Despite all the attempts developed so far to measure corporate social performance in the last decades, a standard metric for it is still missing. In this work, the author tries to understand why is this the case. To do so, the author has reviewed 69 relevant metrics developed in the literature since the 1970s until today, covering approaches based on social, reputational, and environmental ratings, as well as several others constructed ad hoc by reputated scholars. The author analyzes each of them through a double optics, checking if they meet the minimum requirements to be considered standard and truly social. The research reveals that the main factor that prevents such a standard is the lack of truly social orientation of the existing metrics.
1. INTRODUCTION
Socially related issues and data are already part of todayâs companies, often under the Environmental, Social, and Governance (ESG) label. Management teams must report on an increasing number of topics, categories, and practices related to those items. Analysts and investors have integrated ESG factors into their portfolio analysis, mostly through rating agencies such as RobecoSAM or MSCI. However, in practice, no metric has been adopted yet as a common, agreed standard for such endeavors. This work tries to understand why this is the case by analyzing the most relevant metrics proposed till date in the literature.
The importance of a standard way to measure the effects of business in society is often overlooked. Every company, whether pursuing specific social goals or not, has an impact on society, at least through the different ways in which it engages with its various stakeholders. If that impact is not measured, it is materially impossible for society to decide whether that impact is in favor of its interests and needs or not. Moreover, the lack of such a metric forces society to make use of other sources of information to base those decisions, though they were built to serve other interests. By relying on these sources (mostly financial ones), society is, in practice, subordinating its own interests and needs to those for whom the metrics were intended. Although the concerns of companies and society may often overlap and coincide, it is clear that it will not always be the case. At least in those cases, society has no reference to define which corporate performances or behaviors are in its benefit and which are not and, therefore, it must find a way, its own way, to do so.
So far, the literature around the corporate social performance (CSP) construct has given more importance to issues like the âpoint of tensionâ (Margolis & Walsh, 2003) between the forces that push for some kind of responsibility and involvement of business into social issues (since at least Berle, 1932 and Bowen, 1953) and those against it (Friedman, 1970; Jensen, 2010), as well as the link between social and financial performance, thoroughly discussed under many perspectives, in key reference papers and meta-analysis (Lu, Chau, Wang, & Pan, 2014; Margolis & Walsh, 2002; Orlitzky, 2001; Waddock & Graves, 1997a; Wood, 1991a, 2010), without definitive conclusions.
Understanding why there is no such a standard metric requires, first and foremost, to analyze if any of metrics that is already published in the literature could, in fact, be used as such. If at least one of the metrics does (i.e., if any of the previously developed metrics can be used as a standard), the subsequent discussion would move us to try to understand what has prevented it to be widely adopted and used as a standard so far. If none of them fit in what a standard is, we could aspire, at least, to understand the limits of previous work and potential elements that could be of use to build one.
It is for that purpose that we have examined a wide sample of metrics (69) developed from 51 papers in the last four decades that have been used as a measure for CSP or, at least, as a valid proxy to it. These metrics try to represent the different approaches shown in the literature so far. Several experts in the field were consulted to ensure that no major approach was left out.
Considering the vast number of existing approaches, the wide meaning of the term âstandardâ and the concept of CSP itself, we have come with our own definition of what a standard CSP metric would be: a measure of the effects generated by a company to society in the course of its activities, regardless of its social intention, that could be used for comparative evaluation.
In our analysis, two key issues have been used to determine if the metrics analyzed can be considered as a standard for CSP: (1) do they fit into what a standard should be? (we call this standard fit) and (2) do they fit into what a truly social CSP metric should be? (we call this social fit).
Standard fit refers to the possibility of using the metric to most companies, regardless of their size, industry and geographical origin, and requires, at least two factors: openness (do the metrics provide a full picture of how results are estimated, so it can be of general use?) and comparability (do they provide results for each company that can be compared among them?).
By social fit we mean the degree in which each metric gathers and reflects material interests of society. A standard CSP metric should cover at least material interests of the corporationâs primary stakeholders (Clarkson, 1995). It may seem obvious, but a CSP metric is not per se socially oriented. In fact, as we will show later, most attempts developed so far are not, as they are either made with data that are material only to some stakeholders (mostly corporate owners, investors, and financial analysts) or are directly addressed to some stakeholders, leaving out real concerns of other socially relevant agents, such as employees, providers, or communities.
The remainder of the chapter is structured in six sections. First, we set forth the theoretical framework in which this research is based. Then we review the different metrics and segments found in the literature, with which the analysis has been carried out. Hypotheses are formulated in section three and the final sections cover methodology, results, and conclusions.
2. THEORETICAL FRAMEWORK
Efforts in the long and winding road of measuring companiesâ social value have traditionally fallen into one big pothole: the lack of a solid theoretical construct around what social issues or obligations should companies be accounted for.
A major cause for this still unresolved issue is âthe inclusive and vague meaning of the word socialâ (Clarkson, 1995), which has resulted in the birth and development of a myriad of similar, somewhat related terms that swim around the same waters. Waddock (2004) gathered and provided a definition for most of them. The list cannot be exhaustive, but she distinguished some âroot concepts,â that lay the general framework on top of which business in society scholarship has created more: corporate citizenship (CC), corporate responsibility (CR, which would include corporate social responsibility â CSR), CSP, and stakeholder theory.
We will focus on the latter two, as its combination has perhaps developed the more solid ground for the most significant measurement approaches and includes an integrative view of most of the others.
Carroll (1979) developed the first model for evaluating corporate performance, a three-dimensional approach featuring âthe social responsibility categoriesâ (the nature of the social âobligationsâ that companies have), the âsocial issues involvedâ (the questions affected by those responsibilities), and âphilosophy of responsivenessâ (how those questions are addressed).
Several works were built on Carrollâs scheme (Ullmann, 1985; Wartick & Cochran, 1985), but Wood (1991b, reviewed in 2010) was decisive in putting an order in the discussion. Her model, based on the distinction among the âprinciples of corporate social responsibility,â the âprocesses of corporate social responsiveness,â and the âoutcomes of corporate behavior,â provided the right context to many of the concepts that had been created up to then and particularly set out what could be measured (outcomes) and what not (principles and even processes).
Besides the CSP construct, the emergence of stakeholder theory, particularly after Freemanâs (1984) milestone, helped to provide a view of how could society be in relationship with the company (the sum of its relationships with the different stakeholders) and thus framed the responsibilities of the company toward society in a way that could be related to the real scope of each organization.
Significant works have contributed to integrating both streams. Clarkson (1995) provided a more accurate definition of the boundaries in which companiesâ activity could be evaluated: CSP should consider stakeholder issues (as opposed to social issues, that would be set by the context of each society over time, and that were out of the company range) and should be evaluated at an organizational level, while discussions about CR and responsiveness should be addressed at an institutional level and managerâs performance at an individual level:
Performance is what counts. Performance can be measured and evaluated. Whether a corporation and its management are motivated by enlightened self-interest, common sense or high standards of ethical behaviour cannot be determined by the empirical methodologies available today. These questions cannot be answered by economists, sociologists, psychologists or any other kind of social scientist. They are interesting questions, but they are not relevant when it comes to evaluating a companyâs performance in managing its relationships with its stakeholder groups. (Clarkson, 1995, p. 105)
It also restricted CSP to primary stakeholders (those on which companyâs survival and continuing success depend) as opposed to secondary stakeholders (that have or receive some sort of influence and interest to or from the company but are not âessential for its survivalâ). Mitchell, Wood, and Agle (1997) added more on this, by providing a framework to identify and weight stakeholders.
What is CSP then? Blackburn, Doran, and Shrader (1994) defined it as âa measure of a firmâs attentiveness to multiple stakeholder groups.â Luo and Bhattacharya (2009) considered that CSP was âa companyâs overall performance in these diverse corporate prosocial programs in relation to those of its leading competitors in the industry.â Schuler and Cording (200...