Corporate Responsibility

Social Action, Institutions and Governance

Ronny Manos, Israel Drori, Ronny Manos, Israel Drori

• Editore: Palgrave Macmillan
• Anno: 2016
• ISBN:
  9781137450722
• Argomento: Negocios y empresa
• Categoria: Gobierno empresarial

The decision to engage in corporate social action (CSA), and the debates regarding its costs, benefits and implications to corporate performance represent a demanding issue for scholars and managers. Research is inconclusive regarding the causal relations between CSA, corporate social performance (CSP) and corporate financial performance (CFP), despite numerous empirical and theoretical studies devoted to the issue. This book presents an in-depth study of corporate social action and the factors influencing a decision to engage in it. Going beyond the causal relationship between CSA and firm performance, the book stresses the link between CSA and a firm's core managerial policies and practices, reflecting the complexity and varied facets of CSA and the numerous internal and external factors that influence its outcomes. The book draws on the experiences of various industrial sectors to reveal the importance of a range of issues such as top management pay dispersion and ownership structure, which may influence the firm's decision to engage in CSA. It also explores some of the external influences on firms, such as institutional norms, the geopolitical environment and the industrial sector. The first part of the book provides an overview of the thematic issues of CSA and performance. The second part presents a series of empirical studies that examine factors and determinants of CSA. The third part presents case studies to illustrate the processes and outcomes of CSA policy and strategy in environmentally hazardous industries.

Part I

Review of CSA and Corporate Performance

1

Corporate Social Responsibility and Financial Performance

Dennis J. Aigner

Introduction

How publically traded companies – and the business sector more broadly – are adapting to expanded public and investor expectations regarding their environmental and social performance is a topic of great public policy interest and one worthy of scholarly investigation.

When the first US Toxic Release Inventory (TRI) data were released in the early 1990s, empirical researchers finally had quantitative information on corporate environmental performance. This enabled the building of better models to investigate the linkage between environmental and financial performance and to probe the causal structure that lies behind the positive correlation between the broader notion of corporate social performance (CSP) and corporate financial performance (CFP) that has been found in the vast majority of empirical studies published since 1994. The focus on 1994 as a watershed year is justified not only because of the availability of the TRI data, but also because the late 1980s and early 1990s saw increased activity and corporate leadership in the US in what has been dubbed corporate social responsibility (CSR). The term refers to going beyond what is required by statues and regulations in the areas of environment, worker health and safety, and community involvement (Portney, 2005).¹

Of course, environmental performance is multidimensional and difficult to measure. Even more so is “social” performance, which is joined with environmental concerns in the CSR concept. While there is more consensus about to how to measure a firm’s financial performance, even then more than a single measure emerges, including return on assets, stock price, Tobin’s q, and more.² Coupled with the causality issue (temporal, directional) and data limitations, a proper econometric specification is far from obvious. This prompted some authors more than a decade ago to caution that the observed correlations may be spurious (McWilliams and Siegel, 2000; Waddock and Graves, 1997), but that caution has been overcome by more data and improved methodology in more recent studies, a subject we will explore in some detail below.

The chapter begins with a condensed discussion of the debate surrounding CSR, “condensed” primarily because other authors have recently published comprehensive reviews of the evolution of CSR in the US from its beginnings just after the end of the Second World War until the present (Carroll and Shabana, 2010; Lee, 2008). It is fair to say that among the largest US public companies and multinationals in general, CSR has become quite important if not already firmly embedded. But that misses privately held companies and the vast majority of business enterprises that are not “large” but which are responsible for the bulk of national output in most countries. There is some “trickle down” effect via supply chain relationships, but unfortunately we know very little about the CSR activities of small and medium-size enterprises.

In any event, to the extent that CSR has become “embedded,” it must have passed the standard hurdles imposed by firms for business investment and is producing business value. This relates to the “business case” for CSR, of which financial performance is one aspect.

Next we review the empirical literature on the relationship between CSP and CFP, covering four primary research streams – portfolio studies, event studies, cross-sectional analyses, and meta-analyses – all of which aim to shed light on the general question of whether a firm’s environmental and social performance (good or bad) is associated with changes in its financial performance (and of what direction and magnitude) and, if it is, whether that association in turn can be further refined to reveal causal information.

The chapter closes with some reflections on the state of empirical research on the CSP-CFP relationship and where the next insights are likely to emerge.

Overview of corporate social responsibility

Among the largest US and multinational firms, there seems to be considerable momentum behind the notion that improved environmental and social performance is good for business. More and more literature is appearing that documents the rationale for CSR and other things that fall under the rubric of “the business case for sustainability” (Blackburn, 2006; Yankelovich, 2006; Andersen and Zaelke, 2003; Holliday et al., 2002). New business organizations have been established around sustainability themes and sets of principles, some of the most visible being the World Business Council for Sustainable Development (WBCSD), the Global Environmental Management Initiative (GEMI), the Coalition for Environmentally Responsible Economies (CERES) and the Global Reporting Initiative (GRI), which aims to establish a common accounting framework for reporting the environmental and social performance of firms. In the past several years individual firms have also adopted leadership positions on many significant environmental issues of the day, the most visible being greenhouse gas emissions.³ Also to be mentioned are the UN Global Compact, a corporate citizenship and sustainability initiative launched in 2000 that now counts approximately 8000 business firms from 145 countries as participants, and ISO 26000, a set of guidelines which aims to help businesses and other organizations understand what social responsibility is and to promote effective actions to implement CSR.

Within the academic literature, several recent papers document and rationalize, from various perspectives, the “modern” history of CSR from its inception just after the Second World War up to the present.⁴

Lee (2008) traces the evolution of management thought regarding CSR beginning with the seminal book by Bowen (1953). It is interesting to see how the arguments for and against CSR have progressed, from explicitly normative and ethics-based arguments to those oriented toward the business case for CSR. Yet Lee concludes that the current focus on business case arguments for CSR is potentially dangerous because it misses the broader question of society’s responsibility in keeping corporations accountable. Moreover, if the business case is what drives CSR, according to Lee, then some socially responsible behaviors will be downplayed if the market demand for them is less. This is a spurious argument because it is precisely in the process of interacting with stakeholders (“society”) that CSR strategies are vetted.

Kurucz et al. (2008) is an eloquently written but occasionally esoteric presentation of the business case for CSR. In light of the evolution of CSR in concept and practice, these authors call for a more nuanced argument supporting the business case, one that can break the “stalemate” between the ethical and “economic” approaches. In this regard, they present four domains of focus and develop the theoretical and empirical aspects of each. These are by now quite familiar in the literature if by other (closely related) names: cost and risk reduction, competitive advantage, reputation and legitimacy, and “synergistic value creation,” that is, seeking opportunities to work closely with stakeholders to fulfill their expectations while simultaneously creating value for the business.⁵ Next, these authors present a general critique of the business case for CSR at a primarily theoretical level, organized by the level of justification (firm, society), the logic of justification (economic, ethical, political, social) and grounds of justification (positive, normative, pragmatic), and they attempt to build a better business case for CSR by emphasizing the role of business as a “social actor.” This is less than completely successful because the authors venture into mainly esoteric waters by way of considering ill-defined “non-linear outcomes” and “fundamental questions about the self and communities that allow for new forms of social and economic life” (Kurucz et al., 2008, p. 105).

Another review article on the business case for CSR is Carroll and Shabana (2010). Carroll has been working in this area for a long time, trying to frame the theoretical and empirical discussion to emphasize the ethical (“expected”) and discretionary (“desired”) nature of CSR from the viewpoints of business and society (Carroll, 1979). These authors, in a similar vein to Lee (2008) and Kurucz et al. (2008), trace the development of CSR from just after the Second World War to the present, lay out the arguments pro and con, and engage them from a theoretical and empirical perspective. In explicating the business case, they rely primarily on Carroll’s previous work, the work of Zadek (2000), Vogel (2005) and Kurucz et al. (2008), culminating in the observation that CSR has become a core business function in many large firms, and is now central to their overall strategy and ultimate long-term business success. This, of course, has been the central theme in many of Porter’s writings on competitive advantage since 1995 (Porter and Kramer, 2006; Porter and Van der Linde, 1995a, b).

But it must be recognized that CSR is hardly a panacea for long-term business success and, even in industries where it has the greatest potential for making a meaningful contribution, the ability of firms to leverage CSR investments varies as a result of differences in intangible assets (capacity for innovation, stakeholder relationships, reputation and legitimacy, human capital, and organizational culture), their “absorptive capacity” (Delmas et al., 2011), and what Carroll and Shabana call “situational contingencies” which, roughly translated, means being in the right place at the right time.

Moving away from the debate regarding the business case for CSR, Kitzmueller and Shimshack (2012) shift from asking whether CSR should exist (most scholars now agree that there are social justifications for CSR, but not in all instances) to why it does exist and its effect on the economy. A key insight is that CSR is not necessarily incompatible with profit maximization, contrary to Friedman’s famously narrow view of the social responsibility of business (Friedman, 1970). CSR implementation to satisfy managers’ preferences may constitute moral hazard, but not so in the cases of investors, employees and customers, nor CSR implementation to influence outcomes driven by public and private politics.

One of the traditional main objections to CSR is something to the effect that business shouldn’t be doing the job of government (Henderson, 2004; Vogel, 2005). Yet Kitzmueller and Shimshack even find theoretical justification for CSR as a welfare-optimal channel for the provision of public goods, albeit with some conditions. Unlike the list of motivations or “drivers” of CSR that appear in the management literature, here the focus is on a more traditional economics orientation, with references to CSR as a market-based way to do social good, CSR embedded in social choice theory, corporate social marketing, and CSR as an outgrowth of the environmental Kuznets curve.⁶

Even their discussion of “strategic” CSR has a somewhat different flavor to it, with emphasis on CSR justified by labor and product markets, CSR as a response to both private politics (for example, social activism by NGOs) and public politics (for example, CSR as a hedge against future government regulation), and as a response to social norms.

For instance, labor studies show that job seekers prefer organizations with better public images. But workers in high-CSR firms apparently do not have to sacrifice wages or other forms of compensation in order to so affiliate themselves. In a related way, there are numerous examples of consumers willing to pay more for green products. Experimental results show that CSR information can influence consumer preferences toward green products and the companies that make them. And the economics literature suggests that CSR influences customers’ buying decisions via product attributes like dolphin-free tuna, certified wood products, organic produce, and so on.

Kitzmueller and Shimshack quote various studies that suggest the threat of consumer boycotts or CSR-oriented shareholder proxy items, though not widespread, nonetheless change corporate behavior. Even the non-targeted firms in an industry that has been subjected to boycotts are more likely to make voluntary changes in line with targeted firms. A growing literature supports the idea that regulatory pressure can spur “beyond compliance” behavior (Ambec and Lanoie, 2008; Khanna and Anton, 2002; Porter and Van der Linde, 1995b). When environmental behavior has a stochastic component, firms tend to overcomply in order to guard against an accidental violation and subsequent punishment. When the perceived regulatory threat increases, both compliant and would-be non-compliant firms respond by reducing discharges beyond statutory requirements.

To delve more deeply into the critiques of CSR, the primary lines of argument derive from the initial premise that the only job of business is increasing shareholder value and that considerations of CSR are generally at odds with that premise.⁷ While there is some merit to this argument, its main flaw lies in its inability to embrace aspects of business such as long-term reputational effects and reduced future operating risk, aspects that are consistent with improved social and environmental performan...