Sinding, Sharfman and Peck
4th CORE Conference 2009
AN ADDITION TO BOUNDARIES: CSR AND PUBLIC POLICY
Knud Sinding
University of Southern Denmark
ksi@sam.sdu.dk
Mark Sharfman
University of Oklahoma
Msharfman@ou.edu
Philip Peck
Lund University
Philip.peck@iiiee.lu.se
Abstract
An important requirement for discussing any aspect of CSR in the context of public policy is
the actual meaning of the CSR construct. This issue has never been settled, despite the
publication of hundreds of scholarly efforts to do so. Indeed, we argue that part of the debate
about the construct may be partly beside the point. Companies undertake actions that may or
may not qualify as CSR under different definitions of what the construct means, firmly
believing that they are being socially responsible. Similarly, policymakers take an interest
because they may also be uncertain about the exact definition. For regulators, compliance is
not identical with CSR, yet CSR may be a signal about compliance. Policymakers also base
their interest on the possibility that companies that pursue some form of CSR may thereby
develop competencies that make companies more competitive relative to firms that are not
responsible.
The emergence of public regulation somehow involving CSR creates both an additional
boundary and affects the decisions of firms relative to the other identified boundaries.
Whereas compliance with institutionalized norms for responsible behaviour have arguably
been a matter of normative and mimetic processes, regulation, even if initially couched in
terms of disclosure rather than specifically mandated action, introduces a distinct element of
coercion into the CSR field.
The notion that CSR can be an integral part of debates on globalisation and sustainable
development essentially depends on a proper understanding of the meaning of the construct,
especially its boundaries. With CSR defined as voluntary action this matter is neither internal
to companies engaging in CSR nor external to them, but one that relates to the capacity of
companies themselves to initiate and develop collective institutional frameworks. As a result,
this paper uses its focus on institutional arrangements to examine the meaningfulness of any
effort directed towards integrating CSR into policy at any level.
Keywords: Corporate social responsibility, theory development, corporate social
performance, public policy.
1
Sinding, Sharfman and Peck
4th CORE Conference 2009
Introduction
In recent years much has been written on the broad topic of Corporate Social Responsibility.
These writings are at times ambiguous and vague with respect to what exactly the term CSR
means and how it relates to other important terms and concepts. Most notably we perceive
shortcomings in the manner in which CSR is related in the extant literature to areas such as
stakeholder management, corporate citizenship and sustainable development. Furthermore,
much of the research published to date has been concerned with the possible link between
firms engaging in so-called socially responsible behavior, as measured in terms of a metric
for “Corporate Social Performance”(CSP) and the resulting financial benefit (Corporate
Financial Performance or CFP). Indeed, as pointed out in one of several recent meta-analyses,
the quest for the link between social performance and financial performance remains
unfulfilled. “The imperfect nature of these studies makes research on the link between CSP
and CFP self-perpetuating: each successive study promises a definitive conclusion, while also
revealing the inevitable inadequacies of empirically tackling this question” (Margolis &
Walsh, 2003).
All of these fields of inquiry have their attendant literatures but two common threads seem to
run through all of them. One thread is normative in character: Firms should attend to, support,
give to, and listen to, the needs of stakeholders, especially those that are somehow
disadvantaged. This view is perhaps most strongly associated with the work of R. Edward
Freeman and related research (Freeman, 1984). The other thread is instrumental in character
(Jones, 1995) and it goes back to the work of Milton Friedman (1970) and perhaps also to the
question of separation of ownership and control (Berle and Means, 1932). This more
instrumental view holds that, managers have neither the right, nor the ability to make
2
Sinding, Sharfman and Peck
4th CORE Conference 2009
decisions on the production of public goods (i.e. have their firms engage in socially
responsible actions). As such, this school of thought holds that only such CSR activities that
contribute to maximizing shareholder wealth are justified (Friedman 1970).
No clear conclusion to the debate between the normative and instrumental views, or between
the expansive vs. the narrow view (as the opposing views have been described by DeVinney
(2009)) seems to be in sight. We suggest that a root cause of this lack of consensus between
the two views stems from the lack of clear theoretical boundaries (see for example Dubin,
1978) for the CSR construct. In the end, the normative perspective would seem to imply that
more CSR is always better while the instrumental view says CSR actions should only be
promoted if they specifically advance the fortunes of the firm. If they do however, again
“more is better.” We propose the idea that the Corporate Social Responsibility construct has
a number of theoretical and practical boundaries or limits. In other words, even if managers
wish to maximize CSR there are limits to their ability to do so. Some of these limits are a
consequence of how “social” and “responsibility” are defined; others follow as a result of
more practical considerations that stem from institutional, political economy (legal), strategic
or individual difference considerations. The lack of attention to such limits or boundaries
may also explain why the often purported benefits of CSR turn out to be ambiguous
(DeVinney, 2009).
In order to articulate the limits we begin by seeking to bound the CSR construct so that
analysts can better understand and research it. We first examine the definition of social
responsibility. In the succeeding sections we examine the boundaries to CSR as we perceive
them. We argue that CSR is not a matter of a [single] continuum that stretches from minimal
3
Sinding, Sharfman and Peck
4th CORE Conference 2009
CSR level to increasingly more responsible behaviors, as suggested in a recent paper by
Campbell (Campbell, 2007). Indeed, while Campbell discusses the minimum end, he does not
discuss the “other” end or even suggest that an upper bound exists. In our view, CSR is more
of a space, with multiple dimensions and a shape that is ever changing over time. The recent
paper by Barnett (2007) on stakeholder influence capacity echoes this view to some extent. A
note of caution is in order. The limits to CSR as we set them out in the following sections
may not be exhaustive. They merely represent a beginning and many more may be added
over time. They also represent an effort at clarification intended to help organizations,
stakeholders and policymakers who are rightly bewildered by the complexity of the CSR
issue.
As we proceed beyond the discussion about the definition of CSR provided in the following
section, we examine several sets of boundaries. First we address institutional boundaries in
the sense that taken-for-granted ways of doing things are widely adopted as firms react to
coercive, mimetic or normative influences (DiMaggio & Powell, 1983). Whatever the actual
content of the “ways of doing things” such as being socially responsible, the existence of a
shared expectation constitutes a set of boundaries; indeed one that is probably more varied
than the idea of a minimum standard of accepted corporate behavior (Campbell, 2007).
Second we seek insights from the political economy domain where a series of boundaries
may also be identified, arising in part from the theoretical and empirical work of David Baron
and colleagues (Baron, 2008; Baron, Harjoto, & Jo, 2008). The boundaries in this domain
derive both from the incentives provided for managers to produce public goods and to engage
in income redistribution, and the responsiveness to external pressure that firms so willing
may lay themselves open to (as “soft targets”). The third set, strategic boundaries, may in part
4
Sinding, Sharfman and Peck
4th CORE Conference 2009
overlap with the political economy boundaries, again in the sense that pressure on “soft
targets” and the attendant segmentation of markets into consumers willing to pay for social
performance and consumers unwilling to do so, is a consequence of strategic decisions by
firms to pursue investment in CSR in order to differentiate themselves. Similarly,
strategically motivated CSR actions may reflect responses to institutional pressures (Oliver,
1991). Additional strategic boundaries are set by the relationship between CSR investment
opportunities and market value of the firm (Mackey, Mackey, & Barney, 2007) and the
complex relationship between CSR investment, firm posture and variable financial
performance outcomes (Barnett, 2007). Finally, the space in which CSR actions take place,
and therefore also the resulting outcome in terms of social and financial performance, is
bounded by managerial values (Sharfman, Pinkston, & Sigestad, 2000). The need for
clarification of boundaries the the construct becomes significantly more pressing when
policymakers enter the fray. Indeed, it can be argued that those who subscribe to an
expansive or normative view of what CSR see it as an instrument of public policy by other
means (DeVinney, 2009). If CSR is public policy by other means, the matter of efficiency
immediately becomes unavoidable – which path is better for achieving specific objecetives?
The only fairly certain conclusion to be drawn at this point is that the “regulation by other
means” view necessitates a boundary between the two, not a mixing of them.
Definitions of CSR
The common starting point for many debates involving Corporate Social Responsibility is
Milton Friedman’s 1970 essay. Friedman argues that the [social] responsibility of
corporations is “to conduct the business in accord with the (shareholder’s) desires, which will
5
Sinding, Sharfman and Peck
4th CORE Conference 2009
generally be to make as much money as possible while conforming to the basic rules of
society, both those embodied in law and those embodies in ethical custom”. Apart from
Friedman’s philosophical objection to managers as unelected, unaccountable and poorly
educated decision makers with respect to public goods and wealth redistribution, he also
objects to CSR, or expenditures outside upholding the law and ethical custom, on the grounds
that this decision should be left to shareholders. These are, as recently pointed out by Baron
(2007), free to choose between firms engaged in some form of responsible behavior and firms
that maximize profits. Firms engaged in CSR may, when CSR is defined as actions that do
not meet Friedman’s criteria, forego profit. When this is expected, the share price will be
lower and investors that like this sort of action will invest, while investors not so inclined will
prefer profit maximizing firms (Baron, 2007). This expectation of lower stock prices may not
hold for “green” firms, where higher levels of individual ownership tends to work in the
opposite direction (Heinkel, Kraus, & Zecher, 2001)
A number of later definitions are variations on Friedman’s theme. McWilliams and Siegel
(2001) stress that CSR involves actions where firms go beyond the law and the interests of
the firm (McWilliams & Siegel, 2001). Under this definition any form of social and ethical
behavior that is instrumental in furthering the interests of the firm, whether based on high
trust and low[er] transaction costs (Jones, 1995) or on the accumulation of resources allowing
such behavior (Russo & Fouts, 1997) is entirely instrumental and therefore not CSR.
According to another recent definition, only the legal requirement matters, CSR or business
virtue being “practices that improve the workplace and benefits society in ways that go above
and beyond what companies are legally required to do (Vogel, 2005).
6
Sinding, Sharfman and Peck
4th CORE Conference 2009
The common feature of the instrumental view is then that any action that contributes to
compliance, to meeting Friedman’s “ethical custom” or which furthers the interests of the
firm are not really a matter of responsibility: they should be undertaken in any case and is not
CSR. Any additional action of a social or ethical or environmental nature may be defined as
CSR – but is never justified according to Friedman (1970).
The camp opposing the instrumental view may, following the distinction by Donaldson and
Preston (1995), be termed “normative.” According to this view, the theory of the firm must
be “reconceptualized along Kantian lines” (Evan & Freeman, 1988), such that stakeholders,
and thus by extension the practice of responsibility, involves a right for any stakeholder to be
treated as an end in itself, and not as a means for some other end (Jones, 1995). This view is
an echo of Freeman’s slightly earlier definition of stakeholders as “any group or individual
who can affect or is affected by the achievement of the organizations objectives” (Freeman,
1984). Even if the normative camp has no problems with, and clearly in part relies on
instrumental arguments for justification (Margolis et al., 2003), there remain strong
underlying normative concerns about fairness (Phillips, 2003), human dignity (Hodson,
2001), fundamental rights (Donaldson & Preston, 1995) or the achievement of minimum
standards of corporate behavior (Campbell, 2007). Indeed, it has been argued that the proper
definition of social responsibility is that firms must not knowingly do anything that could
harm their stakeholders – and if they discover that they have done harm they should rectify it,
either voluntarily or in response to demands that they do so (Campbell, 2007).
In an effort to come to grips with the contingency specific nature of most CSR practices
adopted by companies, Barnett (2007) has distinguished CSR from three other classes of
7
Sinding, Sharfman and Peck
4th CORE Conference 2009
practice. The dimensions used for bounding CSR and distinguishing it from other practices
were social welfare orientation and stakeholder relationship orientation. Only in cases where
both were high is it appropriate to characterize activities as CSR (Barnett, 2007). This work
thus identifies boundaries between CSR and agency losses to self-serving managers, between
CSR and [political] influence tactics, and between CSR and process improvements. These
boundaries are important and those we propose in the following sections are supplemental to
those proposed by Barnett.
Instrumental or not, claims about the virtues of CSR and its benefits are widely made. Those
making them, even if they belong squarely in the instrumental category, may not appreciate
that such claims about CSR and the benefit of such undertakings may be insincere,
ineffectual, risky or downright counterproductive. The problem facing executives and others
is that they do not know ex-ante what will work and what will not. Put slightly differently,
the area between pure and disinterested social investment and calculatedly instrumental social
investment may be large as well as murky. To the extent that policy makers (or policy
entrepreneurs cf. Baron 2005) promote CSR through explicit or implicit coercion, this too
may rely on an assumption about the benefits of instrumental CSR – withoug such benefits
CSR is just regulation under a different name. Our present effort to determine a number of
boundaries may be helpful in the sense that it may help protecting managers and executives
from themselves when navigating that grey area1 in addition to making researching the
construct more precise.
1
In the remainder of this paper we do not apply a strict instrumental criterion to actions that purport to be CSR.
Had we done so, most of the actions we rely on would both be CSR, leaving us with little to discuss. We are
interested in the [claimed] CSR actions that exist in the grey area between purely instrumental CSR (which by
virtue of instrumentality is not CSR at all), and pure selfless altruistic CSR.
8
Sinding, Sharfman and Peck
4th CORE Conference 2009
Institutional boundaries
The notion that institutional structures such as schemas, norms, routines and rules can
constrain firms in their CSR effort is very broad. It remains so even if we remove everything
that has to do with legal rules – these are usually defined as being outside the CSR construct.
We explore these boundaries by way of identifying a series of institutional structures that
may limit the CSR practices a firm can undertake. It should be noted, however, that
institutional logics as discussed here have close links to strategic reactions to institutional
demands (Oliver, 1991). The following discussion of boundaries follows a distinction
between practices such as corporate giving, self regulation and engagement with
stakeholders.2
When a firm gives money to worthy causes it is a transfer of wealth. That firms do so
may be an act of CSR or not, depending on which definition one prefers. Such giving may be
undertaken because that is what firms are expected to do (in a certain location, industry, point
in time etc.) e.g. normative isomorphism ala DiMaggio and Powell (1983). The political
economy boundaries are examined in the next section, but normative and cognitive
institutional pressures may also constrain what exactly firms can or should do with respect to
giving. Several decades ago the so-called “five percent club”, i.e. a group of firms united by
the fact that they donated five percent of their profits to worthy causes, may have facilitated
Friedman’s essay argues that managers social responsibility is to maximize profits (Friedman,
1970). As argued by some, Friedman’s essay was written at a time when competition was
less intense and when shareholders were possibly less demanding than they have since
become (Vogel, 2005). The institutional environment for giving has thus undergone a
2
Many more examples may exist but those selected serve to illustrate our point about boundaries.
9
Sinding, Sharfman and Peck
4th CORE Conference 2009
change, from being essentially oriented towards a lower boundary (i.e. “give 5% or you will
be considered cheap”), to a very different upper boundary where creation of “shareholder
value” sets a [low] upper bound on corporate giving.
Self regulation may be pursued by firms for a variety of reasons – efficiency,
legitimacy, flexibility and control compared to public regulation, and pre-emption of
[harsher] public regulation, just to name a few. It has been suggested that when selfregulation is “well-designed” and “efficient” this may lead firms to be more socially
responsible (Campbell, 2007). That argument depends on the exact meaning of “well
designed” and “efficient”. Self-regulation and the membership of firms in such arrangements
can, in part, be driven by coercive, mimetic and normative institutional pressures (DiMaggio
et al., 1983). The evocation or existence of these institutional pressures suggests boundaries
to us. Participation in self-regulatory arrangements places constraints on a potentially great
number of actions a firm can take, i.e. where they can invest (not in Burma), what kind of
industries they can operate in (not tobacco and certainly not weapons), what information they
must disclose (accounting, insider trading, occupational health, environmental performance,
etc.) and what they will do in certain contingencies, and so on. The boundaries that result are
potentially vast in number – if firms took self-regulation seriously. Some evidence exist that
suggests participation in self-regulatory arrangements is sometimes more symbolic than
substantial (King & Lenox, 2000). These institutional boundaries, which are also concerned
with how firms are perceived by their surroundings, may also have an important time
component – goodness cannot be turned on and off as expediency dictates.
The final source of institutional boundaries exemplified here concerns engagement with
stakeholders. As in the case of self-regulation, it has been suggested that firms will be more
10
Sinding, Sharfman and Peck
4th CORE Conference 2009
likely to act in a responsible manner if monitored by stakeholder groups (Campbell, 2007).
This is tantamount to asserting that better behavior results from more monitoring, which is
likely to be the case. Put in terms of boundaries, stakeholders, who may or may not be
important (Mitchell, 1997), can shape boundaries. AT&T several years ago faced such
stakeholder boundaries. Its foundation routinely supported the birth control education efforts
of Planned Parenthood. However, some abortion opponents took issue with AT&T
supporting the organization even though their donation did not any abortion related activities.
The anti-abortion activists bought some AT&T shares, spoke at the annual meeting and were
successful in getting the AT&T foundation to stop its support of Planned Parenthood. In other
words, these stakeholders limited the firms CSR activities. However, the nature and character
of other boundaries will depend on the many features which characterize stakeholders, not
just their power, their legitimacy and the urgency of their claims, but also on their objective,
resources and skills, and their [political] agenda.
Political Economy boundaries
The pursuit of some form of CSR mat be motivated by moral concerns or by self-interest on
the part of the firm. In considering a model of moral management, corporate social
performance and social pressure, David Baron (2009) is very explicit in distinguishing moral
management from actions taken in the interest of the firm. The interesting point about this
approach is that identifies normative foundations for engaging in moral management. This
foundation rests on three elements. One is that moral management actions undertaken by
firms can raise social welfare (eg. when government fails to regulate externalities or when
redistribution is possible). The second element involves Coasean bargaining (Coase, 1960), in
11
Sinding, Sharfman and Peck
4th CORE Conference 2009
the sense that the duty to mitigate an externality should fall on the party best able to do so
(Calabresi and Melamed, 1971). The third element is to undertake redistribution of profits
(Baron, 2009).
Addressing externalities beyond what is required by law carries a cost, as does redistribution
of profits. As such neither makes business sense. However, either or both may serve to
differentiate the firm and its products, generating a net positive return to the externality
reduction/redistribution activities – but then they would no longer be moral management but
just one more action undertaken in the firm’s interest. In an abstract sense, the issue of
boundaries is to find the point where profit redistribution and externality reduction beyond
the law stops being beneficial to the firm – and becomes moral management.
There are, however, several other political economy-related boundary issues. Following
Calveras et al. (2007), Baron (2009) argues that private redistribution and provision of public
goods can make consumers unwilling to support the [public regulation] alternative (a form of
private action crowding out collective action). Secondly, and irrespective of whether moral
management-CSR or self-interested CSR is involved, these actions may have other
distributional consequences than shifting income away from shareholders. This impact is
likely to occur where externalities and good but important stakeholder acceptance is spatially
localized, as in the case of many natural resource extraction projects. The third boundaryrelated issue is concerned with the effort undertaken by stakeholders (other than
shareholders) to obtain for themselves either transfers of wealth or elimination of externalities
that are with in legal standards. This effort is likely to be a close relative of the effort
12
Sinding, Sharfman and Peck
4th CORE Conference 2009
undertaken by rent-seekers (Tullock, 1967) in many different situations – and we may
speculate that they may be equally unproductive.
One complicating factor is that the private provider of public goods and transfers may
actually be more efficient at this task than the government involved. The notion that firms
may be better than government organizations at producing public goods and transfers is
introduced by Baron (2009) in the context of citizens making choices between private giving
and owning shares in socially responsible firms. Extending the concept of efficiency
differentials in public goods production and transfer management from a purely private
setting (Baron, 2008) to one that also includes governments, is an avenue we cannot explore
in the present paper – the notion that a government may not always be a government but
rather be a failing government is unappetizing yet a field of its own (Weimer & Vining,
2004). Even if no money figure or other similar level of detail can be attached to this
boundary, we believe it exists and is important, at least in some situations.
Two different types of market-related boundaries also belong in the political economy
category. When firms rely on some expression of CSR for branding purposes they seek
differentiation (Reinhardt, 1999), among other things. With differentiation comes market
segmentation, but among investors as well as among consumers (Baron, 2008). The supply of
customers in both markets is clearly an upper boundary for CSR activities, even if the
observation may seem so obvious that it is trite. For the investors, a further twist applies,
however. Executives that for some reason engage the firms they manage in extensive public
goods production and wealth transfers (i.e. CSR), may find themselves disciplined by
takeovers financed by shifting such transfers (Huisingh, Siljebratt, & Backman, 1988) to
13
Sinding, Sharfman and Peck
4th CORE Conference 2009
shareholders (Baron, 2008). In this sense the market for corporate control (Jensen &
Meckling, 1976) constitutes an additional boundary to CSR because if managers invest too
much in CSR firm performance will suffer and those managers likely will be replaced in a
takeover.
Strategic boundaries
Some years ago a set of five strategic arguments for being a green company were proposed
by Reinhard (2000). These were product differentiation, competitor management, cost
reduction, market redefinition, and risk management (Reinhardt, 2000). The first two of
these are considered in relation to our suggestion that strategic boundaries exist. The
remaining three can to some degree be subsumed in the two first ones.
Much instrumental CSR is intended to differentiate products or firms in the eyes of the
customer. For such differentiation to be meaningful, however, three conditions must be met.
Customers must be willing to pay a premium for the CSR attribute of the product or the
company selling the product. There must be reliable information available that shows that the
product or the firm has the desired attributes, and there must be a barrier to imitation
(Reinhardt, 2000). We argue that all these requirements represent strategic boundaries on the
CSR concept.
The first requirement, willingness to pay, can constitute a boundary, but more in a relative
than an absolute sense. The acceptance of a CSR driven price differences, for example for the
privilege of consuming eggs produced under non-cruel conditions, depends on the extra
payment for CSR eggs relative to the payment for unspecified eggs. It also depends on the
14
Sinding, Sharfman and Peck
4th CORE Conference 2009
benefit derived from CSR-eggs. Some industries produce homogenous products that are
intermediary to final consumer products. The production of these is likely to be concerned
chiefly with economies of scale and minimization of unit costs. In many cases product from
one supplier is virtually indistinguishable from those of another. This applies to many
commodities (iron ore, crude oil, timber, paper, etc.) As such, only firm differentiation will
be possible and likely more difficult and expensive to achieve. The essential point is that if
the extra CSR-related payment is disproportionate relative to the item not responsibly made,
then the price difference is an upper boundary to the construct in that managers will have to
scale CSR actions back to remain price-competitive and have their firms survive.
The second requirement for product differentiation to work is that credible information is
available about the attributes in question (Reinhardt, 2000). Two key sources of information
address this requirement – but they also constitute boundaries to CSR. One information
source is product labels. These exist for some products and product groups, but coverage is
far from comprehensive. The boundary here is the existence of a relevant labeling
arrangement plus the total cost of becoming and remaining certified to use the label. Labels
are designed for consumers but with coverage limited to certain product groups, alternative
sources of information must be used if CSR-based product differentiation is to succeed.
Apart from the cost and effort of using labels there is a possible additional boundary, that of
label overload, which may occur when more and more product types receive their own
product. To continue with the eggs example, their organic food label may be supplemented
with a “happy-egg” label to designate non-cruel production, any number of competing
regional origin labels – for example “Eggs from Madagascar” and labels specifying the breed
of hen that laid the egg (after all, single estate coffee beans are not unheard off). Two
15
Sinding, Sharfman and Peck
4th CORE Conference 2009
alternatives can be suggested, CSR reporting and Life Cycle Assessment. The former is
concerned with performance at the company level and may contribute to differentiation at
that level. The latter is intimately concerned with products and all that goes into their
production and disposal. These alternatives are potentially very costly and not necessarily
meaningful outside the ranks of specialists – both features associated with boundaries to the
use of these practices. As such, generating product or firm information that would
differentiate products or companies has a cost that again can be limiting because too high
investment in such information actions can render the firm non-competitive or even nonexistent.
For differentiation to work for firms, Reinhardt (2000) also identifies barriers to imitation as
a requirement following the reasoning of the Resource Based View of the firm (Barney,
1991). Many responsible practices are not in themselves complex or difficult and they are
therefore easy to imitate. The challenge, and in this context also the boundary, is to
undertake responsible actions in a way that customers will remember. Again, labels might do
the trick, but if labels are exclusionary the firm risks them being called an anti-competitive or
cartel practice (none of which is likely to be confused with responsible action). In developing
the notion of “Stakeholder Influence Capacity” (SIC) as a stock of [path dependent]
reputational capital, Barnett has identified a factor (SIC) that may moderate the impact of
CSR on financial performance (Barnett, 2007). This line of argument is foreshadowed in
Reinhardt’s discussion of Patagonia as a company that has exerted itself in projecting a
responsible image. The boundaries here are the stock of responsibility capital and the fact that
is takes time to build it – and that the associated cost is sunk. Again, too much investment in
16
Sinding, Sharfman and Peck
4th CORE Conference 2009
responsibility capital can doom the firm if customers are not willing to pay the attendant
higher prices.
Managerial boundaries
The final source of limits to the CSR construct we discuss rests with the managers who are
charged with implementing such efforts. Like all decisions managers make, CSR choices are
sifted through each individual manager’s cognitive schemas (Wood & Bandura, 1989). One
can conceptualize these schemas as filters through which managers interpret the various
signals present in their business context. One of the key filters through which managers
interpret these signals is through their own values (Daft & Weick, 1984). Such values in turn
directly predict managerial choices in CSR actions (Sharfman et al., 2000) because values
help managers determine which signals are important and which are not; (Bansal & Roth,
2000; Meyer, 1982). Further managers will be more likely to make the changes necessary to
engage in CSR actions if those actions are consistent with their values (Bansal et al., 2000;
Stead & Stead, 1992).
To clarify the role of values in CSR choices, as an example, let’s assume a San Francisco
affiliate of a large, international consumer retailer has a large customer base in the gay and
lesbian community not through any strategic action/choice but simply as a result of the high
incidence of gay and lesbian consumers in the San Francisco area. Further assume for the
sake of argument that the local affiliate has the discretion to decide about its CSR actions
including those that address specific stakeholder groups’ preferences. As a result of the
presence of this large gay and lesbian customer base, this firm perceives pressure from this
important stakeholder group to provide domestic partner benefits to its gay and lesbian
17
Sinding, Sharfman and Peck
4th CORE Conference 2009
employees. However, in our scenario the newly installed manager of the affiliate believes
homosexuality is immoral according to his religious upbringing as do many of the top
managers at corporate headquarters. As such, while the new manager might agree to provide
such benefits as an instrumental choice so as to not anger an important stakeholder group, he
would likely not do so out of any normative sense that this is the firm’s “responsibility.”
One might argue that such religiously-based values are simply a manifestation of the
institutional sources of limits for CSR that we discussed earlier. To the extent that such
religiously-based values come from an organized religious body then this criticism would be
valid. However, not all religiously-based values stem directly from organized religious
bodies. Clearly the family is the single strongest source of religious or spiritual teaching
regardless of whether the family belongs to an organized religious denomination or attends
worship services with that denomination. The family will be the vehicle by which many
people gain their interpretation of religious or spiritual teachings – again regardless of
whether the family is affiliated with any specific denomination. Finally, individuals through
self-study also can modify or augment any religious learning as part of their own values
development. These religious/spiritual values will create a schema for any manager and will
dictate at least in part what that manager believes is or is not the firm’s responsibility.
While religious and spiritual issues are for many the driver behind the development of
personal values, there are myriad other sources of values development. The social structure
and culture within which the individual lives, the cultures to which an individual has been
exposed, the individual’s education and training all can play a role in the development of
values schemas. Take for example decisions about the firm’s environmental performance
18
Sinding, Sharfman and Peck
4th CORE Conference 2009
beyond that required by law. For firms in the western United States, solid waste generation is
a compliance issue and most solid waste is managed through land-fills. There are large
amounts of land available for land-fills and recycling can be cost prohibitive because of
materials transportation costs. If the same firm operates in Denmark, recycling systems are
extensively subscribed; little land is available for landfills and then only at coastal sites with
less than 10 percent of all solid waste nationally being land-filled (UNEP 2004). In part the
Danish perspective on solid waste management comes from national (and European Union)
recycling regulations as well as from a culturally bound value system about sustainability.
However, it also comes in part from the simple fact that in Denmark untreated groundwater is
used for drinking and in any case much of the water table is so shallow that land filling solid
waste is simply not an option3. In this example, extensive management of solid waste is not
CSR but legal and cultural compliance.
Alternatively if this same Danish firm is run by an industrial engineer, generating solid
wastes may be an anathema – not because of some sense of social responsibility nor even for
legal or cultural compliance but because of an operational efficiency value. In this example,
a firm run by an industrial engineer could go beyond even Danish legal compliance in its
solid waste management (environmental performance) to meet an efficiency standard not to
fulfill some corporate social responsibility.
In each of the above examples, actions that could be included broadly under the rubric of
CSR would occur for reasons not normally identified as the conventional CSR motivations
i.e. we “owe” this behavior to society vis a vis the social contract or the more normative “it is
3
Most solid waste in Denmark is in fact incinerated in district heating plants.
19
Sinding, Sharfman and Peck
4th CORE Conference 2009
the right thing to do.” In each of these examples managers make instrumental choices that
are either value driven or have strong value components. These value elements which are the
not the conventional values behind CSR drive the choices and limit what can be called CSR.
In each of our examples, managers limit the amount or type of responsible actions their firms
pursue directly as a result of the managers’ personal value systems as opposed to some
overarching corporate responsibility.
CONCLUSION
In this paper we have introduced the idea that regulation of Corporate Social Responsibility
or regulation relying on Corporate Social Responsibility is intimately concerned with a rich
set of boundaries to the Corporate Social Responsibility construct. Mixing regulation with
the voluntary actions conventionally associated with Corporate Social Responsibility is not
just a matter of the tension between the instrumental and normative views of Corporate
Social Responsibility. This is essentially caused by a lack of clear theoretical boundaries for
the CSR construct. The normative perspective implies that more CSR, and more attention to
the organization’s stakeholders, is always better. The instrumental perspective implies that
CSR actions should only be promoted if they specifically advance the fortunes of the firm. If
they do however, more is STILL better. Indeed, in the instrumental perspective all of the
actions are not CSR and actions which go beyond instrumental, while possibly a form of
CSR, are morally unacceptable. We suggest that the debate is unlikely to find consensus any
time soon and that a better approach is to accept that many activities undertaken by
companies are labeled as CSR but aren’t done out of any moral sense of [corporate]
responsibility and to use this as a starting point. In consequence, we propose the idea that the
20
Sinding, Sharfman and Peck
4th CORE Conference 2009
Corporate Social Responsibility construct has a number of theoretical and practical
boundaries or limits. In other words, even if managers wish to maximize CSR there are
limits to their ability/willingness to do so – and these can be understood in terms of their
origin in institutional, political economy, strategic and managerial contingencies.
This paper is not exhaustive in the litany of possible limits and boundaries to the either the
CSR construct or to CSR actions. Many authors have distanced themselves from the CSR
construct but embrace the CSP construct (e.g. Wood 1991). By looking at the behaviors in
which the firm engages, one does not have to worry about any normatively derived value
system as a driver for action. However, everything we pointed out as a limit to CSR actions
is also likely a limit to CSP. If for example like Ford Motor Co. the firm engages in Social
Branding (in Ford’s case with the Breast Cancer issue and the Susan B. Komen Foundation)
the firm is likely to contribute less as it hemorrhages cash. The addition of a new CEO might
change corporate priorities or less than positive reactions from stakeholders and stockholders
could decrease or even cause the elimination of this program. In any case, our main
contribution in this paper is the beginning of a discussion concerning how much CSR can the
firm do even if it wishes to do all it can.
21
Sinding, Sharfman and Peck
4th CORE Conference 2009
References
Bansal, P. Roth, K. 2000. Why companies go green: A model of ecological responsiveness.
Academy Management Review, 43(4): 717-736.
Barnett, M. L. 2007. Stakeholder Influence capacity and the variability of financial returns to
corporate social responsibility. Academy Management Review, 32(3): 794-816.
Barney, J. B. 1991. Firm resources and sustained competitive advantage. Journal of
Management, 17: 99-120.
Baron, D. P. 2006. Business and it’s Environment. 5th. ed., Upper Saddle River: Prentice
Hall.
Baron, D. P. 2007. Corporatesocial Responsibility and Social Entrepreneurship. Journal of
Economics and Management Strategy, 16(3): 683-717.
Baron, D. P. 2008. Managerial contracting and corporate social entrepreneurship. Journal of
Public Economics, 92(1-2): 268-288.
Baron, D. P., et al. 2008. The Economics and Politics of CorporateSocial Performance,
Research Paper. Stanford: Graduate School of Business, Stanford University.
Baron, D. P. 2009. A Positive Theory of Moral Management, Social Pressure, and Corporate
Social Performance. Journal of Economics and Management Strategy, 18(1): 7-43.
Berle, A.A., Means, C. G. 1932. The Modern Corporation and Private Property. New York:
The McMillan Company
Calahresi, G., Melamed, A. D. 1971. Property rules, liability rules, and inalienability: one
view of the cathedral. Harvard Law Review 85(6): 1089-1128.
Campbell, J. L. 2007. Why should corporations behave in socially responsible ways? An
institutional theory of Corporate Social Responsibility. Academy Management
Review, 32(3): 946-967.
Calveras, A., Ganuza, J.-J. and Llobet, G. 2007. Regulation, Corporate Social Responsibility
and Activism. Journal of Economics and Management Strategy. 16: 719-740.
Coase, R.H. 1960. The Problem of Social Cost. Journal of Law and Economics 3: 1-44.
Daft, R. E., Weick, K. 1984. Toward a model of organizations as interpretations systems.
Academy Management Review, 9: 284-295.
Devinney, T. 2009. Is the Socially Responsible Corporation a Myth? The Good, the Bad, and
the Ugly of Corporate Social Responsibility. Academy of Management Perspectives.
23(2): 44-56.
22
Sinding, Sharfman and Peck
4th CORE Conference 2009
DiMaggio, P. J., Powell, W. W. 1983. The Iron Cage Revisited: Institutional Isomorphism
and Collective Rationality in Organizational Fields. American Sociological Review,
48(April): 147-160.
Donaldson, T., Preston, L. E. 1995. The stakeholder theory of the corporation: Concepts,
evidence, and implications. Academy of Management Review, 20(1): 65-91.
Dubin, R. 1978. Theory Building. New York: Free Press.
Evan, W. M., Freeman, R. E. 1988. A stekeholder theory of the modern corporation: Kantian
capitalism. In T. Beauchamp, & N. Bowie (Eds.), Ethical Theory in Business: 75-93.
Englewood Cliffs, NJ: Prentice-Hall.
Freeman, R. E. 1984. Strategic Management: A stakeholder approach. Boston: Pitman.
Friedman, M. 1970. A Friedman doctrine: The social responsibility of Business is to increase
its profit. New York Times Magazine: 33.
Heinkel, R., et al. 2001. The effect of green investment on corporate behavior. Journal of
Financial and Quantitative analysis, 36: 431-449.
Hodson, R. 2001. Dignity at Work. New York: Cambridge University Press.
Huisingh, D., et al. 1988. Preventive Environmental Protection Strategy: Preliminary Results
of an Experiment in Landskrona, Sweden. UNEP Industry and Environment,
January /February/March 1989: 9-10.
Jensen, M. C., Meckling, W. 1976. Theory of the firm: Managerial behavior, agency costs
and Journal of Financial Economics, 3: 305-360.
Jones, T. M. 1995. Instrumental stakeholder theory: A synthesis of ethics and economics.
Academy of Management Review, 20(2): 404-437.
King, A., Lenox, M. J. 2000. Industry self-regulation without sanctions: The chemical
industry's Responsible Care program. Academy Management Journal, 43(4): 698716.
Krueger, A. O. 1974. The Political Economy of the Rent-seeking Society. American
Economic Review, 64: 381-384.
Mackey, A., et al. 2007. Corporate social responsibility and firm performance: Investor
preferences and corporate strategies. Academy Management Review, 32(3): 817-835.
Margolis, J. D., Walsh, J. P. 2003. Misery loves companies: Rethinking social initiatives by
companies. Administrative Science Quarterly, 48(2): 268-305.
McWilliams, A., Siegel, D. 2001. Corporate social responsibility: A theory of the firm
perspective. Academy Management Review, 26(1): 117-127.
23
Sinding, Sharfman and Peck
4th CORE Conference 2009
Meyer, A. D. 1982. Adapting to environmental jolts. Administrative Science Quarterly,
27(2): 515-537.
Mitchell, R. K., Agle B. A. and Wood D.J. 1997. Toward a Theory of Stakeholder
Identification and Salience: Defining the Principle of Who and What Really Counts.
Academy of Management Review, 22(4): 853-886.
Oliver, C. 1991. Strategic Responses to Institutional Processes. Academy of Management
Review, 73: 145-179.
Phillips, R. A. 2003. Stakeholder Theory and Organizational Ethics. San Francisco: BerrettKohler.
Reinhardt, F. 2000. Down to Earth: Applying business principles to environmental
management. Cambridge: Harvard Business School Press.
Reinhardt, F. L. 1999. Bringing the environment down to earth. Harvard Business Review,
77(July-August): 149-157.
Russo, M. V., Fouts, P. A. 1997. A resource based perspective on corporate environmental
performance and profitability. Academy of Management Journal, 40(3): 534-559.
Sharfman, M., Pinkston, and Sigerstad, T. 2000. The Effects of Managerial Values on Social
Issues Evaluation: An Empirical Examination. Business and Society, 39(2): 144-182.
Stead, W. E., Stead, J. G. 1992. Management for a Small Planet. Newbury Park, CA: Sage.
Tullock, G., 1967. The Welfare Costs of Tariffs, Monopolies, and Theft. Western Economic
Journal. 5: 224-32
UNEP, 2004, Sanitation Country Profile, Denmark, United Nations Environmental Program
Agenda 21, accessed last on 1/12/2009 from
http://www.un.org/esa/agenda21/natlinfo/countr/denmark/denmark_sanitation.pdf
Vogel, D. 2005. The Market for Virtue: The Potential and Limits of Corporate Social
Responsibility. Washington, D.C.: Brookings Institution.
Weimer, D., Vining, A. R. 2004. Policy analysis: Concepts and practice (4 ed.). Engelwood
Cliffs: Prentice-Hall.
Wood, D.J. 1991. Corporate social performance revisited. Academy of Management Review,
16(4): 691-718.
Wood, R., Bandura, A. 1989. Social cognitive theory of organizational management.
Academy Management Review, 14(3): 361-384.
24