Corporate social responsibility (CSR) has been increasing as a focal point for stakeholders and companies alike for the past several years. Among the largest 100 U.S. companies surveyed in 2013, 86 percent reported on CSR, up from 83 percent in 2011 and 74 percent in 2008.1
However, some people have been skeptical of CSR’s viability in a competitive environment. A few studies have attempted to uncover conditions where CSR can be economically justified. A past article in The Regional Economist by Senior Economist Rubén Hernández-Murillo and former Research Associate Christopher J. Martinek looked at a pair of these studies.
Economists Bryan Husted and José de Jesus Salazar considered three types of motivation that firms consider before investing in social activities:2
The authors concluded that the potential benefits to both firms and society are greatest in the strategic case, when firms’ socially responsible activities are aligned with their self-interest.
Economists Donald Siegel and Donald Vitaliano studied the specific attributes of business and types of CSR activities that make it more likely that “socially responsible” actions actually contribute to profit maximization.3 They classified a large sample of publicly traded firms into several categories:
Siegel and Vitaliano found, using an aggregate measure of CSR involvement, that firms selling experience goods and experience and credence services are more likely to engage in CSR than those selling search goods. The difference in the intensity of CSR involvement across types of goods, they argued, is explained by consumers’ perception of firm involvement in CSR (even when products do not directly include a social component) as a valuable signal of reliability and commitment to quality and honesty.
In the Regional Economist article, Hernández-Murillo and Martinek concluded, “Modern theoretical and empirical analyses indicate that firms can strategically engage in socially responsible activities to increase private profits. Given that the firm’s stakeholders may value the firm’s social efforts, the firm can obtain additional benefits from these activities.”
1 KPMG, The KPMG Survey of Corporate Responsibility Reporting 2013, December 2013. See http://www.kpmg.com/global/en/issuesandinsights/articlespublications/corporate-responsibility/pages/default.aspx.
2 Husted, Bryan W.; and Salazar, José de Jesus. “Taking Friedman Seriously: Maximizing Profits and Social Performance.” Journal of Management Studies, January 2006, Vol. 43, No. 1, pp. 75-91.
3 Siegel, Donald S.; and Vitaliano, Donald F. “An Empirical Analysis of the Strategic Use of Corporate Social Responsibility.” Journal of Economics and Management Strategy, Fall 2007, Vol. 16, No. 3, pp. 773-92.