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To What Extent is CSR Beneficial to a Company’s Performance?

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Corporate social responsibility (CSR), which is a popular debate topic over decades, has divided into five major dimensions over time. They are known as the stakeholder dimension, the social dimension, the economic dimension, the voluntariness dimension and the environmental dimension in research (Dahlsrud, 2008). The relationship between CSR and company’s performance, which is classified as the stakeholder dimension, aroused a controversial discussion among different research studies.

Some research reported positive relationship in CSR and company’s performance (Mirvis, 2012), some research found negative results (Karnani, 2010), while there are also other research view CSR as an irrelevant aspect to company’s performance (McWilliams and Siegel, 2000).

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The various results reported by different studies may cause confusion for corporations to decide whether to adopt CSR evaluation or not. In order to make appropriate decision for the future of the company, it is really significant to identify to what extent is CSR benefit to a company’s performance.

In this paper, the author suggests that corporate social responsibility may not be truly influential to the company’s performance by analyzing and evaluating the reasons why there are various results concluded by different research from positive, negative, to neutral.

Research indicating that CSR is beneficial to a company’s performance found that companies with more attention on CSR will build good corporation fame and then performance better as a company, because it will be more attractive to customer and have stronger employees’ loyalty.

Also, putting more attention on CSR may actually help the company to cut costs, and thus better off in performance. In general, Kang, Lee and Huh’s (2009) research on the relationship between CSR and company’s performance in hospitality industry used ratio analysis and found out that for hotels and restaurants, positive action in CSR was widely preferred by the customers and they tend to go to hotels and restaurants with better reputation; as for airlines, negative actions in CSR may have severe influence on firm value, which leads people to avoid taking their planes.

Mirvis (2012) saw the value of CSR as major incentives to employees, for people prefer companies which “care about how it impacts and contributes to society”. More specifically, it seems that DuPont, as a chemical company, has a natural disadvantage in term of CSR. However, Haas (1992) found that DuPont made lots of advantages through CSR by getting lots of government fund and series of banning on the CFC product, as DuPont was turning to a new direction in the industry.

Research reaching a conclusion that CSR makes company worse off in company’s performance stress that putting more attention on CSR is a distraction from the company’s basic role in the society, which is to maximize the profit. Wright and Ferris (1998), using the example of American divestments in South America, explained that CSR may be the result of agency conflict that it is driven by the senior manager’s own interest to gain public reputation or to alleviate the political pressure, which is at the cost of the shareholders’ benefit.

Other researchers including Karnani (2010) concluded that CSR neither benefit the society nor the company’s performance. The most common situation we see as CSR benefiting the company’s performance is just some coincidence that there’s a market for healthy food within those people who concern their health, or there’s a market for eco-friendly vehicles brought by the rising price of petroleum. However, for other social concerns such as pollution or poverty, as they are not profitable (for the time being), few companies performed CSR on those issues, for they will cause a reduction in the company’s profit.

To understand why those research studies got opposite result, McWilliams and Siegel’s (2000) research may give us some clues. The research, using some statistical analysis, found that in the evaluation process of CSR, some important aspects which also influence the company’s performance were overlooked, such as R&D, advertising intensity, etc. In this way, those impact brought by those omitted aspects would be included in the CSR’s relationship with company’s performance by mistake.

Despite the influence of omitted factors, CSR neither benefit nor harm company’s performance. For those cases reported positive relationship above, they are very likely to be the result of a good marketing strategy and aggressive advertisement (for restaurant and airlines), successful management (for employees’ willingness to work in a responsible company), an efficient R&D and politic strategies (for DuPont’s case), etc. However, research reaching a negative relationship can also be blamed to other stuffs related to CSR, rather than CSR itself.

For example, the agency problem appears when there’s a conflict between company’s goal and the agent’s personal goal, not only in CSR; and the profit issue is just a matter of choice. Thus, while measuring CSR’s influence on company’s performance, we should first “identify or select the dimensions of corporate social responsibility” (Ruf, 1998, as cited in Foote, Gaffney, &Evans, 2010). Nothing can we truly measure before a clear identification. After a clear identification, we will be able to figure out whether it is the impact brought by CSR, and therefore eliminate the interference from R&D, advertising, or political efforts, etc.

It’s not simply that there are some research studies reaching a point that CSR has a positive influence on company’s performance and other research reported a negative influence so I get a neutral relationship as a result. The neutral influence in this paper means that CSR itself does not really influence company’s performance. To explain it, those positive or negative relationship reported by those research studies may be the result of an overlook on some crucial variables, such as R&D, advertising intensity or political efforts in measuring company’s performance.

By specify what are the results truly brought by CSR, we would be able to identify to what extent is CSR beneficial to a company’s performance, that is, as this paper suggests, CSR may be irrelevant to company’s performance and has a neutral influence on company’s performance.

References

Dahlsrud, A. (2008). How corporate social responsibility is defined: an analysis of 37 definitions. Corporate social responsibility and environmental management, 15(1), 1-13. Foote, J. , Gaffney, N. , & Evans, J. R. (2010). Corporate social responsibility: Implications for performance excellence. Total Quality Management, 21(8), 799-812. Haas, P. M. (1992). Banning chlorofluorocarbons: epistemic community efforts to protect stratospheric ozone. International Organization, 46(1), 187-224. Kang, K. H. , Lee, S. , & Huh, C. (2010). Impacts of positive and negative corporate social responsibility activities on company performance in the hospitality industry. International Journal of Hospitality Management, 29(1), 72-82. Karnani, A. (2010). The case against corporate social responsibility.

Wall Street Journal, 23, 1-5. McWilliams, A. , & Siegel, D. (2000). Corporate social responsibility and financial performance: correlation or misspecification?. Strategic Management Journal, 21(5), 603-609. Mirvis, P. H. (2012). Employee Engagement and Corporate Social Responsibility (CSR). Encyclopedia of Human Resource Management, Critical and Emerging Issues in Human Resources, 3, 274. Wright, P. , & Ferris, S. P. (1998). Agency conflict and corporate strategy: The effect of divestment on corporate value. Strategic Management Journal, 18(1), 77-83.

Cite this To What Extent is CSR Beneficial to a Company’s Performance?

To What Extent is CSR Beneficial to a Company’s Performance?. (2017, Jan 28). Retrieved from https://graduateway.com/to-what-extent-is-csr-beneficial-to-a-companys-performance/

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