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MANDATING SOCIALLY RESPONSIBLE BEHAVIOR
Michael Pirson, Lerzan Aksoy and Yuliya Komarova
Michael Pirson, Assistant Professor of Management Systems
Fordham University - Schools of Business
1790 Broadway, Suite 1147,
New York, NY 10019
Phone: 857.869.9604
Email: [email protected]
Lerzan Aksoy, Associate Professor of Marketing
Fordham University - Schools of Business
441 East Fordham Road
Hughes Hall #518
Bronx, New York, NY 10452
Phone: 862.221.0105
Email: [email protected]
Yuliya Komarova, Assistant Professor of Marketing
Fordham University - Schools of Business
113 W. 60th St. 6th Floor,
New York, NY 10023
Phone: 212.636.6150
Email: [email protected]
Electronic copy available at: http://ssrn.com/abstract=2260493
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MANDATING SOCIALLY RESPONSIBLE BEHAVIOR
Management theory and practice are facing unprecedented challenges. The lack of
environmental sustainability, the increasing inequity and the continuous decline in societal
trust pose a threat to ‘business as usual’ (Jackson & Nelson, 2004, p. 214). It is argued that
legitimacy has been lost by irresponsible corporate behavior. A logical step to remedy the
current problems could be to regulate and mandate responsible corporate behavior. This
endeavor though seems easier said than done, as a legal approach presupposes that there are
clear answers to questions of responsibility that can easily be regulated. In this chapter we
will engage with the question of mandating socially responsible behavior by providing a
general framing of the discussion on CSR, and outlining the benefits of socially responsible
behavior for a set of companies that engage in B2C commerce. We then outline the benefits of
mandated social responsibility standards, and the potential downsides. Finally we suggest
alternatives and complements to mandated socially responsible behavior, via strategy and
governance structure changes. Before we do so, we wish to outline the big picture challenges
of the current economic structure epitomized by shareholder capitalism, which motivate the
quest for more socially responsible corporate behavior. At the same time, these challenges
outline the necessity of mandates for social responsibility. We then outline different
approaches to CSR, as developed in practice and theory, to guide further discussion.
1) Why Are We Thinking about CSR Mandates at All?
Capitalism is at a crossroad and scholars, practitioners, and policy makers are called to
rethink business practices in light of major external changes (Arena, 2004; Hart, 2005). As
current management theory is largely informed by economics, it draws substantively from
neoclassical theories of human beings (Ghoshal, 2005). Accordingly, humans are materialistic
utility maximizers that value individual benefit over group and societal benefit. A ‘homo
economicus’ engages with others only in a transactional manner to fulfill his or her interests.
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He/she is amoral, values short-term gratification and often acts opportunistically to further
personal gain. Theories of the firm and ensuing business strategies, as well as organizational
designs, have been largely based on the economic assumptions, and, in turn, are blamed by
others for creating negative externalities (Ghoshal, 2005; Ghoshal & Moran, 1996). Argyris
(1973), for example, claims that organizational mechanisms based on principal-agent theory
create opportunistic and short-term gain-oriented actors in a self-fulfilling prophecy (see also
Davis, Schoorman, & Donaldson, 1997). Other critical scholars argue that management theory
needs to be rethought based on psychological insights rather than theoretical assumptions
(Ghoshal, 2005; Tyler, 2006). Tyler (2006) finds overwhelming evidence that people look for
respect, acceptance, communion, and shared values instead of short-sighted personal utility
increases. Diener and Seligman (2004) find that ‘Leading a meaningful life’ is more important
to most people than money, power, and status. De Cremer and Blader (2005) underline the
importance of a sense of belongingness, which is contradictory to the individualization
aspects of economic theory.
With the increasing severity of a multitude of crises, it becomes ever more evident that
the dominating Anglo-Saxon model of shareholder centered capitalism falls short with regard
to its sustainability and life-conduciveness on a systemic level, organizational level, and
individual level (Kimakowitz, Pirson, Spitzeck, Amann, & Khan, 2009), as it subsumes the
opportunity for responsible behavior under shareholder value maximization.
The Systemic Level
Environmental destruction is one of the most obvious problems of our current system.
Overall, humanity is currently using the productive capacity of more than 1.3 planets to
satisfy its needs (WWF 2006). If everybody on this planet were to consume natural resources
at the rate of an average American, five planets would be required (Boyle, Cordon, & Potts,
2006). The current economy uses more resources than can be replenished, leading to
unsustainable growth and further economic bubbles. In financial terms, we are living off our
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planetary capital and not the interest generated by it, which is very poor management of
resources. This lack of sustainability is, however, supported by the logic of our current
system. Shareholder capitalism is short-term oriented and, when applied rigorously, rewards
irresponsible plundering over responsible preserving. Increasing inequality is another problem
that is likely to have significant repercussions on the stability of our political and economic
systems. Current trends in globalization have led to a world in which the rich get richer, and
the poor get disproportionately poorer (Sachs, 2005). One-sixth of the world's population lives
in extreme poverty. The level of poverty and inequality pricks the conscience of many people,
but is also a threat to the stability of the rest of the world. Political unrest, collectivization, and
terrorism are fed by such inequality, which requires significant investments into preserving
the status quo (see increased security budgets) rather than innovation. Shareholder capitalism
is mostly blind to these consequences and has not yet provided satisfactory answers to deal
with these issues.
The Organizational Level
At the organizational level, businesses face the challenge of low reputation levels and
ever decreasing stakeholder trust (e.g., The World Economic Forum, 2006). Trust is, however,
commonly viewed as the key enabler for cooperation, motivation, and innovation, all of
which are required to achieve an organization’s peak performance and its eventual success.
Surveys indicate that stakeholder trust in businesses is decreasing dramatically, specifically in
shareholder-value-maximizing, large and global companies. Research finds that the decline in
trust is heavily contingent upon a lack of value congruency between stakeholders and the
organization (Pirson, 2007; Pirson & Malhotra, 2008, 2011). Profit maximization goals are
perceived as inherently opportunistic leading to irresponsible behavior, which makes it ever
more difficult for the business community to re-establish trust (Child & Rodrigues, 2004;
Pirson, 2007; Simons, 2002).
We observe that many corporations are facing a decreasing level of employee
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commitment, indicative of the growing lack of mutual commitment. The Hay group (2002),
for example, finds that 43% of American employees are either neutral or negative towards
their workplace. According to several Gallup studies, more than 70% of U.S. employees are
either not engaged or actively disengaged showing an alarming inner withdrawal rate. Jensen
(2001: 278) argues that the goal of profit maximization is partially responsible for this. He
posits as self-evident that: “Creating value takes more than acceptance of value maximization
as the organizational objective. As a statement of corporate purpose or vision, value
maximization is not likely to tap into the energy and enthusiasm of employees and managers
to create value.” Hence, shareholder-value-maximizing organizations are under-utilizing their
employees’ potential.
The Individual Level
On the individual level, we observe an interesting anomaly. While the current system
is credited with creating more wealth for many, the average level of life satisfaction has not
necessarily increased (Easterlin, 2001). GDP growth and growth in well-being have
decoupled. Factors that contribute to well-being have a relatively low correlation with
material wealth once a certain wealth level has been achieved (Diener & Seligman, 2004).
From a systemic perspective, the quality of a government, in terms of democratic and human
rights, the level of corruption, the stability of the system, high social capital, a strong
economy with low rates of unemployment, and inflation, all contribute to subjective well-
being. On an individual level, the quality of social relationships, good physical and mental
health, and a generally positive attitude towards life are central drivers of well-being.
Materialism as an attitude, for example, is considered toxic for well-being (Diener &
Seligman, 2004; Elias, 2002). The current system, however, largely sustains itself by serving
material needs that lay beyond those that increase well-being, and by an endless attempt to
generate new needs, which can in turn only be satisfied by the unsustainable use of available
resources.
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2) What Is CSR?
CSR as a concept has its roots at the beginning of the 20th
century with the rise of the
corporation (Hoffman, 2007). It gained visibility after various corporate scandals which
increased the public’s concern with corporate behavior overall (Paine, 2003). Different
approaches to CSR have emerged. At its core, CSR is expressed by the choices of a company
with regard to social, political, legal, and normative matters in a given location of operation
(Garriga & Mele, 2004; McWilliams & Siegel, 2001). Whereas some authors have offered
historical accounts of CSR, others have classified different approaches along criteria such as
motive, relation to profit, and others (Garriga & Mele, 2004). Garriga and Mele (2004),
furthermore, have suggested classifications along Parson’s universal social system properties,
such as instrumental, political, integrative or ethical approaches. The underlying problem
addressed throughout these CSR categories relates to the dimensions and determinants of
managerial responsibility. Pirson and Turnbull (2012) classified the basic notions of corporate
social responsibility as representative of an economistic or a humanistic paradigm. The
difference here is determined by the underlying notion of the human being as conceptualized
in the role of the manager or in the role of the investor and stakeholder (Pirson and Turnbull,
2011).
Economistic Approaches of CSR
The dominating approach to business strategy, corporate governance, and managerial
decision-making is based on agency-theory. Agency theory is driven by an economistic
perspective of a self-interested, amoral, utility maximizing individual that needs to be kept in
check and monitored to enact managerial responsibilities towards the benefit of shareholders
(Dierksmeier & Pirson, 2010; Jensen & Meckling, 1976; Pirson & Lawrence, 2010).
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Within this economistic paradigm, social responsibility can only be justified when seen as an
enabler for economic wealth creation. As such, CSR is reduced to the economic aspect of the
interactions between business and society (Garriga & Mele, 2004). Milton Friedman’s
statement exemplifies this instrumental approach:
“ [It] will be in the long-run interest of a corporation that is a major employer
in a small community to devote resources to providing amenities to that community or
to improving its government. That makes it easier to attract desirable employees, it
may reduce the wage bill or lessen losses from pilferage and sabotage or other
worthwhile effects.” (Friedman, 1970; Garriga & Mele, 2004).
Along this approach, the corporation’s purpose is to maximize shareholder value, which can
occur in an enlightened manner that includes any advantageous CSR activity. This approach
has been further developed by Porter and Kramer which call the instrumental approach
strategic CSR (Porter & Kramer, 2006, 2011).
Humanistic Approaches to CSR
Several alternative approaches to CSR are rooted in a different perspective of human
nature. Rejecting the economic view of human nature as incomplete or plainly wrong
(Mintzberg, Simons & Basu, 2002), these perspectives view the individual as a zoon
politicon, a relational (wo)man, who materializes freedom through value-based social
interactions (Mele, 2008). People, he or she engages with, are means but also an end in
themselves. Human beings in this humanistic view are guided by universally applicable
principles and aim at long-term relationships (Dierksmeier & Pirson, 2009). They are
intrinsically motivated to self-actualize and serve humanity through what they do in a
responsible manner. They do not have fixed preconceived utility functions, but their interests,
needs, and wants take shape through discourse and continuous exchange with the outside
world (Pirson & Turnbull, 2011). As such, human beings are not maximizing their own
utility, but balancing the interests of themselves and people around them in accordance with
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general moral principles (Dierksmeier & Pirson, 2010; Hauser, 2006; Lawrence, 2010). Such
humanistically-inspired approaches to CSR (Dierksmeier & Pirson, 2010; Pirson & Lawrence,
2010) are rooted in that enlarged vision of human nature, where responsibility, including
managerial responsibility, is part of a successful human interaction (Dierksmeier & Pirson,
2010). The political, integrative, and ethical approaches suggested by Garriga and Mele
(2004) embrace that view and allow for CSR beyond the business case transcending the
narrow, economic rationale.
Supporters of the political approaches to CSR hold that the corporation by sheer
facticity of power has become a political actor which leads to certain responsibilities (Scherer
& Palazzo, 2007). This perspective is fed by social contract theory (Davis et al., 1997;
Donaldson & Dunfee, 1994; Garriga & Mele, 2004) and leads to the notions of corporate
citizenship. In line with this perspective, the political approach bestows the corporation with
political right as well as social duties. In line with this perspective, then, managerial
responsibility is a result of managerial personhood and reflected in stewardship perspectives
of corporate governance (Davis et al., 1997; Muth & Donaldson, 1998).
Supporters of the integrative approaches argue that the corporation depends on society
and therefore, managerial action needs to focus on social legitimacy (Carroll, 1991; Davis et
al., 1997; Garriga & Mele, 2004; Werther & Chandler, 2005). As such, managers should take
into account social demands and integrate them in a way that reflects social values in business
operations. Such an approach is contingent on the societal values and could vary according to
culture and stakeholders. Stakeholder management is often viewed as a way to integrate such
values into actual managerial decision-making (Donaldson & Preston, 1995; Freeman, 1984).
Managerial responsibility, then, includes the ability to understand the various stakeholder
interests and their integration allows business to operate.
Proponents of the ethical approaches argue that the relationship between corporations
and society rests on ethical values (e.g., Dierksmeier & Pirson, 2009; Sison, 2008). These
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values are universal in nature and do cut across societies; as such, managerial responsibilities
require an understanding of such universal values and the ability to implement them within
varying societal contexts that may or may not cherish such an approach. This approach, thus,
views managerial responsibilities first and foremost as ethical responsibilities, and not as
operational tasks (Garriga & Mele, 2004). Such perspectives are represented by the UN
Global Compact and the reference to universal human rights, the common good approach
promoted by catholic social teaching, as well as the sustainable business perspective adopted
by the United Nations (Garriga & Mele, 2004).
3) Benefits of CSR
From both perspectives economistic and humanistic, there are clear benefits to CSR as
outlined above. The economistic perspective endorses all managerial activity directed at
enhancing reputation whenever critical for business success. The economistic perspective,
thus, very much focuses on the output generated by responsible behavior without looking at
the per se procedural questions of such responsibility. In brief, any socially responsible
marketing activity that helps sell more is considered acceptable, and in the long run, it turns
out that more responsible marketing is also more economically sustainable, at least in the
Business-to-Consumer market. From an economistic perspective, responsible marketing, or
CSR, used as a marketing tool can be endorsed as long as it increases shareholder wealth.
From a humanistic perspective, questions of CSR become much more procedural,
suggesting that outcomes are secondary. Responsible behavior is not necessarily what
generates profit, but involves the normative aspects of engaging with consumers in a way both
parties find acceptable. As such, responsible behavior can very well be the grounds for
economic success. Consequently, humanistic approaches are not bound to outcomes but
suggest that if organizations behave responsibly during the business process, the likelihood
for sustained economic success is greater, even if costs of responsible behavior are
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substantial. In the following, we further discuss the benefits of CSR from both procedural
(i.e., humanistic) and the outcome-oriented (economistic) perspectives, as we generally argue
that the two must not be mutually exclusive.
The fundamental idea behind all CSR initiatives is that a company is responsible for
providing more benefits than just profits for shareholders. Social responsibility is applicable
to any and all areas of organizational operations, including (1) governance (e.g., transparency
of operations, compliance with laws and regulations), (2) risk management (e.g., product
safety, reputation management), value chain management (e.g., responsible procurement, fair
trade), (3) employee management (e.g., job satisfaction, morale), (4) social involvement (e.g.,
human rights, philanthropy), and (5) environmental sustainability (e.g., eco-efficiency,
environmental footprint). In fact, organizations today are expected to positively impact their
communities, cultures, societies, and environments in which they operate, while ensuring
adequate returns on shareholders’ investments (Bhattacharya, Korschun, & Sen, 2012).
According to The Economist Intelligence Unit report (2005), implementing CSR across all
areas of business operations may cost up to 2% of total revenue, but what is the payoff?
Clearly, not all areas of potential CSR impact mentioned above are necessarily directly
related to the marketing function of every organization. Nevertheless, most of the initiatives
that fall under each of these areas unavoidably affect company reputation and its brand(s),
which are of most importance to marketers. For example, some organizations attempt to
(often unsuccessfully) use CSR to restore their reputation (e.g., BP Deepwater Horizon
Catastrophe; Balmer, Powell, & Greyser, 2011), while others focus on compliance with laws
and regulations that exist, to a different extent, in many countries of the world (e.g., in South
Africa, all companies listed on the Johannesburg Stock Exchange (JSE) are required to
produce an integrated report in place of an annual financial report and sustainability report;
The South African Institute of Chartered Accountants, 2011).
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Perhaps most relevant to the marketing function, however, is a brand-focused
approach, which is typically a combination of philanthropy and cause-related marketing
(CM). The objective of CM activities is two-fold: to improve firm performance and support a
social cause (Robinson, Irmak, & Jayachandran, 2012). A good number of companies (e.g.,
Unilever) actively communicate to customers regarding their responsible societal and
environmental involvement with a purpose of strengthening their respective brands and
improving sales (Baker, 2012). Despite the added cost, many of the CM efforts pay off
because they add value to consumers – i.e., in addition to benefiting from using a particular
product, consumers also derive pleasure from donating to a cause (Strahilevitz & Myers,
1998). For example, Yoplait’s Save Lids to Save Lives campaign has been supporting breast
cancer research for nearly a decade: for every yogurt lid that gets sent back, Yoplait donates
10 cents toward cancer research. Importantly, Yoplait’s bottom line has also benefited.
However, these rather economistic CSR tactics may also posit risks to organizations focusing
predominantly on bottom-line outcomes and overlooking the importance of embedding CSR
principles and goals in organization’s core – its mission, vision, values, and daily operations.
One potential point of concern with the purely economistic approach to CSR is that
when financial benefits to the firm are apparent, consumers may perceive company’s
initiatives as opportunistic and self-interest driven, as opposed to sincere and pro-social. Thus,
when the size of one company’s donation to a cause is determined by sales, when company’s
good deeds are heavily advertised, or when initiatives to care for the environment fail to
compensate for the harm being done, such arguably responsible acts may be deemed
hypocritical and actually hurt firm’s reputation (Pollay & Mittal, 1993). Today, consumers
expect authenticity and openness across all areas of firms’ operations, and are generally
skeptical of CSR claims (Forehand & Grier, 2003; Pomering & Johnson, 2009). How, then,
can organizations protect themselves from such backfire and maximize such benefits of CSR
as increased customer loyalty (Du, Bhattacharya, & Sen, 2007), consumer willingness to pay
12
premium prices (Creyer & Ross Jr., 1996), and lower reputational risks in times of crisis
(Klein & Dawar, 2004)?
A good number of companies (e.g., Whole Foods, Zara) seem to have passed the
authenticity test with consumers by taking a more humanistic stance on CSR – that is,
emphasizing procedural justice and fair practices above short-term benefits to the bottom line.
Perhaps one of the best examples of CSR done right is that of TOMS Shoes – a company that
implemented ‘philanthropic capitalism’ as their business model, donating a pair of shoes to
children in need for every pair they sell. Instead of investing financial resources into
informing consumers of the company’s responsible initiatives and expecting positive return
on investment (ROI), companies like TOMS Shoes focus on creating real value for all
stakeholders (from company employees to its customers) that will speak for itself. As TOMS
Shoes founder and CEO Blake Mycoskie puts it:
“Let your product give consumers a story to tell. Hey, cool shoes. Thanks.
They’re TOMS Shoes. They give away a pair to kids for every one they sell…. Buyers
feel so good about their purchase they want to tell others about it. Very few businesses
inspire that kind of word-of-mouth, how-cool-is-this buzz.” (Success Magazine, 2009)
Hence, CSR has a proven ability to shape and strengthen organizational and brand image
when there is a fit between CSR programs and organizational identity, as exhibited in daily
company operations and as perceived by its stakeholders. As such, CSR programs are most
effective (particularly long-term) when they are “built into”, as opposed to “bolted on”
organization’s broader business strategy (Dowling & Moran, 2012, 25). Based on anecdotal
evidence as well as the extant research, coherence between what an organization is (i.e.,
corporate branding and identity) and what it does (i.e., its actions, both related and unrelated
to CSR) leads to enhanced corporate credibility and image (Becker-Olsen et al., 2006; Rifon
et al., 2004; Menon & Kahn, 2003), as well as improved employee and consumer well-being
13
and loyalty (Gupta & Pirsch, 2006). Lack of such fit, on the other hand, has been shown to
result in “doing poorly by doing good” (Torelli, Monga, & Kaikati, 2012). Consequently,
embracing a purely economistic approach to CSR, which is in conflict with the very notion of
responsible business, may actually harm the health of an organization, particularly in the long
run.
4) Economic Outcomes of CSR
Whether embraced for economistic or humanistic reasons evidence is increasing that
CSR does not have to hurt the bottom line. In fact in many cases it is expected to boost it. The
2010 Cone Cause Evolution Study find that 85% of consumers report holding a more positive
image of companies and products that support causes they care about (Cone Communications,
2010). Given this, it is not surprising to find that consumers typically say that they would
alter their buying behavior to support products or firms that they believe demonstrate socially
responsible behavior.
For example, Trudeland and Cotte (2009) report that consumers report that they would
pay more to purchase ethically produced products and services. Additionally, over 80 percent
of consumers state that they would switch to brands associated with good causes provided that
price and quality were comparable (reported in Bhattacharya and Sen, 2004). Given this, we
would expect (and most CSR research presumes) a positive chain of effects that can
simplistically be summarized as CSR → Increased Purchase → Firm Performance.
Empirical results have not conclusively shown this virtuous chain of effects to hold
true. In fact, research regarding the impact of CSR on firm financial performance can best be
described as weakly positive. We would argue that the results would more accurately be
characterized as mixed (for reviews of the literature, see Orlitzky, Schmidt, & Rynes, 2003;
Stanwick & Stanwick, 1998). For example, in their summary of state of CSR-Firm
14
Perfomance research, Sen and Bhattacharya (2001, 226) demonstrate just how difficult it is to
classify research outcomes and draw meaningful conclusions regarding the linkage:
“Pava and Krausz (1996) review 21 studies conducted between 1972 and 1992
to conclude that 12 demonstrate positive associations between CSR and financial
performance, 1 demonstrates a negative association, and 8 demonstrate no
association. However, some of the positive association (e.g., McGuire, Sundgren, &
Schneeweis, 1988) and no association (e.g., Freedman & Jaggi, 1982) studies actually
report mixed results, as do Pava and Krausz’s own, more controlled study and others
not included in their review (e.g., Aupperle & Van Pham, 1989; Coffey & Fryxell,
1991).”
The fact that CSR activities do not clearly link to financial outcomes has caused some to
question whether such activities should even be a focus of public companies (e.g., Friedman,
1970).
Without question, CSR activities can be expensive, and spending on them has the
potential to compete directly for resources necessary for business growth. Furthermore, as
customer response to CSR investments may not be greater than the costs associated with their
implementation, the potential for a negative return on investment (ROI) should not be
discounted. The question, therefore, becomes “can CSR activity done well improve the
financial performance of firms?” If yes, then what are the factors, beyond those discussed
earlier, that must be considered to ensure that CSR and company financial objectives are
aligned?
Researchers Porter and Kramer (2006), Bhattacharya and Sen (2004), and Trudel and
Cotte (2009) argue strongly that CSR and firm financial performance can and should be
related. But their arguments also point to the fact that the relationship is not straightforward,
noting that there are numerous factors that impact whether or not CSR will result in improved
15
customer buying behavior, and ultimately improved market value. While it is impossible to
cover all the factors impacting the CSR-financial performance relationship, there are some
that appear to be universal across categories and integral to the financial success of any
initiative. These can be grouped into three general categories, which we label Awareness and
Attribution, Customer-CSR Alignment, and Company-CSR Alignment.
Awareness & Attribution
Consumers cannot react positively (or negatively) to CSR activities of which they are
unaware. While this is obvious, it doesn’t change the fact that most consumers are oblivious
to the CSR activities associated with the firms and brands with which they do business.
While research finds that over 60 percent of large companies have formal CSR programs
(Vidal, 2006), large percentages of customers are unaware that most companies engage in
these activities (Mohr, Webb, & Harris, 2001), and in general, consumers are only aware of
the CSR activities of a very small number of very high profile firms that are renowned for
excellence in the area (Bhattacharya & Sen, 2004). Adding to the difficulty is that even when
consumers are aware of the activities of the firm, they often do not give the firm credit for
their efforts. This is particularly true when consumers believe that firms are reactive (e.g.,
participating in CSR activities from a defensive posture) as opposed to proactive
(Bhattacharya & Sen, 2004).
Customer-CSR Alignment
Consumers use CSR information as a reference for a company’s value system (Brown
& Dacin, 1997). Therefore, consumers’ reactions would be expected to reflect the similarity
between values consumers attribute to the CSR activities of the company and their own values
(Sen & Battacharya, 2001). Given that the range of CSR activities is extremely broad, it is
highly unlikely that all stakeholders will view them positively (Aguilera et al., 2007). As a
result, one possible reason for the inconsistent findings between CSR and financial
16
performance is the perceived relevance and importance of a firm’s chosen activity to relevant
stakeholders (Peloza and Papania 2008).
Therefore, for CSR activities to result in improved consumer buying behavior, firms
must engage in activities that their customers feel strongly about. This generates a condition
that Battacharya and Sen (2003) refer to as “consumer-company identification” (CCI). CCI is
an extension of social identity theory (Turner & Reynolds, 2010), i.e., a person’s self-concept
is derived in part from his/her membership in a particular group. In the case of CSR, if the
organization’s activities are reflective of a consumer, and they are believed to be fundamental
and lasting, then these activities can contribute to that consumer’s self-esteem. The result is
that consumers form an attachment to the firm, or brand, which in turn prompts consumers to
engage in behaviors that are positive for the company (e.g., purchase, word of mouth, etc.).
Company-CSR Alignment
As discussed earlier, consumers are often suspicious of the motives of firms regarding
their CSR activities. They are particularly skeptical when the fit between the company and the
cause appears to be incongruous. For example, activities such as Phillip Morris’s campaign
of “talk to your kids about not smoking” has a high potential of backfiring given that the
cause is closely related to the company’s business (Bhattacharya & Sen, 2004). This is
particularly true if consumers perceive that the true motive is simply to improve the
company’s image.
The importance of perceived sincerity cannot be overstated. CSR activities improve
company’s image when perceived as sincere, have no effect when they are perceived as
vague, and are outright harmful when they perceived as insincere (Yoon, 2003). Yoon,
Gürhan-Canli, and Schwarz (2006, 377) find that perceived sincerity is impacted by the
“benefit salience of the cause, the source through which consumers learn about CSR, and the
ratio of CSR contributions and CSR-related advertising.”
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Additionally, customers must not perceive CSR activities as being a substitute for low
innovativeness. CSR activities actually lower customer satisfaction, which in turn harms
market value for those firms with low innovativeness (Luo & Bhattacharya, 2006).
Consumers expect firms, with which they do business, to do well at serving their needs now
and in the foreseeable future, before they are willing to reward their CSR activities.
Doing Well by Doing Good
Consumers are willing to reward companies that meaningfully contribute to society
(beyond simply supplying them with goods and services). That does not mean, however, that
simply enacting CSR initiatives will result in greater customer loyalty-related behaviors, or
positive firm-level financial outcomes. Rather, consumers must be aware of these efforts, and
believe that management’s commitment to CSR is congruent with their own values and with
the company’s primary purpose. Without this alignment, consumer skepticism will negate the
financial benefits that would otherwise result from these efforts.
Readers may notice that in our discussion of linking CSR to financial impact, the
authors have focused largely on a single stakeholder group: consumers. This is not to
mitigate the importance of other stakeholders (e.g., employees, shareholders, communities,
etc.). Rather, it is recognition that virtually all revenue for the overwhelming majority of
firms is generated by and through consumers. Therefore, financial gains from CSR efforts will
almost entirely be had in as much as they interact with consumers.
The reality is that the relationship between CSR and its impact on firm financial
performance is mediated by consumer satisfaction (Luo & Bhattacharya, 2006). CSR efforts
that do not enhance consumer satisfaction with the firm or brand are unlikely to generate a
positive return on investment regardless of the merits of the initiatives. Therefore, managers
need to recognize that building satisfaction is an important step in translating CSR into
financial performance. The rewards, however, are worth the effort. Luo and Bhattacharya
(2006, 15) find that for a typical company in their sample (i.e., average market value of $48
18
billion), a one-unit increase in CSR ratings resulted in an average profit increase of $17
million in subsequent years. As these results make clear, CSR done right makes it possible
for companies to do well by doing good.
Consumer Well-Being as a Humanistic Outcome Measure
If we think about alternative, humanistic outcome measures such as consumer well-
being, we find different results with regard to CSR. In fact, CSR becomes the only strategy
because consumer well-being measures not only focus on the material gain or hedonic
pleasure consumers derive, but allow for a more holistic perspective. Human well-being is
connected to doing good and people receive warm glows when they act morally (e.g., buy
fairly-traded products) and can enjoy their purchase for a longer time. Such purchases even
become part of an identity construction that allows for a meaningful life narrative.
Responsible consumption highlights that responsible choices can enable a good life for all
those affected by a certain trade.
4) Mandating CSR
Government activities related to CSR could be generally divided into four categories
along a continuum from the least governmental involvement to the most. Specifically,
governments can (1) simply endorse CSR by providing awards and otherwise publicizing
responsible corporate behavior, (2) facilitate CSR by offering grants to address specific
issues, (3) partner with companies in their CSR undertakings, or (4) mandate and regulate
CSR programs (United States Government Accountability Office Report to Congressional
Requesters, 2005). Currently, the United States has no broad federal CSR mandate, but it
oversees a number of agencies and programs that fall under the first three categories. As such,
as of now, engaging in CSR is pretty much a managerial decision. As many managers have
been shown to follow the bandwagon, CSR seems to be the current fad. However, according
to many scientists, the issues of concern outlined before require much more drastic actions
19
than currently envisioned. Mandating responsible corporate behavior has been viewed as the
only approach to ensure that corporations shift their behavior to become more responsible
with regard to climate change or advertising to young children. Many activist consumer
groups deplore the double standards of corporate rhetoric and corporate behavior while
consumer trust in corporation is further decreasing. On the one hand, it seems intuitive that
mandating corporate responsible behavior makes sense. On the other hand, it may engender
unwarranted consequences, which we discuss below.
The breadth of CSR activities and differences in their level of impact unavoidably bring
to question feasibility of mandating corporate responsibility across the board. While we see
clear benefits to regulating certain responsible practices, like reducing pollution and imposing
mandatory recycling to alleviate some of the systemic-level issues discussed earlier, there
could be considerable disadvantages to governments mandating responsibilities pertaining to
organizational- and individual-level concerns. Specifically, such mandates may hurt
companies that strive as the result of voluntarily adopting social responsibility as their core
business value, having created a strong corporate identity around it. Relatedly, as stakeholders
themselves put substantial pressure upon companies to act in a socially responsible manner,
there is little to be gained, from the societal standpoint, if social responsibility is regulated.
Relatedly, countries that did mandate CSR (e.g., India) quickly realized that it is not always
clear (1) what CSR is and what it is not, (2) what it involves, and (3) whether or not regulating
social responsibility is impactful at all (Singh, 2011). We contend that in general,
governments are likely to achieve better outcomes by using the softer, less invasive tactics to
encourage responsible corporate behavior.
20
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