A Real Options Reasoning Approach to Corporate Social Responsibility (CSR): Integrating Real Option Sensemaking and CSR Orientation

• Published date: 01 March 2014
• Author: Peggy Golden,Richard Peters,Ethan Waples
• DOI: http://doi.org/10.1111/basr.12025
• Date: 01 March 2014

A Real Options Reasoning

Approach to Corporate Social

Responsibility (CSR):

Integrating Real Option

Sensemaking and

CSR Orientation

RICHARD PETERS, ETHAN WAPLES, AND PEGGY GOLDEN

ABSTRACT

In this article we explore the conceptual relationship

between corporate social responsibility (CSR) orientation

and real option reasoning. We argue that the firm’s atti-

tude, communication, and behavior toward CSR will act

as significant determinants to the firm’s sensemaking

approach to real options; that is, if and how it (the

firm) acknowledges, receives, and manages strategic

real options. Integrating the previous work of Basu and

Palazzo with Barnett, we propose a new model that

extends the influence of CSR orientation/character to

general strategic decision making while simultaneously

developing the attention-based view to real options.

Richard Peters is an Assistant Professor of Management at Xavier University of Louisiana, New

Orleans, LA. E-mail: rpeters1@xula.edu. Ethan Waples is an Assistant Professor of Manage-

ment at University of Central Oklahoma, Edmond, OK. E-mail: ewaples@uco.edu. Peggy

Golden is a Professor of Management at Florida Atlantic University, Boca Raton, FL. E-mail:

golden@fau.edu.

bs_bs_banner

Business and Society Review 119:1 61–93

© 2014 Center for Business Ethics at Bentley University. Published by Wiley Periodicals, Inc.,

350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK.

INTRODUCTION

Acursory perusal of contemporary strategy literature would

support the popularity of real options reasoning (ROR) in

theoretical and empirical research. Although not an

entirely new concept (see Myers 1977), this approach to project

valuation has gained considerable currency as both academics

and practitioners revolutionize management thinking in increas-

ingly novel ways (McGrath et al. 2004).

While past writers have defined and used ROR differently, there

is considerable consensus with respect to treating real options

as “preferential access to an opportunity for an investment”

(Bowman and Hurry 1993, p. 762). In this way they are similar to

traditional financial options such as puts and calls that offer

investors advantageous positioning from which to leverage future

possibilities while simultaneously minimizing future risks (Husted

2005; McGrath et al. 2004).

However, unlike conventional financial instruments, most

strategic real options are embedded in contexts of ambiguity,

intangibility, and subjectivity and thus are susceptible to the

influences of individual cognition (Adner and Levinthal 2004;

Barnett 2008; Krychowski and Quelin 2010). Barnett (2008) pro-

vides an initial schema to consider the cognitive elements of ROR.

He acknowledges the importance of attention structures, mental

schemas that prioritize what managers acknowledge and act on,

to understanding the heterogeneity in both real option portfolios

as well as ultimately, portfolio performance. Context attention

structures, he proposes, are relatively cultural and cognitive,

while concrete attention structures are more specific, policy ori-

ented, and regulative.

These attention structures, Barnett argues, are important to

understanding how firms, through their senior managers notice,

evaluate and manage real options. Because they assist in filter-

ing, channeling, legitimizing, and prioritizing information and

agendas, these inherent firm structures can also be expected to

significantly alter and explain strategic behavior and financial

performance.

While postulating how these structures might affect real option

activity, Barnett (2008) stops short of actually suggesting specific

antecedents to these attention schemas. Although, obviously a

62 BUSINESS AND SOCIETY REVIEW

sacrifice for simplicity and focus sake, his introduction and dis-

cussion of certain structures, like internal/external orientation

and innovative identity, without consideration of their potential

determinants, somewhat diminishes the richness and veracity of

his model. He does suggest that future research may help pre-

scribe specific organizational structures for desired real options

outcome, but that will require some insight into the antecedents

and contributing factors to such structures. And while Gregoire

et al. (2010) provide a useful model that explores the cognitive

underlays of one aspect of Barnett’s model, recognition of oppor-

tunities (real options), more needs to be done, not only to explain

real option sensemaking, but also to further identify what pro-

vokes and frames it.

To address this need, we propose corporate social responsibility

(CSR) as a possible antecedent and influence to the attention

structures identified in Barnett (2008). While there are a myriad

of possible variables that can be elicited for this endeavor, in the

following few paragraphs we will attempt to validate our choice

and demonstrate the academic and practitioner benefit its selec-

tion affords.

Benefits of Study

Our first rationale for choosing CSR is the lack of past research

linking this important factor to ROR. While other areas of strategy

including joint ventures (Chi, 2000) and global operations (Kogut

and Kulatilaka 1994) have already been privy to ROR treatment,

researchers in social responsibility have been somewhat circum-

spect and quiet in this arena, creating a substantial intellectual

void. It should be noted that Husted (2005) does consider CSR

through the lens of real options but his work diverges from ours

since he focuses on how socially responsible investments can act

as real options and therefore provide tangible benefit. Rather than

treat CSR as a real option “type” we attend to it as a precursor for

general ROR, regardless of whether the real option investments

are socially or traditionally flavored. Thus the scope of consider-

ation and applicability of this work is broader, at least theoreti-

cally, than Husted (2005).

Beyond the lack of evidentiary research however, we are moti-

vated by the perpetual and contentious debate that haunts the

63PETERS, WAPLES, AND GOLDEN