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Ethics Digest
THE
RELATIONSHIP BETWEEN CORPORATE CITIZENSHIP AND EMPLOYEE
COMMITMENT, CUSTOMER LOYALTY, AND FINANCIAL PERFORMANCE The
findings of Maignan’s (1997) research project build on those
reported in the previous section (see Figure 1).
This study considered the four dimensions of corporate
citizenship at once C
not only ethical
responsibility, but also economic, legal, and discretionary
responsibilities. Specifically,
the analysis examined the effects of corporate citizenship on
employee commitment and customer loyalty based on the
information supplied by top managers (see Appendix 1). Establishing
lasting relationships with primary stakeholders has become a
major source of competitive advantage in today=s
highly volatile environment.
As Covey (1998) points out, the average corporation now
loses half of its customers within five years, half of its
employees within four years, and half of its investors within
less than one year. Reichheld
(1996) suggests that current rates of disloyalty can possibly
damage corporate performance by 25-30 percent.
It is therefore essential for businesses to find
concrete ways to increase both customers=
and employees=
support.Employee Commitment Maignan’s
(1997) investigation first reveals the existence of a positive
association between corporate citizenship and employee
commitment to the firm. Employee
commitment refers to Athe
extent to which a business unit=s
employees were fond of the organization, saw their future tied
to that of the organization, and were willing to make personal
sacrifices for the business unit@
(Jaworski and Kohli 1993, p. 60). Thus, in a company dedicated
to meeting its economic, legal, ethical, and discretionary
responsibilities, employees are especially supportive of
organizational objectives. There are
several reasons why corporate citizenship may induce greater
employee commitment. First,
a proactive corporate citizen is dedicated to fair employee
treatment, whether in the economic, legal, ethical, or
discretionary areas. For example, a good corporate citizen may offer safe
employment and competitive salaries (economic citizenship) and
have procedures in place to ensure that all its contractual
obligations toward its employees are met (legal citizenship).
The good corporate citizen also accentuates the importance of
ethical conduct with ethics training (ethical citizenship),
and encourages initiatives such as work-family programs, stock
ownership plans, or generous benefits packages (discretionary
citizenship). In
response to such signs of goodwill and respect on the part of
the organization, employees are likely to display increased
loyalty and support for the company=s
objectives. The
experience of Starbucks supports this idea.
Starbucks offers excellent health benefits and an
employee stock ownership plan (termed Abean
stock@)
for all its workers, even though most of them are part-time
(Schultz and Yang 1997).
This policy increases the costs of its employee
benefits beyond those of its competitors.
Employees appear to truly appreciate Starbucks=
efforts: its annual turnover rate is 55 percent, compared to
the industry norm of 400 percent (Smith 1996), while sales and
profits have risen 50 percent a year for six consecutive
years. In
addition, corporate citizenship toward other stakeholder
groups (consumers, suppliers, and stockholders) helps
employees make sense of their work and instills a sense of
pride in their company. Employees
are more motivated to work for a company that is not only
attempting to be profitable but that is also concerned about
its community and its diverse publics.
LensCrafters illustrates this potential effect of
corporate citizenship on the work force. LensCrafters organized a volunteer program with a pledge to
give eye care to one million people by 2003.
Company surveys show that workers engaged in the
volunteer program are noticeably more satisfied with their
jobs. The
customers of the participating stores are also significantly
more satisfied (Jones 1997).
This example suggests that, through greater employee
commitment, corporate citizens emulate greater customer
satisfaction.
Customer
Loyalty Maignan’s
survey (1997) also indicates a strong association between
corporate citizenship and customer loyalty: Customers are
likely to keep buying from companies perceived as doing the
right thing and to associate positive images with their
products. One
explanation for this observation may be that good citizen
firms are responsive to customers=
concerns and are dedicated to treating them fairly.
By gauging customer satisfaction cautiously,
continuously improving the quality and safety of their
products, and by making customer information easily accessible
and understandable, corporate citizens are most likely to
serve customers=
requests satisfactorily. In
addition, many customers are willing to make an effort to
support businesses that are committed to being socially
responsible. A 1997 Cone/Roper survey of 2,000 consumers found
that 76 percent of customers will switch to brands or
stores that seem concerned about the community (Jones 1997).
Similarly, a survey by Walker Research reveals that 88
percent of consumers are much or somewhat more likely to buy
from a company that is socially responsible and a good
corporate citizen, if the quality, service, and price are
equal to that of competitors (Smith 1996).
Accordingly, the costs associated with corporate
citizenship may be balanced by improved customer loyalty.
Financial
Performance Although
it requires significant investments, corporate citizenship
does not seem to impair business performance.
In fact, the Maignan’s study highlights the existence
of a positive relationship between corporate citizenship and
profitabilityCevaluated
in terms of return on investment, sales growth, and profit
growth as reported by respondents.
These results concur with those of earlier studies that
also found a positive relationship between corporate
citizenship as evaluated by experts and both past and future
business performance (Graves and Waddock 1993; Spencer and
Taylor 1987). Examining
reputation from the perspective of stock growth offers
additional insights into the effect of corporate citizenship
on market valuation. Fortune
magazine annually examines the performance of the most admired
companies based on criteria descriptive of corporate
citizenshipCoverall
reputation, quality of management, quality of products,
innovativeness, and responsibility to the community (Stewart
1999). An
investment of $1,000 ten years ago in each of the ten most
admired companies identified by Fortune (General
Electric, Coca-Cola, Hewlett-Packard, Microsoft, Intel,
Southwest Airlines, Berkshire Hathaway, Disney, Johnson &
Johnson, and Merck) would have resulted in a return nearly
three times as much as an investment of $10,000 in the
Standard & Poor=s
500 stock index. Some
of these firms may have experienced legal and ethical
accusations of misconduct.
Microsoft was declared a monopoly that used its power
to crush competitors (Chernow 1999).
Ever after Microsoft was declared a monopoly, the
firm’s stock price and public support remained high because
of its overall positive reputation in innovative products and
customer relationships. But, the overall reputation of these companies based on the Fortune
set of criteria was superior to all other companies in the Fortune
1000 list of the largest corporations. The findings discussed in this paper provides an explanation for the positive relationship observed between corporate citizenship and business performance. In the good citizen corporation, employees are committed to quality and to overall organizational goals, which is conducive of organizational efficiencies and customer satisfaction. In addition, corporate citizenship helps differentiate a company=s products, yields customer loyalty, and facilitates the establishment of a strong competitive position.
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