Does Corporate Social Responsibility (CSR) affect firm performance? By Olga Hawn

I am engaged in multidisciplinary research on non-market strategy, including environmental, social, and corporate governance activities of the firm. By calling them non-market, I in no way want to take out their effects on performance of the firm. In fact, that is what I am mainly interested in - evaluating the strategic impact of non-market activities.

For instance, in one paper with my co-authors Ronnie Chatterji and Will Mitchell (Fuqua, Rotman) we are asking What happens to companies that are added or deleted from the Dow Jones Sustainability Index (DJSI)? How much do they gain or lose from the event? We find that it depends on how well they performed financially prior to the addition or deletion. Firms are added or deleted from the index based on their social, environmental and governance performance: while the addition to the DJSI demonstrates additional support from the society, the deletion reduces it. Overall, this additional (or reduced) societal support brings (or reduces) financial returns to the company. However, it brings significantly fewer financial returns (or losses) for firms that performed financially better before the addition (or deletion). We explain this effect with the idea of substitution: while societal support generates one type of asset for the firm (call it non-market or social), the previous performance produces another type of asset with market actors. Hence, by already possessing one type of asset that is aligned with market actors (i.e. financial market support for good past performance), firms that increase or decrease the stock in the other non-market asset (through addition or deletion from DJSI) will not benefit as much as when they did not have it. Therefore, managers should consider these alternative support bases (or audiences – market and non-market) when they consider the extent to which they would like to expand their social activities.

Assessing the strategic impact of non-market strategy on firm performance is only one direction in my research; I am also interested in what drives corporate social and environmental performance. So in another paper with Hyoung-Goo Kang (Hanyang) for instance, we conceptualize and evaluate the role of competitors or the market structure in affecting the focal firm’s social activities. By looking at about 540 US firms in 40 industries we find that greater competition drives greater corporate social responsibility (CSR), moreover, greater CSR of competitors results in greater CSR of the focal firm. The main implication for managers is that they should consider the characteristics of the competition in their industry before allocating limited resources to CSR; as for public policy makers, encouraging firms to engage in more CSR seems to increase social welfare (and theoretically, profits).

Finally, being born outside of the US, I am interested in exploring the above-mentioned issues in the international context. Thus, for instance, for my dissertation I conducted interviews with Russian executives on the nature and drivers of CSR in that emerging market. Turns out that the relations with the state and the size of the firm play a significant role in defining social activities in Russia. For instance, large firms that view the relationship with the state as mutually beneficial sign socioeconomic partnership agreements with state representatives that describe in detail the amount and character of the social investment in the region where the firm operates (i.e. ‘beyond compliance’ behavior). Small and medium-sized enterprises (SMEs), on the other hand, view the state as the barrier to their operations and activities and thus, limit their engagement in CSR to charity, paying wages and taxes on time as well as abiding by the law. Thus, managers of US companies entering Russian market should not underestimate the role of the state in driving corporate social engagement, and should not expect much in terms of CSR when partnering with Russian SMEs

Olga Hawn, PhD Candidate in Strategy