Editor’s note: Today we continue our series on corporate social responsibility, presenting top-tier research that answers key questions in the debate. Be sure to check out the JOM Editor’s Choice Collections below for additional resources.
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Part Two: Is CSR good for business?
Jonathan P. Doh, Shawn D. Howton, and Shelly W. Howton, all of Villanova University, and Donald S. Siegel of the University of Albany-SUNY published “Does the Market Respond to an Endorsement of Social Responsibility? The Role of Institutions, Information, and Legitimacy” in the November 2010 issue of the Journal of Management (JOM). From the abstract:
A consensus has emerged in the burgeoning literature on corporate social responsibility (CSR) that “virtuous” firms are often rewarded by the marketplace. Unfortunately, the mechanisms through which those rewards materialize are not well understood. Furthermore, it is
difficult for managers and investors to know whether a company is actually engaged in responsible behavior….In this article, we draw on institutional theory and research on reputation and legitimacy to investigate the relationship between institutional endorsements (and repudiation) of CSR and firm financial performance.
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Abagail McWilliams of the University of Illinois–Chicago and Donald S. Siegel of the University at Albany published “Creating and Capturing Value: Strategic Corporate Social Responsibility, Resource-Based Theory, and Sustainable Competitive Advantage” in the September 2011 issue of JOM. The abstract:
The authors analyze the creation and capture of private and social value by firms that adopt corporate social responsibility (CSR) strategies. Strategic CSR is defined as any “responsible” activity that allows a firm to achieve a sustainable competitive advantage, regardless of motive. To provide a roadmap for managers to accomplish this objective, the authors integrate the resource-based theory (RBT) framework with concepts and tools from economics, such as hedonic pricing, contingent valuation, and the new literature on the economics of industrial organization, where CSR is referred to as “the private provision of public goods.” By linking CSR, RBT, economic models of private provision of public goods, and pricing models, the authors demonstrate how RBT can provide a structure for determining the strategic value of CSR. They then discuss the conditions under which CSR can contribute to sustainable competitive advantage.
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Up next in the series: How does CSR impact the individual?
Very simply, in cases where private profits and public interests are aligned, the idea of corporate social responsibility is irrelevant: Companies that simply do everything they can to boost profits will end up increasing social welfare. In circumstances in which profits and social welfare are in direct opposition, an appeal to corporate social responsibility will almost always be ineffective, because executives are unlikely to act voluntarily in the public interest and against shareholder interests.