By Christiane Bode and Jasjit Singh
The current debate regarding corporate social engagement has moved past whether a firm ought to engage in sustainability efforts to how best to engage in such efforts in a way that is in general alignment with a firm's commercial goals. A promising direction in making a "business case" for such activities is related to exploring the intangible benefits resulting from motivation, identification and retention of employees who value corporate engagement in issues of societal concern.
Firms often coordinate volunteering opportunities for their employees - typically involving weekend or after-work activities like building houses for the poor or visiting old age homes. However, such programs rarely build upon the unique capabilities a company might have. In a recent research project, we have begun to study a new form of corporate social engagement - one that recognizes that the social impact of firms might be much larger if employees apply their core skills to help a firm engage more effectively in issues of societal concern.
In a paper recently published in Organization Science (with Michelle Rogan as a co-author), we studied a management consulting firm that offers its employees the option to step away from commercial client projects for a few months, and put their well-honed consulting skills to work an NGO or a development agency explicitly prioritizing social impact. We refer to this initiative as corporate social initiative (CSI) for reasons of anonymity. Importantly, CSI projects are not pro bono, as the company feels that such an approach would be neither scalable nor sustainable. Instead, clients are asked to pay, albeit at lower than commercial rates in order to ensure affordability.
A novel aspect of the model is that consultants are also asked to accept a salary reduction and go without customary perks (business-class travel and luxury hotels) for the duration of the project. Projects last on average three to six months and involve a salary reduction of between 25% and 50%. Between 2002 and 2015, more than 1,000 employees had gone through CSI and had cumulatively accepted salary cuts of tens of millions of dollars.
Overall, we analyzed a database of 10,634 employees, including both those who participated and those who did not. In the paper, we found that consultants who participated in CSI were up to 32 percent less likely to leave the firm relative to non-participating counterparts. This comparison is based on stringent matching criteria to ensure that participants and non-participants were indeed closely comparable at least on dimensions we can observe (e.g. age, gender, tenure in the company and prior performance).
Given that the effective cost of replacing a management consultant can be over 200 percent of the executive's annual salary, this particular firm might have saved millions in turnover costs as a result of CSI - helping it make a business case for the initiative despite CSI projects typically having lower margins than commercial projects. On digging deeper into employee records, it emerges that voluntary departures were what made the difference and that the individuals retained due to CSI are high-performing individuals worth retaining.
While the retention effects were positive on average, not all CSI projects were equally beneficial for retention. The retention effect was significantly stronger for participants in shorter CSI projects than for those whose CSI projects lasted six months or more. Moreover, the increase in retention rate disappeared entirely when we considered employees who served in far-afield emerging markets. We suggest that these contingencies are driven by challenges associated with the transition back into commercial work post-CSI, something more likely in settings where employees lose regular touch with their commercial peers.
Our paper does not argue that mandatory participation for employees in social initiatives would increase retention. The benefit, instead, comes from giving employees with an inherent interest in social impact the chance to participate - allowing them to pursue an integrated career track involving a business career and engagement with societal issues, rather than having to make a stark choice between one and the other.
The above study raised our curiosity on a related question regarding who the people are who are interested in taking part in CSI in the first place and what their underlying motivations are to accept a personal sacrifice for participation. We explore these questions in a related paper. Using a survey rolled out to the same 10,634 employees mentioned above, we first asked employees regarding the maximum salary reduction they would be willing to accept for participation in CSI. We do find that most employees (87%) are willing to accept some salary reduction with almost half stating they are willing to accept a reduction of at least 20% or more.
We also examine what variables predict actual CSI participation. In addition to age (with younger employees being more willing to sacrifice), we find two underlying motivations driving employee behavior: the expectations of creating social impact and the expectation of deriving private benefits (in the form of career benefits). We also find that the future stated willingness to sacrifice of participants is higher than that of non-participants, suggesting that indeed there are employees even in consulting firms that have a sustained interest in social impact work.
These findings put together provides evidence that employees indeed value participation in corporate social initiatives. In other words, there is a segment of employees willing to sacrifice significantly for the opportunity to have a hybrid career that allows them to go back and forth between purely commercial work and non-profit work. As human capital continues to become a more critical aspect of our increasingly knowledge-driven economy, using corporate social initiatives as a means to engage employees driven not just by financial incentives looks like a promising direction to explore further.
Christiane Bode is an Assistant Professor of Management at Bocconi University.
Jasjit Singh is an Associate Professor of Strategy at INSEAD, the Shell Fellow in Business and the Environment, and a Co-Director of the INSEAD Social Entrepreneurship Programme.