responsibility (CSR) scheme snowballed into celebrity endorsements and social media acclaim. By 2013, TOMS was making $250 million in sales, was sold in over 500 retailers across the United States, and had donated over 10 million shoes since its launch.1 Today, TOMS is owned by its creditors, restructuring a debt of $300 million the company failed to pay back.1 So, what happened?
Case Study: TOMS’ corporate social responsibility
It turns out that the one-for-one model of shoe donation might do more harm than good to receiving communities. Critics claimed that donating shoes could disrupt local economies and failed to address the causes underlying poverty - consumers and influencers alike rapidly adopted this criticism.2 To make matters worse, TOMS shoe design was easily copied by competitors, and many of them one-upped TOMS’s CSR initiatives. Skechers, for instance, began selling BOBS, which looked the same as TOMS, were cheaper, and donated two pairs of shoes for every shoe sold, to TOMS’s one donated shoe.1 TOMS ended up pivoting away from the ‘one for one’ model in 2019.
TOMS’s story highlights the importance of evaluation in CSR strategy. It's easy to imagine an alternative world, where TOMS evaluated the impact of their ‘one for one’ model, and optimized it in anticipation of the public criticism and imitation by competitors. Instead, TOMS stayed the course.
Impact Evaluation vs. Impact Optimization
Impact optimization isn’t an obscure idea: firms do it on a daily basis in areas like marketing, logistics, and strategy. The idea of continuing with the same marketing strategy for years on end, without incorporating any meaningful changes suggested by internal metrics or assessments, seems ludicrous.
However, this is common practice in many firms with regards to CSR. Three-quarters of companies already have some type of CSR evaluation protocol, however, these evaluation methods are often disconnected from the decision-making process when it comes to CSR initiative renewal.3 The monitoring and evaluation of CSR outcomes is disconnected from the decision-making process. Optimization refers to bridging this gap, re-establishing the connection between evaluation and action.
Over half of firms rely on internal ideas to update their CSR initiatives3
More often than not, companies rely on the ideas or experience of the executive team to make changes to their CSR initiatives. While this approach may be pragmatic, it’s not sustainable. Firms can certainly design CSR initiatives on their own, but if firms don’t actually evaluate if these internally-designed initiatives are socially responsible, they run the risk of appearing inauthentic: the cardinal sin of CSR.
The current approach to CSR monitoring, where there exists no connection between evaluation and optimization/future decisions, just reinforces the idea that CSR is a public-opinion exercise. CSR activities are perceived as inauthentic because firms generate initiatives without evaluating and optimizing their impact. Optimizing impact has the dual benefit of allowing the firm to avoid the inauthenticity trap while improving the outcomes of their initiatives.
Only 6% of companies evaluate their CSR programmes3
Ultimately, return on investment for CSR isn’t measured in social outcomes, it's measured by how CSR influences the perception of the firm. Since most firms are focused on utilizing CSR to retain and recruit the best staff, they tend to highlight the ‘sexy’ numbers associated with their CSR initiatives. The disinterestedness in CSR optimization arises from the belief that the primary goal of CSR is not the goals of the social initiative itself, but rather the perception of the firm investing in and completing the initiative.4
The attractive figures associated with CSR - like dollars donated or volunteer hours worked - can be generated without impact optimization. CSR evaluation, therefore, presently exists to track existing program outcomes, rather than improving outcomes. CSR impact tracking is thought of as an optics tool rather than a strategic leverage point.5 As a result, any sort of CSR impact measurement is done with a reporting outlook, rather than an evaluation outlook.
Behavioral Science, Democratized
We make 35,000 decisions each day, often in environments that aren’t conducive to making sound choices.
At TDL, we work with organizations in the public and private sectors—from new startups, to governments, to established players like the Gates Foundation—to debias decision-making and create better outcomes for everyone.
How do you decide on the continuity or need to change or innovate in the social programs that are implemented by your organization? (Kowszyk & Vanclay, 2020).
Don’t assume extrinsic stakeholder motivations
The typical CSR evaluation model relies on the assumption that the target audience is interested in flashy figures, which makes optimization dispensable. However, that assumption doesn’t line up with the actual expectations of stakeholders.
In behavioral terms, managers’ are biased towards thinking that the key stakeholders are extrinsically motivated - i.e. motivated by the external rewards of the task. In the case of CSR, extrinsic motivation refers to the numbers associated with a firms’ CSR activities (e.g., X amount of dollars spent, Y number of shoes donated, etc). In assigning extrinsic motivation to CSR stakeholders, managers are exhibiting the extrinsic incentive bias, the tendency to attribute other people’s motivations to extrinsic factors rather than intrinsic ones.
The opposite of extrinsic motivation is intrinsic motivation, which refers to motivation related to the nature of the task itself. For CSR, intrinsic motivation is the satisfaction gained from having a positive social impact - not the way the initiatives appear to others, or other external influences.
CSR stakeholders care about impact
Stakeholders, such as consumers and employees, are largely intrinsically motivated when engaging with CSR. They expect that CSR activities are done to improve the socioeconomic standing of a community/group of people, not for the purpose of producing statistics.
When assuming that stakeholders are motivated by numbers over impact, firms create a disconnect between what their stakeholders expect of CSR and what they think stakeholders expect from CSR. Impact optimization gives firms the chance to address this gap by analyzing what is and isn’t working with their CSR initiatives, producing more socially impactful initiatives which are, in turn, better perceived by the target audience.
In practice: Tangible steps towards impact optimization
Moving towards impact optimization requires both a cultural shift in how CSR is viewed within a firm, and a technical transformation that ensures that firms have the tools to analyze their CSR activities.
Understanding why extrinsic incentive bias produces counter-intuitive CSR outcomes is necessary to incorporating impact optimization processes. And of course, to be able to evaluate CSR programs, employees must have an understanding of what CSR evaluation looks like.
Step 1: Understanding the target audience
Evaluating internal attitudes towards CSR evaluation is a crucial first-step to identifying what biases influence a firms’ CSR activities. This can be accomplished through internal questionnaires that gauge:
- Management and employee understanding of CSR evaluation methods
- Impressions of the goals of the firms’ CSR initiatives
- Present gaps in CSR decision-making
Decision-makers should have an understanding of what the firm is aiming to accomplish through CSR, how a CSR initiative achieves those goals, and what their target audience expects of CSR.
The results of the survey can be used to identify barriers to CSR impact optimization within the firm, including the potential presence of extrinsic incentive bias amongst the firms’ decision-makers.
Step 2: Connecting evaluation and optimization through policy changes
Once outstanding barriers to CSR impact optimization have been identified and addressed, the firm can work towards developing (or revising) a CSR project management framework.
This framework should include guidelines for the ideation of CSR initiatives, specific methodologies to assess CSR impact, and specify how CSR impact evaluation will direct future CSR program changes. If employees of the firm do not understand what constitutes quantitative CSR analysis, skill-building workshops can be conducted to address knowledge gaps. Firms can even look to capitalize off this framework directly by including CSR impact optimization findings in their annual CSR impact reports.
Create meaningful CSR outcomes
The growing importance that firms are placing on CSR underscores the need to optimize CSR program outcomes. Consumers and employees are inundated with CSR initiatives, allowing them to detect and resent corporate inauthenticity. To achieve the business-side goals of a CSR program, it's essential that the firm draws out the connection between CSR evaluation and CSR decision-making.
The Decision Lab is a management consultancy that uses behavioral science to promote social good. We work with industry trailblazers to translate vision into impact, removing behavioral barriers to unleashing their full potential. If you'd like to work together, get in touch.
References
- Kim, I. A. (2020, December 27). How toms went from a $625 million company to being taken over by its creditors. Business Insider. Retrieved from https://www.businessinsider.com/rise-and-fall-of-toms-shoes-blake-mycoskie-bain-capital-2020-3
- Taub, A. (2015, July 23). Buying Toms Shoes is a terrible way to help poor people. Vox. Retrieved from https://www.vox.com/2015/7/23/9025975/toms-shoes-poverty-giving
- Kowszyk, Y., & Vanclay, F. (2020). The possibilities and limitations regarding the use of impact evaluation in corporate social responsibility programs in Latin America. Corporate Governance: The International Journal of Business in Society, 21(2), 279–293. https://doi.org/10.1108/cg-01-2020-0038
- Crane, A., Henriques, I., Husted, B. W., & Matten, D. (2017). Measuring Corporate Social Responsibility and Impact: Enhancing Quantitative Research Design and methods in business and Society Research. Business & Society, 56(6), 787–795. https://doi.org/10.1177/0007650317713267
- I. Arli, D., & Cadeaux, J. (2014). Drivers of corporate community involvement and challenges in measuring its impact. Social Responsibility Journal, 10(1), 161–183. https://doi.org/10.1108/srj-10-2012-0116
About the Authors
Nima Toussi
Nima is a student at the University of British Columbia studying behavioral neuroscience and physiology. He's interested in how behavioral neuroeconomics concepts influence health-centered decision-making and relationships. He hopes to apply these concepts to change how decision-makers in health-related areas perceive and implement solutions. Nima can usually be found in one of the several cafes he's adopted as his office.
Sekoul Krastev
Sekoul is a Co-Founder and Managing Director at The Decision Lab. A decision scientist with an MSc in Decision Neuroscience from McGill University, Sekoul’s work has been featured in peer-reviewed journals and has been presented at conferences around the world. Sekoul previously advised management on innovation and engagement strategy at The Boston Consulting Group as well as on online media strategy at Google. He has a deep interest in the applications of behavioral science to new technology and has published on these topics in places such as the Huffington Post and Strategy & Business.
Turney McKee
Turney McKee is a Director at The Decision Lab. He holds a Masters of Science in Cellular Biology and Bachelors of Science in Pharmacology, both from McGill University. He is interested in international healthcare systems and public policy. Before joining The Decision Lab, Turney worked as a competitive and business intelligence analyst in the healthcare and technology sectors.
