UNIVERSITY PARK, PA – The modern practice of corporate social responsibility (CSR) started to emerge in the 1950s when the public began to expect companies to ‘give something back,’ according to Seoki Lee, associate professor of hospitality management at Penn State. In the early 20th century, this typically took the form of financial donations to independent charitable causes that were often the first thing cut from budgets when corporate profits dipped. Today, CSR often involves long-term, corporation-led efforts to address socioeconomic, social justice and/or environmental issues.
Despite the long history and continued evolution of CSR, Lee said that research into the impact of CSR on a company’s financial performance has not been wholly conclusive. In a new publication in the journal Tourism Economics, Lee and his collaborators reviewed the research literature on how CSR related to financial performance for hotels, restaurants, casinos and other businesses in the hospitality and tourism industry.
Over the past two decades, researchers and business leaders have looked at the financial value of CSR from a variety of perspectives using different measurements, and many have arrived at different conclusions. In Lee’s recent publication, the research team examined 61 articles published between 2007 and 2021 about the financial impact of CSR within the hospitality and tourism industry from eight, industry-specific journals. These studies generally suggest that hotel chains benefited from CSR, but evidence was more mixed for restaurants and casinos. Overall, many researchers have found evidence that CSR provided financial benefits, but that was not the case in every situation.
Lee said that he believes that CSR is beneficial to corporations when it is developed strategically. This is true especially for companies in the hospitality and tourism industry, according to Lee, because their products are less tangible than physical objects, which makes branding and brand perception even more critical. He gave two examples from the real world to illustrate what strategic CSR looks like.
An international hotel company has donated millions of dollars to conserve nature in a foreign country. The donations help preserve important plant and animal habitat, and they have portrayed the parent company in a favorable light. This work is not, however, strategic CSR as Lee defines it and may not provide maximum business value to the company.
“For CSR to be strategic, it has to be integrated with a company’s mission and core business competencies and relevant to its customers and other stakeholders,” Lee said. “A hotel company does not have expertise or a direct hand in overseas habitat protection, so the most they can do is donate money. If, instead, they were addressing issues of pollution or energy efficiency in hotel operations, the work would be more relevant to the company’s core mission and expertise. It could help both the environment and the company’s financial performance if the investment led to new business practices or products. In those areas, the company could be a leader. That type of strategic CSR can provide maximum benefit to the business, the planet and the company’s stakeholders.
“This is not to diminish the impact or value of their current work,” Lee continued. “It is simply not maximizing the social or corporate value of their CSR efforts.”
As an example of an existing CSR program that is strategic, Lee cited a large coffee vendor that developed a new model for purchasing coffee. Typically, large coffee companies sign short-term contracts with local growers. This practice creates uncertainty for coffee growers who do not know whether to invest in their farms because their crops may not have a market the following year. The companies also tend to pay minimum price due to their market power which worsens local growers’ living conditions. The coffee company deviated from standard practice by creating environmental standards for coffee growers and awarding growers who met those standards with long-term contracts that provide economic stability.
Moreover, the company pays a premium price for coffee beans which improves the lives of farmers, strengthens the company’s relationships with suppliers and improves the quality of the product and the health of the natural environment. All these issues are directly related to the company’s core business competencies and further resonate with the company’s primary stakeholders, including their customers. The coffee company is engaging in strategic CSR, according to Lee, in ways that are improving life for people at every point in their supply chain, while adding value to their product.
Lee’s publication ends with an examination of what research studies are needed to better understand the connections between CSR and financial performance. Though the exact nature of the relationship is far from settled, Lee believes that the topic is better understood than it was 15 years ago and that the next 15 years will yield far more insights. Though he is heartened to see the good work being done by companies around the world, Lee emphasized that CSR must be strategic if companies want to create business value out of it.
“Businesses need to embrace CSR as one of their core business functions,” Lee said. “It is not a cost center and cannot be viewed as one. Corporate investments in CSR must help society, but they must also improve the company’s value. That is the only way that CSR can be sustained and that society can address some of the daunting problems that we face.”
Jihwan Yeon, lecturer in the School of Hospitality and Tourism Management at University of Surrey, and Hyoung Ju Song, assistant professor of Hospitality Management at University of Central Florida, both of whom are former graduate students in Penn State’s School of Hospitality Management, also contributed to this research.