NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, March 16, 2016

Talk of doing society good is by now a standard component of American companies’ messaging.

Whether they meet that stated goal is another matter, but still, the impetus for it all is still a bit mysterious: Why have multi-billion-dollar firms invested so heavily on corporate social responsibility, or CSR, programs in the last few decades? Are firms engaging in socially conscious behavior for honest reasons, or simply to direct attention away from some of their more harmful behaviors?

A new paper published in the Journal of Marketing investigates the motivations behind companies’ implementation of CSR programs. It also looks at bad firm behavior and firm performance to figure out what drives companies to act conscientiously and what benefits they reap from doing so. The paper examines 4,500 firms over a 19-year span and compares implementation of CSR programs with instances of social irresponsibility.

The study’s authors—Charles Kang, Frank Germann, & Rajdeep Grewal—identified four potential rationales for instituting CSR programs. The first is what’s called the slack resources theory, which assumes that when a firm is doing well, it has plenty of extra money to play around with. So firms will use some of that money to create programs tailored toward social good. According to this theory, firms start or end such programs at will, basically depending on whether or not they’re in prosperous times. Another theory suggests that companies view CSR programs as good management practice, since firms that focus on social good can reap financial rewards—such as increases in sales, more loyal customers, good press, or the ability to attract more high-quality employees—because of their good reputation.