The notion of CSR

The Lisbon Strategy was launched in March 2000 as an agenda of reforms to make Europe “the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion, and respect for the environment”. An environmental dimension was further added, with objectives relating to climate change, sustainable transport, public health and resource management, at the Gothenburg Council in June 2002. The Lisbon strategy was re-launched in 2005 re-focusing on the following goals: more innovation, greening up the economy, investing in people and developing a more dynamic business environment. According to European Commission President José Manuel Barroso Europe through the Lisbon strategy has “a unique opportunity to transform itself into a creative, modern innovation friendly, low-carbon economy, with a dynamic business environment, a highly-skilled work force and high-quality education, underpinned by a strong social model.”
In this political context, Corporate Social Responsibility (CSR) is becoming a major driver of new forms of competitiveness, growth, employment, sustainable development, and an organizing parameter, towards the achievement of the Lisbon and Gothenburg objectives. Indeed, according to the European Commission “CSR can play a key role in contributing to sustainable development while enhancing Europe’s innovative potential and competitiveness”.  According to European Commission, CSR is likely to become ever more relevant to the innovation process. In the same vein more and more companies consider the adoption of social initiatives to be an important strategic objective.
Nonetheless, CSR is still considered to be an embryonic concept, in a “continuing state of emergence”. A variety of theoretical perspectives have been used to explain the CSR phenomenon, and numerous definitions of the concept have been proposed. Consistent with McWilliams and Siegel (2001, p. 117), CSR can be defined as “…actions that appear to further some social good, beyond the interests of the firm and that which is required by law”.These social initiatives include actions within as well as outside the firm and can take many forms; for example, companies may focus on incorporating “social” features into products, becoming carbon neutral, adopting progressive human resource management practices and donating money to charities.

The Debate over CSR

In light of the current world economic crisis CSR is a topic of hot debate in today’s agenda. CSR proponents view CSR as a mechanism that corporations should use in order to gain social legitimacy for their operations, further advocating its positive effects on corporate performance. For example, a meta-analysis by Orlitzky, Schmidt, &Rynes(2003), considered 52 studies and concluded that a positive relationship between CSR and corporate performance exists. In a more recent meta-analysis of 167 studies Margolis, Elfenbein, & Walsh (2007) showed that the effect of CSR on corporate performance is positive, yet small. These authors conclude that firms should be involved in CSR, and that a continued search for a business case for CSR is not warranted.
On the other hand, along with the rise of CSR initiatives, there have been a growing number of scornful voices. Opponents of CSR suggest that the promise of CSR can deflect public attention from the need for stricter laws and regulations. According to the Friedmanesque view of CSR, shareholders entrust managers with their money solely to maximize a company’s market value, not so that managers can use the returns in order to satisfy their urge to make the world a better place.

Should Firms Invest in CSR?

Firms should probably move away from the long-fought battle regarding the universal impact of CSR toward a finer-grained understanding of when CSR is likely to be more profitable. Managers should understand that the so-called “good-will” refund of CSR is not unconditional. For example, the positive impact of CSR on financial and market indexes (e.g., firm-idiosyncratic risk, the market value of the firm) is greater in firms with higher advertising.
In line with the abovementioned reasoning, research from Graduate School Marketing Faculty finds that companies or brands that are low in service quality perceptions are disadvantaged when designing and implementing CSR actions. CSR actions by a high service quality corporation will have greater positive impact on its business goals than the CSR actions of a low service quality firm, since in the high service quality firm, negative CSR-induced attributions that hurt outcomes are tempered.
Similarly, in the context of internal marketing (i.e., how employees react to employers’ CSR initiatives), Graduate School marketing research indicates that managers should recognize that employee’s reactions to CSR initiatives may differ among firms that either do better or worse in important job satisfaction facets. Spending money on CSR initiatives when employees are not satisfied with their compensation is probably a not wise investment, at least when it comes to increasing employee retention rates. On the other hand, since employees are likely to trade-off CSR with satisfaction with the job itself, managers can compensate employees’ poor satisfaction with the job itself with favorable CSR associations. Alternatively put, spending on CSR initiatives is probably a wise strategic choice especially for firms that do not perform well on satisfaction with the job itself.
Finally, Graduate School marketing research in the context of grocery retailing finds that retailers targeting at consumer groups high in altruism, high in need for activity, and high in self-enhancement motives, are probably in a more advantageous position when investing in CSR initiatives as a way to build and further deepen emotional attachment, and indirectly consumer loyalty. Findings indicate that social actions are more likely to be effective for retailers positioned along the three traits/needs described earlier. For example, more upscale retailers (e.g., Waitrose, Sainsbury’s, Neiman Marcus, AB Vasillopoulos, Nordstrom etc.) will probably reap more consumer-based benefits from CSR investments compared to downscale retailers. Differently put, downscale retailer brands (e.g., Wal-Mart, Target, Carrefour etc.), are probably in a more disadvantageous position when deciding to invest in CSR initiatives, since for these retailers social acts will probably bring about less benefits.

References

Franklin, D. (2008, January, 17). Just good business: A special report on corporate social responsibility. The Economist, 386(8563), 3−6.
Luo, X., & Bhattacharya, C. B. (2009). The Debate over Doing Good: Corporate Social Performance, Strategic Marketing Levers, and Firm-Idiosyncratic Risk. Journal of Marketing, 73(6), 198-213.
Margolis, J., Elfenbein, H., & Walsh, J. (2007). Does It Pay To Be Good? A Meta-analysis and Redirection of Research on the Relationship Between Corporate Social and Financial Performance: Harvard Business School-Unpublished manuscript.
McWilliams., A., Siegel D.S., & Wright, P.M. (2006). Corporate Social Responsibility: Strategic Implications. Journal of Management Studies, 43 (1), 1-18
Orlitzky, M., Schmidt, F. L., &Rynes, S. L. (2003). Corporate Social and Financial Performance: A Meta-analysis. Organization Studies, 24(3), 403-441.
Reich, R. B., (2008) ‘The Case Against Corporate Social Responsibility’, Goldman School of Public Policy Working Paper No. GSPP08-003. [Available at SSRN: http://ssrn.com/abstract=1213129]
Vlachos, P., “Corporate Social Responsibility and Emotional Attachment: The Moderating Role of Individual Traits”, European Journal of Marketing (in press)
Vlachos, P., Tsamakos, A., Vrechopoulos, A. &Avramidis, P., (2009).Corporate Social Responsibility: Attributions, Loyalty and the Mediating Role of Trust. Journal of the Academy of Marketing Science, 37 (2), 170-180
Vogel, D. (2005). The Market for Virtue: The Potential and Limits of Corporate Social Responsibility. Washington, D.C.: Brookings Institution.

*Dr Vlachos is a Professor of Marketing at the Graduate School of Deree-The American College of Greece