Corporate Social Responsibility
Summary and Keywords
Corporate social responsibility (CSR) is a legitimate responsibility to society, based on the principle that corporations should share some of the benefit that accrues from the control of vast resources. CSR goes beyond the legal, ethical, and financial obligations that create profits.
In the research literature, corporate social responsibility is defined in a variety of ways, depending on the aspect of CSR being examined. An inclusive definition is that social responsibility requires the firm to take into account the interests of all stakeholders, where stakeholders are defined as everyone who affects or is affected by the firm’s decisions and actions. A firm-focused definition holds that social responsibility includes actions that further a social goal, beyond what is required by ethics, law, and profitability. A political economy–oriented definition posits that firms have a responsibility to correct market failures such as negative externalities and government failures such as limits to jurisdiction that result in worker rights violations.
When implemented, altruistic CSR implies that firms provide a social good unrelated to the firms’ business that does not benefit the bottom line. Strategic CSR implies that firms are simultaneously profitable and socially responsible. To achieve this, CSR must be a core value of the firm and must be integrated into processes and products. When employed strategically, CSR can be an element of a differentiation strategy, leading to premium prices, enhanced brand and firm reputation, and supportive community relations. Corporate environmental responsibility often takes the form of overcompliance with regulation, improving the environment more than is required. A primary benefit of this is to stave off further regulation.
To capture the benefits of being socially responsible, the firm must make stakeholders aware of its record. This has led to triple bottom line reporting—that is, reporting about firm performance in terms of profits, people, and the planet. Social enterprises go a step further and make social responsibility the primary goal of the organization.
Keywords: corporate environmental responsibility (CER), corporate social performance (CSP), greenwashing, overcompliance, political corporate social responsibility, psychological benefits, stakeholders, strategic CSR, sustainability, triple bottom line
Corporate social responsibility (CSR) can be thought of as legitimate responsibility to society that goes beyond the legal, ethical, and financial obligations that create profits, based on the principle that corporations should share some of the benefit that accrues from the control of vast resources. Or, more plainly, in market economies corporations can amass great wealth because society protects their right to do so, therefore the corporations owe something back to all of society, not just those engaged in market exchange with the corporations. The world’s resources should benefit the poorest in addition to the wealthiest, and corporations can be the conduit through which resources are befittingly distributed.
When resources are not equitably distributed, the disadvantaged look first to the government for help and support. But when the government hasn’t the resources, the will, or either, it cannot provide adequately for those in need and may engineer public policy to require businesses to be responsible.
The idea that corporations should act responsibly dates back to the inception of industrialization. With industrialization, the poor were often driven off the land and into cities to look for employment. The available employment, however, did not pay a living wage for an individual, let alone a family. This led to crushing poverty, ill health, and short lives for the working poor. Some industries employed young children, and low pay and inhumane working conditions were common (Marx & Engels, 1967). In general, governments didn’t have the will to require firms to act responsibly toward exploited groups. However, in 1833, the English Parliament passed Lord Althorp’s Factory Act, which effectively regulated child labor in the textile industry in England. Responsible behavior was forced upon rich industrialists, but more importantly the act established the right of government to regulate industry for a clear social purpose (Marvel, 1977).
A hundred years after the passage of the first effective industrial regulation, the plight of the disadvantaged was not much improved. The Great Depression highlighted the resource disparities inherent in industrialized economies and triggered attention to the lack of social responsibility displayed by wealthy corporations. But World War II intervened, and the focus turned away from social needs and toward supplying the military. After the war ended and throughout the 1950s, economies turned to modernization and, in much of the world, replacement of lost industrial capacity. It was a time of great prosperity in industrial nations, but, as before, the benefits of prosperity were not equally distributed. The politically weak, including women and minorities, didn’t garner much of the benefits.
In the 1960s there was intense focus on social problems, including disparity of opportunity as well as disparity of resources. It was clear that disadvantaged groups did not have equal access to resources, many of which were controlled by corporations for the benefit of their shareholders. As women and minorities gained political power, calls for corporations to be socially responsible became more direct and visible.
There are myriad definitions of corporate social responsibility, a few of which follow. In a managerial context, McWilliams and Siegel (2001, p. 117) define corporate social responsibility as “actions that appear to further some social good, beyond the interests of the firm and that which is required by law.” From an economic perspective, Lundgren (2011, p. 70) defines corporate social responsibility as “actions that, to some degree, imply corporate beyond-compliance behavior in the social and/or the environmental arena,” and Bénabou and Tirole (2010, p. 2) define corporate social responsibility as “sacrificing profits in the social interest.” From a political economy viewpoint, Heal (2005, p. 387) defines corporate social responsibility as “a programme of actions to reduce externalized costs or to avoid distributional conflicts.” The examples go on, with Dahlsrud examining 37 of them and concluding that “Although they apply different phrases, the definitions are predominantly congruent, making the lack of one universally accepted definition less problematic than it might seem at first glance (2008, p. 6).” In a discussion of why there is no definitive definition of corporate social responsibility, McWilliams, Rupp, Siegel, Stahl, and Waldman (2019, p. 3) speculate that “Targeted definitions allow researchers to focus on an area of study such as the environment or stakeholders, or on processes such as operations or strategy, while broad definitions allow interdisciplinary discourse on the motivations and ramifications of CSR.”
Beyond defining what corporate social responsibility is, it is helpful to clarify related terms that are sometimes confused with corporate social responsibility.
Compliance, Ethics, and the Triple Bottom Line
The terms compliance, ethics, and corporate social responsibility are often used interchangeably, but mistakenly so. Carroll’s pyramid of responsibilities is a good guide for separating the concepts. According to Carroll, compliance is a legal requirement, while ethics is the requirement to do no harm, and corporate social responsibility is the expectation for corporations to go beyond compliance and ethics and do good for society, creating social value (Carroll, 1991).
But being socially responsible and being irresponsible are not mirror images of each other. That is, being socially responsible is not just the absence of irresponsibility, and neither is social irresponsibility simply the absence of being responsible. Failing to meet any of the three explicit requirements of fiscal responsibility, laws, and ethics is irresponsible management. But meeting all three of these responsibilities does not rise to being socially responsible. Between irresponsible and socially responsible is the state of meeting fiscal, legal, and ethical responsibilities while not going the extra mile to create social good. This can be called socially neutral.
Corporate social responsibility is sometimes referred to as balancing the triple bottom line: profits, people, and the planet. The triple bottom line incorporates the idea of economic, social, and environmental concerns for which a corporation may have responsibility. A corporation that measures its performance against a triple bottom line explicitly promotes a broader responsibility than that of profit maximization and uses triple bottom line performance to convey to internal and external stakeholders that the corporation is being socially responsible in its decisions and operations.
Conventional Exclusionary View
Nobel Prize–winning economist Milton Friedman argued that the responsibility of business is to maximize profits for the benefit of the owners (shareholders), within ethical and legal boundaries. Responsibility for social programs, he argued, rightfully adheres to elected officials (Friedman, 1970).
Arrow (1973) challenged Friedman’s broad conclusion that corporations have no responsibilities beyond profit maximization on two counts. Count one is that production often generates negative externalities (such as air and water pollution) that are not appropriately priced in the market. Count two is that there is asymmetric information between producers and consumers. Producers have more knowledge about the true quality (and therefore true value) of products than do the consumers who purchase them. Arrow concludes these two market imperfections create a social responsibility for corporations because, while externalities are sometimes regulated by government, asymmetric information is not, and both can be addressed more efficiently by corporations than by governments.
Heal (2005) offers an updated perspective of corporate social responsibility that builds on Arrow, adding the risk of protests, such as Occupy Wall Street, to Arrow’s challenge of Friedman. Heal proposes that corporate social responsibility programs (such as corporate environmentalism) can reduce externalities and also ward off conflicts and demands for distributive justice, such as Black Lives Matter (Schulz, 2017). Arrow and Heal’s arguments also provide a basis for stakeholder theory.
Stakeholder theory challenges the assumption that shareholders have the only valid claim on the resources controlled by corporations. Freeman and Reed (1983) argue that any group that affects or is affected by the behavior of the corporation is a stakeholder whose interests should be considered in corporate decision-making. As corporations increasingly acknowledged responsibilities beyond profit maximization, stakeholder management became a means of enhancing firms’ reputations and improving community relations, and stakeholder theory became a dominant logic in corporate social responsibility. Incorporating stakeholder theory into strategic management has resulted in stakeholder analysis being directed at helping managers identify stakeholders and prioritize claims on corporate resources (Chandler, 2017).
Carroll (1991) repudiates Friedman’s conclusion that corporations have no social responsibility. He proposes a normative model of corporations as organizations with multiple responsibilities: economic/fiscal, legal, ethical, and philanthropic. The economic responsibility is necessary for survival, legal responsibility is required for legitimacy, ethical responsibility is required to do no harm, and philanthropic responsibilities are expected of a good corporate citizen. Carroll depicts the responsibilities as a pyramid, with profitability as the base, followed by legal, then ethical and finally philanthropic as the pinnacle. Carroll’s characterization of corporate responsibility is that it includes all four categories, including the philanthropic contributions to the community to promote social good. However, philanthropy differs in being expected, but not required.
To explain the link between corporate social responsibility and profitability, McWilliams and Siegel (2001) take a micro-economic–based theory of the firm perspective. From this perspective, they assume that corporate managers seek to maximize profits and ask the question: How can managers determine the optimal amount of investment to make in corporate social responsibility, that is, how can they determine the amount of investment in corporate social responsibility that is consistent with profit maximization? They propose that corporate social responsibility can be a component of a differentiation strategy. Consumers demonstrate a demand for socially responsible products (e.g., LED lights, free trade coffee, hybrid vehicles) and production processes (e.g., animal-free testing, green production, organic farming), and firms respond by adding the demanded socially responsible characteristics, thereby creating a differentiated product. The added costs of differentiating the product lead to premium prices. McWilliams and Siegel (2001) therefore conclude that, because the investment in corporate social responsibility supports the firm’s differentiation strategy, it should be treated the same as any strategic investment. To maximize profits, the corporation should invest up to the point where the additional cost of corporate social responsibility is equal to the additional revenue generated by corporate social responsibility.
Lundgren (2011) provides a formal, mathematical model of corporate social responsibility at the firm level based on micro-economic theory. He proposes that the costs of socially responsible programs can be offset by the increased revenues from consumers who value corporate social responsibility and the increased market value generated by investors who value corporate social responsibility. He explicitly models goodwill capital, an intangible asset, as a primary benefit of corporate social responsibility, tying corporate social responsibility explicitly to firm value and potential profitability.
Corporate social responsibility can also be conceptualized as a form of reputation insurance that protects the firm’s reputation when adverse events occur (Minor & Morgan, 2011). Adverse events, such as the 2010 Deepwater Horizon oil spill, are especially costly because they include both direct cost—such as fines, legal costs, and compensation to injured parties—and the indirect costs associated with loss of corporate reputation (Mejri & DeWolf, 2013). Loss of reputation can affect stock price, financing terms, and future revenue far into the future. When an adverse event occurs, external stakeholders will make judgments about what went wrong. They may decide that the adverse event was the result of poor management and downgrade the reputation of the firm or they may decide that the event was just bad luck and not recalibrate the reputation of the firm. Being known for corporate social responsibility can sway external judgments in favor of management and the firm, protecting the firm’s reputation and significantly lowering the indirect costs of such an event.
Bagnoli and Watts (2003) characterize corporate social responsibility as the private provision (by the corporation) of a public good (such as pollution abatement). Building on this, Scherer and Palazzo (2011) propose that globalization of business has resulted in political, rather than normative or economic, corporate social responsibility. They point out that laws and regulations are enforced within national boundaries, while social problems know no boundaries and negative externalities (such as air pollution) cross boundaries. The void in global governance may be (perhaps by necessity) addressed by businesses, especially multinational corporations. According to Scherer and Palazzo (2011), political corporate social responsibility suggests that corporations will contribute to global regulation (such as sustainability or workplace safety) and provide public goods (such as human rights protections and community wellness programs).
Bénabou and Tirole (2010) characterize corporate social responsibility as a response to government failure. They discuss three ways in which governments fail: capture by special interest groups, limits to jurisdiction, and poor information and inefficiency.
In addressing the problem of limited jurisdiction, Christmann (2004) suggested that multinationals will embrace a global strategy so that they can transfer best practices of social responsibility across boundaries, effectively creating global standards. Multinational corporations that enforce the same standards everywhere they operate may be merely complying with regulation in their home country but being socially responsible in countries with lower standards. Implementing the same standards globally allows multinational corporations to be more efficient by taking advantage of scale economies and also benefiting from reputation insurance.
McWilliams and Siegel (2011) reject Baron’s view that motivation determines what is socially responsible behavior and, in contrast, argue that social responsibility that is motivated by profitability can reconcile Friedman’s view of the profit maximization responsibility of the firm with that of social responsibility. That is, by being socially responsible, firms can attend to the bottom line (profits) while also creating social good. This is known as strategic corporate social responsibility, a term introduced by Burke and Logsdon (1996). To the extent that corporations are meeting expectations of stakeholders, strategic corporate social responsibility disputes Friedman’s view that social responsibility adheres to public officials. According to the Organisation for Economic Co-operation and Development, “Strategic behaviour is the general term for actions taken by firms which are intended to influence the market in which they compete. Strategic behavior includes actions to influence rivals to act cooperatively so as to raise joint profits, as well as non-cooperative actions to raise the firm’s profits at the expense of rivals” (OECD, 2007, p. 751).
McWilliams and Siegel (2001) concluded that firms can respond to demands for corporate social responsibility by incorporating social responsibility into a differentiation strategy. The firm differentiates its products/services to include CSR attributes, as well as incorporating CSR into firm processes. Differentiation should allow the firm to charge premium prices to cover additional costs of providing the socially responsible attributes.
However, when asymmetric information allows firms that do not engage in corporate social responsibility to position their products as similar to those that do embody corporate social responsibility, the socially responsible firm may face a competitive disadvantage. The socially responsible firm invests in corporate social responsibility but cannot charge more than the firms that do not. In this situation, the socially responsible firms may be forced to lobby their government for legally enforceable standards that apply to all firms in the industry (Heslin & Ochoa, 2008). Conversely, some firms will lobby for standards that cost their competitors more to meet than they cost the lobbying firm. The lobbying firm can create a competitive advantage by masking competitive behavior as social responsibility (McWilliams, Van Fleet, & Cory, 2002).
An important distinction of strategic corporate social responsibility is that it is embedded in the corporation’s operations, processes, and core competencies (Aguinis & Glavas, 2013), regardless of whether it is implicit as was more conventional in European companies or explicit as in U.S. companies (Matten & Moon, 2008). Embedding corporate social responsibility allows for synergistic effects, such as when a steel company uses its core competency in plant design and construction to build plants that are more efficient and use less energy (i.e., are environmentally responsible). Linking the corporation’s social responsibility to its core competencies can produce maximum social benefit. Being explicit and transparent about its corporate social responsibility also enables and enhances positive effects on firm reputation (Servaes & Tamayo, 2013).
Corporate social responsibility can be a long-term strategic asset that enhances reputation and brand image. As such, it can lead to customer loyalty and repeat sales and, in some industries, premium prices. Originally thought to only support a differentiation strategy, we now see corporate social responsibility prominently reported by low-cost-leader companies in business-to-business and commodity industries (Nucor, 2018). This indicates that while corporate social responsibility can support premium pricing, it also can result in lower costs, such as lower financing costs, lower legal costs, or lower turnover costs, as well as a higher-quality, better-motivated workforce (Sprinkle & Maines, 2010). Therefore, strategic corporate social responsibility can support a low-cost-leader strategy when embedded in the core competencies that create low-cost advantage.
However, corporate social responsibility activities will create benefits for the corporation only if they are effectively and honestly communicated to internal and external stakeholders (Lee, Oh, & Kim, 2013). When the corporation appears to be claiming to do more than it actually does, employees and consumers quickly become jaded and remain skeptical of future corporate social responsibility claims. Therefore, corporations must be forthright about their social responsibility so as to not generate or escalate skepticism.
Environmental responsibility is one of the fastest growing areas of corporate social responsibility worldwide. Because compliance with environmental standards is a legal responsibility, being socially responsible means overcompliance. Corporate environmentalism is sometimes referred to as corporate environmental responsibility.
In the United States, the Environmental Protection Agency (EPA) was created by executive order in 1970 and made responsible for enforcing environmental laws. Early regulation was command and control: the EPA set standards and mandated how corporations complied. Over time, more attention was paid to gathering and disseminating information, and corporations moved to design solutions that met standards in more efficient/cost-effective ways, providing a springboard for corporate environmentalism.
Maxwell, Lyon, and Hackett (2000) couched corporate environmentalism as strategic self-regulation to preempt political action. They find that the threat of increased regulation is sufficient to prompt corporations to overcomply with existing environmental regulation. Because political action is costly for the firm and for the activists, it makes sense for firms to overcomply to fend off political action, benefiting both the corporation and the environment.
Voluntary environmental reporting such as the Global Reporting Initiative of 1997 encourages corporations to overcomply with environmental regulations and to actively engage in corporate environmentalism (Sheehy, 2019) to enhance firm reputation and brand. A reputation for environmentalism can result in many benefits, including attracting environmentally conscious consumers and investors (Lyon & Maxwell, 2008), the aforementioned preemption of regulation, and lower legal and financing costs. This last is a result of the lower probability that the firm will incur legal costs as a result of violating environmental standards, such as those tied to oil spills and poisonous gas leaks, since the internal target exceeds the legal regulation (Sheehy, 2019).
Environmental laws and regulations differ around the globe, requiring firms to be aware of local regulations but also providing them with opportunities to search for favorable (presumably less stringent) standards. However, Dowell, Hart, and Yeung (2000) found that firms that enforce the most stringent regulations worldwide are most successful. Additionally, Nidumolu, Prahalad, and Rangaswami (2009) found that corporations that innovate ahead of increasing standards have time to experiment and test new solutions and that corporations that enforce a single standard worldwide can take advantage of scale economies.
Conversely, corporate environmentalism branding can have serious negative consequences if not designed and implemented properly. Firms that fail to deliver on their environmental claims can be charged with “greenwashing,” that is, overstating their environmentalism. A particularly insidious form of “greenwashing” takes place when a corporation masks its true environmental performance by engaging in selective disclosure of benign impacts rather than full disclosure (Marquis, Toffel, & Zhou, 2016). In an empirical study of “greenwashing,” Walker and Wan (2012) demonstrated that claiming to be green (i.e., environmentally responsible) without actual green behavior negatively affects a corporation’s financial performance.
Corporate environmentalism increasingly embraces sustainability, which is a more comprehensive program of environmental stewardship. Sustainability requires attention to global and intergenerational effects of corporate operations.
According to the 1987 UN Brundtland report (World Commission on Environment and Development, 1987), “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” is sustainable. From this, one can extrapolate a definition of corporate environmental sustainability that incorporates a universal dimension—not just a clean environment where the corporation operates now, but a global and intergenerational one. That is, socially responsible corporations must consider the effects of current operations on the environment both now and in the future. They must also balance current and future economic and equity responsibilities.
Sustainability implies more than environmental impact management: all resources must be managed to ensure sustainability. Corporations must be mindful of how they manage farm land, forests, ocean fish stocks, animal and plant breeding, and valuable minerals, as well as how they can support sustainable development in developing economies. Hart (2010) coined the phrase “sustainable global enterprise” to label multinational enterprises that deliver economic, social, and environmental benefits across all their global operations. An example of a sustainable global enterprise is a multinational food company that “has implemented living wage standards for all of its farm workers in every country in which it harvests fruit, and which has introduced state-of-the-art environmental practices throughout its supply chain” (Aguilera, Rupp, Williams, & Ganapathi, 2007, p. 838).
Nidumolu et al. (2009) studied sustainability initiatives of multinational corporations and found that embracing sustainability led to innovation that creates better products and new businesses, increases brand loyalty, and reduces costs—contributing to both the top line (revenue) and bottom line (profitability) of the corporation. Consumers perceive that products that are produced sustainably or have sustainable characteristics are better products and, therefore, worth more. New revenue streams can come from businesses created by recycling and reusing products that have exhausted their original purpose. Additional revenue is generated when consumers develop brand loyalty through their experience with sustainable products. Cost reductions come from using fewer inputs in all parts of the value chain (from raw materials, through production and distribution to final sales). Additionally, firms that anticipate increasing environmental regulation can innovate ahead of their competitors and reap first-mover advantages. All of these increase the bottom line as well as being socially responsible.
The simplest type of corporate social responsibility is philanthropy, where a corporation donates part of its profits to programs that address social problems. The inner workings of the firm, its organization, its mission, its strategy, etc., are unaffected by the goals of the programs that receive financial support.
The social goods produced by the financially supported programs can be peripheral to the corporation. Some corporations that engage in strategic corporate social responsibility explicitly align social goods produced with other strategic components of the firm. For example, firms may have “buy one–give one” program where customers buy a branded product (e.g., a pair of shoes) and the firm gives one (pair of shoes) to a child in need. The social mission is less peripheral to profit-making.
Social enterprises go one step further than that and make their social mission part of the firm’s core. Defourny and Nyssens (2008, p. 202) define social enterprises as “not-for-profit private organizations providing goods or services directly related to their explicit aim to benefit the community.”
One type of social enterprise is a benefit corporation, which is a legal business entity that is required to have a social mission at its core (Hiller, 2013). In the United States, the need for a new legal form of for-profit that explicitly recognizes a social mission led to laws in some states that allow for benefit corporations. These corporations must declare themselves as such in their articles of incorporation and are required to submit to review by an independent third party to confirm that they are fulfilling their social mission. It should be noted that the independent review of the impact of benefit corporations is holistic—that is, it comprises all of the effects of the corporation on society, not merely its effect on selected areas such as profitability and environmentalism (B Lab Company, 2017). This is in contrast to standard corporations, which can legally engage in “greenwashing,” promoting corporate social responsibility activities while simultaneously obfuscating socially irresponsible actions (Marquis et al., 2016; Walker & Wan, 2012).
Another type of social enterprise is social entrepreneurship, which is an “innovative, social value creating activity that can occur within or across the nonprofit, business, or government sectors” (Austin, Stevenson, & Wei-Skillern, 2012, p. 371). While the social mission is always core to social entrepreneurship, it is not always obviously so, because it may be either explicit or implicit. In social entrepreneurship for the disadvantaged the social mission is explicit, that is, benefits (such as jobs) are provided to the disadvantaged. In social entrepreneurship by the disadvantaged, there is an implicit social mission of improving the (disadvantaged) entrepreneur’s circumstances, irrespective of whether there is an explicit social mission, such as providing jobs for others who are disadvantaged (Renko & Freeman, 2019).
The implicit social mission of entrepreneurship by the disadvantaged provides a conduit for social good created by corporate social responsibility programs, making support of entrepreneurship an attractive option for firms that engage with disadvantaged populations. For example, multinational corporations in Africa are adding to their corporate social responsibility portfolios the support of entrepreneurship in disadvantaged economies through education, training, and skills development initiatives (DeBerry-Spence, Torres, & Hinson, 2019).
The Business Case
The business case for corporate social responsibility refers to the belief that there is a causal link between being socially responsible and achieving profitability. It is argued that firms that do good (for society) will do well (be more profitable and have higher market value). In the context of corporate social responsibility, “doing well” can be the result of many advantages, such as premium pricing, repeat sales, higher employee productivity, lower cost of capital, or lower legal costs, all of which may translate into higher profitability and firm value in either the short run or the long run. Determining if firms “do good” is more problematic but is generally referred to as corporate social performance, which Wood defines as “a business organization’s configuration of principles of social responsibility, processes of social responsiveness, and policies, programs, and observable outcomes as they relate to the firm’s societal relationships” (1991, p. 693). Two widely used measures of corporate social performance are the Fortune Corporate Reputation Index and the Kinder, Lydenberg and Domini (KLD) index of reputation (Fombrun, Gardberg, & Sever, 2000).
In the 1990s the business case for corporate social responsibility (doing well by doing good) became a dominant theme in academic research. Countless empirical studies attempted to show a causal link between corporate social responsibility and corporate financial performance. These studies were hampered by difficulties in defining and measuring corporate social performance, often leading to inconsistent results (Margolis & Walsh, 2003) and sometimes suffering from lack of methodological rigor (McWilliams & Siegel, 2000). Barnett (2007) concludes that there is no universal evidence of doing well by doing good, because doing well is contingent upon the corporation, the timing, and the particular socially responsible investment. He suggests that academic research should focus on figuring out when, where, and what type of social responsibility will allow corporations to do well by doing good. Carroll and Shabana (2010, p. 101) support Barnett’s findings and conclude that “the benefits of CSR are not homogeneous, and effective CSR initiatives are not generic.”
Although meta-analyses have been conducted (e.g., Friede, Busch, & Bassen, 2015) in an attempt to make sense of the inconsistent results of earlier studies, the inclusion of criticized empirical studies and the bias toward publishing only studies that have statistically significant results makes the results of meta-analyses problematic. Given the inherent difficulties of testing the business case for corporate social responsibility, including, “the inaccessibility, both apparent and actual, of good data” (Wood, 2010, p. 75) and the lack of consensus on appropriate methodology, academic research has subsequently moved beyond trying to empirically verify a causal link between corporate social responsibility and profitability to accepting that corporations have social responsibilities and examining how such responsibilities can be met to the advantage of the corporation and society, ultimately arriving at the concept of strategic corporate social responsibility.
Although it’s difficult to separate out and quantify the effects of corporate social responsibility on firm performance, the effects on individuals can be measured directly by survey methodology. Therefore, we have better evidence of the non-pecuniary effects of corporate social responsibility than we have of corporate social performance. Corporate social responsibility is by definition about the corporation, but it is individuals who make decisions, carry out corporate social responsibility programs, and are affected by corporate actions. Stakeholders such as managers, employees, consumers, investors, and community members can shape and be shaped by corporate social responsibility activity and consequently often receive psychological benefits from their association with socially responsible corporations. The psychological benefits generated by these associations with the corporation are a component of the social value created by corporations that engage in corporate social responsibility.
Internal stakeholders include managers, employees, and board members, all of whom may affect or be affected by the firm’s social responsibility programs, processes, and reputation. Corporate social responsibility can be initiated by managers for personal reasons, including personal values, religious beliefs, commitment to social causes, professional image building, or a need to feel good about themselves (Hemingway & Maclagan, 2004). Manager-initiated corporate social responsibility can be either strategic or philanthropic, depending on the constraints of corporate governance, firm strategic orientation, and the availability of discretionary funds. Managers receive a psychological benefit when they can support their personal values, religious beliefs, or identity. It is common for large corporations to have social responsibility officers who shape the culture and reputation of the firm, maintain corporate social responsibility programs, and communicate to internal and external stakeholders. These executives have more opportunity to reap social and psychological benefits from corporate social responsibility.
In general, people desire to have meaning in their lives and often look for meaning in their work. Aguinis and Glavas (2019) explored how corporate social responsibility can help employees find meaning in their work. The closer the fit between the corporation’s identity and the employee’s identity, the more meaningful the work will seem. For example, a person who identifies as a caregiver will find meaningfulness in their work in a hospital. Corporate social responsibility programs provide additional information and experience that can help workers find more meaning in their work, that is, they may perceive that their work can serve a greater purpose.
Corporate social responsibility can affect employees’ perceptions and attitudes about their work and workplace. Gavin and Maynard (1975) tested the relationship between the employee’s perception of the corporation’s concern for the environment and the employee’s general satisfaction with their employment. They found that employees tended to report more satisfaction the greater the perceived corporate concern for the environment. Perhaps more telling, they found that the younger workers in the 1970s were most concerned about corporate environmentalism, which perhaps foretold increasing environmental awareness and activism.
Chong (2009) examined how participation in corporate social responsibility programs affect employee’s understanding and commitment to the corporation’s identity, where organization identity can be defined as “the set of meanings by which a company allows itself to be known and through which it allows people to describe, remember and relate to it” (Wheeler, Richey, Tokkman, & Sablynski, 2006, p. 98). Chong found that participation in corporate social responsibility programs feeds off of and reinforces corporate identity, resulting in the employee experiencing higher motivation, satisfaction, and commitment to the corporation.
Mozes, Josman, and Yaniv (2011) studied the relationship between corporate social responsibility activity and both organizational identification (a driver of loyalty) and motivation to work. Workers in their study were classified as either active participants or non-active participants in volunteerism programs. Active participants demonstrated higher levels of organizational identification and motivation to work. To be most effective for external beneficiaries and most meaningful for the employees, corporate social responsibility must be embedded in the routines and processes of the organization (Aguinis & Glavas, 2013).
Meister (2012) found that 53% of workers surveyed by the nonprofit Net Impact reported that having a job where they can make a difference to society is important to their happiness. Further, 72% of students getting ready to enter the workforce also felt this way. According to Meister, to recruit and retain young top talent, corporations not only have to engage in corporate social responsibility, they must communicate their engagement through social media.
External stakeholders may be affected by the firm’s social responsibility programs, processes, or products, but as outsiders they do not affect these. External stakeholders include consumers, suppliers, investors, and community.
Consumers derive psychological value from purchasing socially responsible products. According to Green and Peloza (2011) there are three categories of benefit: emotional, social, and functional. Buying products from socially responsible companies allows consumers to feel good about themselves. This emotional response can be associated with companies that make charitable contributions to social causes. Consumers feels good about themselves (emotional benefit) for buying from a company that is altruistic. Alternatively, buying products from a socially responsible company can define the consumer as a good person to others and elevate their position in the community (social benefit). This social response can be associated with companies that champion a social cause such as environmental sustainability. Functional benefit comes from purchasing products that function better because of CSR attributes, such as fuel-efficient cars. The three types of benefit can work together and amplify each other. “For example, a hybrid vehicle can provide functional value (lower operating costs), emotional value (joy in saving or environmental stewardship), and social value (meeting relevant norms)” (Green & Peloza, 2011, p. 52). For consumers to derive value from corporate social responsibility, they must be aware of it. Corporations traditionally used company reports, web pages, and advertising to make consumers aware of their corporate social responsibility but are now feeling pressure to communicate more broadly and often over social media.
Socially responsible investing provides psychological value to investors. According to Beal, Goyen, and Philips (2005), this value can take the form of “fun of participation” similar to what gamblers experience, or it can take the form of happiness similar to that generated by pleasurable activities. Psychological value augments the financial returns to socially responsible investments and helps explain the decision to invest in screened funds. According to Dam and Scholtens (2015, p. 104), “consumers receive a warm-glow” when they invest responsibly.
Benefits to Investors
Investing in socially responsible firms, commonly referred to as socially responsible investing (SRI), is a way for investors to join their values and their desire for monetary gain. This has become easier for individual and institutional investors with the growth of mutual funds focused on socially responsible investing. At the start of 2018 there was over $30 trillion invested in socially responsible stock, with nearly half this amount held in Europe (Global Sustainable Investment Alliance, 2019). In the United States there are mutual funds that filter for social responsibility, allowing individual and institutional investors to encourage socially responsible corporations while withholding support from firms that engage in industries (such as gambling) or activities (such as genetic modification) that are not viewed as socially responsible. Because perceptions of what is socially responsible and what is not can vary, mutual fund managers develop screens to appeal to different viewpoints and choose stock of firms that meet the criteria of the screen but also meet the criteria for firm/stock performance. Several empirical studies comparing the returns to socially responsible funds and unrestricted funds have found that there is no systematic difference (e.g., Bauer, Koedijk, & Otten, 2005; Hamilton, Jo, & Statman, 1993; Sauer, 1997). In a meta-analysis of earlier studies, Revelli and Viviani (2015, p. 158) found that “the consideration of corporate social responsibility in stock market portfolios is neither a weakness nor a strength compared with conventional investments.” On average the returns to SRI funds are the same as the returns to unrestricted funds, making SRI funds attractive to both individual and institutional investors because they combine competitive financial returns with psychological benefits (feeling good about oneself for being socially responsible).
Other avenues for socially responsible investing include individual stocks (with the opportunity to engage directly with the corporation) and community development financial institutions which engage in socially responsible investing by providing loans to small businesses in low-income, at-risk communities who otherwise would not have access to financing (Schueth, 2003).
Corporate social responsibility is a well-researched and thoroughly discussed topic. While there is general consensus among researchers and commentators that corporations have responsibilities to society that go beyond profit maximization, what those responsibilities are and how they should be met are still open questions. Stakeholder theory, Carroll’s pyramid of corporate responsibilities, micro-economic theory of the firm, altruistic and strategic corporate social responsibility, corporate self-regulation, political corporate social responsibility, corporate environmentalism, and sustainability all offer insights into the responsibilities of corporations and how those responsibilities may be met.
When viewed from the perspective of the firm, the evidence of corporate social responsibility has generally been about the link between corporate social performance and financial performance or firm value, with mixed results. But financial effects are not the only effects of corporate social responsibility. Individuals experience psychological effects that are also a part of the social good created by socially responsible corporations. Researchers have reported significant effects, including:
1. Workers find meaning in their work and experience higher motivation, satisfactionm and commitment to the firm.
2. Consumers feel good about themselves.
3. Investors get a warm glow from supporting socially responsible firms.
We have abundant information about what is and isn’t corporate social responsibility, how corporate social responsibility benefits corporations and individuals, and how investors can encourage socially responsible corporations and discourage irresponsible corporations. However, we know less about how corporations can address social problems such as human rights, justice, poverty, and environmental sustainability and next to nothing about the record of corporate social responsibility in addressing such social problems.
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