An examination of corporate social responsibility practices and firm performance in U.S. corporations.

Author:Sledge, Sally
Position:Report
 
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INTRODUCTION

Corporate social responsibility has become a popular term among managers, government officials and academicians in recent years. The term covers many areas of the corporate domain. One definition is from the CSR Initiative at the Kennedy School of Government at Harvard, and it is as follows:

The term "corporate social responsibility" is often used interchangeably with corporate responsibility, corporate citizenship, social enterprise, sustainability, sustainable development, triplebottom line, corporate ethics, and in some cases corporate governance. Though these terms are different, they all point in the same direction: throughout the industrialized world and in many developing countries there has been a sharp escalation in the social roles corporations are expected to play. Companies are facing new demands to engage in public-private partnerships and are under growing pressure to be accountable not only to shareholders, but also to stakeholders such as employees, consumers, suppliers, local communities, policymakers, and society-at-large (www.hks.harvard.edu).

While these terms encompass different activities, they all share the same root: businesses responsibly using their resources to meet their current missions while at the same time considering the impacts on firm outsiders, the planet and future generations. They also refer to some sort of self-monitoring on the part of firms. In this way, companies must answer not only to their shareholders but also to many other stakeholder groups which have an interest in the business and what it does.

Technology has allowed stakeholder groups from around the world to stay abreast of organizational happenings in real time. Therefore organizations must be cognizant of their corporate image and community reputation and act accordingly. Thus CSR has become a key strategic consideration and agenda item to be managed and promoted for nearly every organization in the business community.

Altman and Vidaver-Cohen (2000) note that the term corporate citizenship was first used by American businesses in the 1980s. Matten and Crane (2005) note that corporate citizenship has become a term that is not only applied to American businesses, but it is also applied to global organizations to describe the social role that these organizations play in the worldwide marketplace.

As a result of these types of actions by companies around the globe, CSR is becoming an integral part of maintaining competitiveness in nearly all industries. Therefore it has become a topic of interest for managers, employees, customers, government officials and academics.

Given this focus on CSR by the media, governments and corporations, managers will need to address the question: Does CSR make a difference to the bottom line for companies? Along this line of thinking, the following research questions will be considered in this paper: 1. Is there a link between CSR activities and firm performance? 2. Does the measure of CSR affect its relationship with firm performance? 3. Do other factors impact this relationship?

LITERATURE REVIEW

International studies have documented the importance of CSR around the world. Crisostomo, Freire, and Vasconcellos (2010) found a negative relationship between firm value and CSR among Brazilian firms, yet they found a neutral relationship between CSR and financial performance. They advocate the use of a three dimensional measure of CSR. While de-los-Angeles, Giner-de-la Fuente and Griful-Miquela (2009) found that the relationship between CSR and business profitability was neutral for a sample of Spanish firms. From this study, Margolis and Walsh (2001, 2003) performed a Meta-analysis of multiple global studies and found a positive relationship between firm financial performance and firm social performance. Heal (2005) achieved similar conclusions in a more recent study. Husted, Allen and Rivera (2010) found that CSR is related to value creation for firms. Beliveau, Cottrill and O'Neill (1994) found that different measures of firm performance, such as accounting measures and stock market measures, responded differently to CSR measures. In their study of U.S. firms, stock market measures led CSR and accounting measures lagged CSR.

Corporate social responsibility has gained the attention of scholars as it has also become a popular topic in the business press. Habisch et al. (2005), Windell (2006) and others note that there is not one overarching and comprehensive approach to CSR, since each firm situation is different. Therefore many researchers use multiple measures to capture the full extent of CSR activities within a firm. Kanji and Chopra (2010) use a 4 prong approach to measure CSR activities. These areas include social accountability and social investment, ethics and human resources, corporate governance and economic responsibility and environment protection and sustainability. These four factors will be used in this study to assess CSR actions among firms.

According to Lee, Fairhurst and Wesley (2009), firms that acknowledge CSR in their mission and vision statements are more likely to achieve CSR goals than those that do not. When CSR is built into corporate level strategies and business level strategies, then CSR is more likely to become a part of the corporate culture and mindset of an organization. Attention to CSR will cause a company to consider the ramifications of its actions, and therefore act in conscious and deliberate ways for intentional results. One firm that embodies CSR principles in the corporate culture is Johnson and Johnson. The company's credo states that "we are responsible to the communities in which we live and work, and we are responsible to the world community as well." Johnson and Johnson's recovery from the Tylenol tampering incident of 1982 shows their commitment to their customers and stakeholders (www.johnsonandjohnson.com).

HYPOTHESES

In evaluating the links between social performance and competition, Fernandez-Kranz and Santalo (2010) found that firms in more competitive environments earned higher social performance scores. They also found that firms in more competitive industries had better pollution levels. Additionally, the researchers revealed that industries with higher imports yielded better CSR performance. They suggest that CSR should be linked to firm strategy in order to optimize the firm's scores in areas of high importance. Many firms have created the executive level Director of Corporate Social Responsibility position to oversee these initiatives. So that:

H1: Higher levels of strategic CSR (SCSR) will positively impact firm financial performance.

Human resource corporate social responsibility can involve a wide range of activities depending on the industry in which the firm operates. Some examples of such behaviors include fair recruiting and hiring practices, diversity of employees, diversity of board members, good union-management relationships, equitable training and development practices and similar issues. Firms that exhibit leadership in terms of socially responsible behaviors in the area of human resources are more likely to have employees who exhibit higher levels of job satisfaction (Terjesen & Singh, 2008). Employees with higher levels of job satisfaction are more likely to exhibit better job performance (George & Jones, 2008). Better job performance results in more efficiency and effectiveness. Thus:

H2: Higher levels of human resource CSR (HRCSR) will positively impact firm financial performance.

Environmental protection and sustainability are two of the most common areas associated with CSR. These facets of CSR can include actions such as memberships or partnerships in environmental organizations, environmental certifications, commitment to reduce environmental impacts such as carbon footprints or emissions, as well as production and packaging procedures that are environmentally conscious. Fieseler, Fleck and Meckel (2010) note that many companies can increase stakeholder engagement and involvement by providing opportunities for interaction on sustainability blogs online.

In a 2009 survey of large businesses, the Buck consultancy firm...

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