Sunday, January 30, 2011

Does CSR Improve Corporate Performance?

“For more than 35 years a quest has been underway to determine whether corporate social responsibility (CSR) produces higher financial returns (Margolis and Walsh 2003, p. 273). For example, a number of theorists have developed an array of substantial literature arguing that socially responsible practices are part of a constellation of management behaviours that contribute to better financial performance (Jones 1995; Kotter and Heskett 1992; Pfeffer 1998; Reichheld 1996; Ullmann 1985; Waddock and Graves 1997). Also, more than 127 empirical studies have been conducted on the subject (Margolis and Walsh 2003).

If work on this subject clearly established that CSR produced stronger corporate financial performance (CFP), there would be major benefits. Then it would not be necessary to attempt via normative arguments alone to persuade those who believe business should focus primarily on financial returns that some profits should be sacrificed in favour of CSR (cf. Wood and Jones 1995, pp. 230–231),” (DeMaCarty, 2009, 394).

Peter DeMaCarty highlights in his article how, “it is clear that many companies continue to be longer on CSR words than action (Moskowitz 2002; Waddock 2002). Thus, despite excellent progress in a substantial number of companies, we are still a long way from seeing CSR become fully adopted by business (see Franklin 2008, pp. 3–6, 22–24). So it is apparent that the normative arguments, theoretical work and empirical research in favour of CSR have left many business leaders unconvinced. As a result, it is clearly worthwhile to continue seeking a better understanding of the CSR-financial relationship,” (p.395).

Yet it seems a shame that there are so many people making the argument for CSR, but don’t seem to be presenting the facts in a way that attracts the majority of organisations and encourages them to realign themselves with a workable CSR strategy.

Unfortunately as DeMaCarty mentions “the effects of managing apparent CSR skilfully, along with other obstacles to developing accurate CSR measurements, probably explain a positive correlation of CSR as measured in studies with financials. Again, what makes higher CSR ratings correlate with better financials probably is an ability of skilful companies, whether they are actually responsible or irresponsible, to both ratchet up their CSR ratings as appropriate and to achieve better financial returns,” (p.419).

One of the most interesting discussions, that may surprise some is whether, we, the human race, can in fact possess ‘moral freedom’, and as DeMaCarty reminds us, “the key controversy surrounds the question of whether causal determinism is true and implies that people cannot possess moral freedom, and therefore cannot be held responsible for their actions (O’Connor 2000),” (p.420). To counter this a further perspective, “termed agent causation, denies that determinism actually does account for all decisions, and holds that the person himself or herself is the cause of his or her actions (O’Connor 2000; see also Descartes 1641/1984, p. 343). Variations of such views claim that our nature or circumstances might limit our choices, but we have freedom in choosing among those open to us.

Finally, “another range of theories holds that our decisions are all caused by events we do not control. Some of them argue that we nevertheless have free will. One variety essentially equates free will with freedom to act without an external constraint or threat (see Hobbes 1651/1997, p. 116; and Widerker and McKenna 2003),” (p.420-421).

What is clear after all the research and mentioned by DeMaCarty is that, “from a financial standpoint, managers have a choice between adopting Corporate Social Responsibility (CSR) or Corporate Social Irresponsibility (CSI) that is not compelled by financial considerations, because they can get equally strong financial returns either way”.

DeMaCarty highlights how “there are strategic principles that can help managers maximise the financial benefits available to responsible companies (see Jones 1995; Kotter and Heskett 1992; Pfeffer 1998; Reichheld 1996; Waddock and Graves 1997). As a result, decent managers who no longer believe they are pressed by financial consequences to adopt certain CSI practices are likely to choose responsible management,” (p.427).


DeMaCarty, P. (2009). Financial Returns of Corporate Social Responsibility, and the Moral Freedom and Responsibility of Business Leaders. Business & Society Review, Vol. 114, Issue 3, p. 393-433.

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