ON THE DEVELOPMENT AND IMPLEMENTATION OF A SUSTAINABLE CSR
STRATEGY: A LITERATURE SURVEY
A Thesis
Presented to the faculty of the College of Business Administration
California State University, Sacramento
Submitted in partial satisfaction of
the requirements for the degree of
MASTER OF BUSINESS ADMINISTRATION
in
(Finance)
by
Sisi Chen
SPRING
2013
ON THE DEVELOPMENT AND IMPLEMENTATION OF A SUSTAINABLE CSR
STRATEGY: A LITERATURE SURVEY
A Thesis
by
Sisi Chen
Approved by:
__________________________________, Committee Chair
Yang Sun
__________________________________, Second Reader
Pingsheng Tong
____________________________
Date
ii
Student: Sisi Chen
I certify that this student has met the requirements for format contained in the University
format manual, and that this thesis is suitable for shelving in the Library and credit is to
be awarded for the thesis.
__________________________
Monica Lam, Ph.D.
Associate Dean for Graduate and External Programs
College of Business Administration
iii
___________________
Date
Abstract
of
ON THE DEVELOPMENT AND IMPLEMENTATION OF A SUSTAINABLE CSR
STRATEGY: A LITERATURE SURVEY
by
Sisi Chen
Despite the growing popularity of Corporate Social Responsibility, it is still not clear
whether consumer choices are related to Corporate Social Responsibility behaviors, what
performances and benefits may result from Corporate Social Responsibility practice, and
how costs may be recovered when implementing Corporate Social Responsibility. This
study reviews existing literature particularly empirical studies to develop a better
understanding of advantages and disadvantages of practicing Corporate Social
Responsibility. A framework is developed based on this study to suggest a sustainable
Corporate Social Responsibility development and implementation process.
_______________________, Committee Chair
Yang Sun
_______________________
Date
iv
ACKNOWLEDGEMENTS
I would like to express my gratitude towards Professor Yang Sun and Professor
Pingsheng Tong for their encouragement and help on this thesis. Thanks for being patient
and providing me with a lot of guidance.
I would like to thank my parents in China for supporting and encouraging me
when I met difficulties, and giving me this great opportunity to study abroad.
v
TABLE OF CONTENTS
Page
Acknowledgements ....................................................................................................... v
List of Tables ............................................................................................................ viii
List of Figures ............................................................................................................. ix
Chapter
1. INTRODUCTION ..........................................……………………………………1
Purpose.............................................................................................................. 2
2. BACKGROUND OF CSR...................................................................................... 3
What is CSR? .................................................................................................... 3
When did CSR begin? ....................................................................................... 3
Where are CSR practiced? .................................................................................4
Why does CSR become popular NOW? ............................................................4
3. REVIEW OF PREVIOUS RESEARCH ON CSR ................................................. 6
CSR Responsibility ............................................................................................6
CSR Performances ......................................................................................... 15
CSR Benefits ....................................................................................................23
CSR Cost Control and Measurements .............................................................26
4. LITERATURE CLASSIFICATION .................................................................... 31
5. CSR DEVELOPMENT AND IMPLEMENTATION-MANAGERIAL AND
IMPLICATION......................................................................................................33
vi
6. CONCLUSION AND RECOMMENDATION ....................................................38
References ................................................................................................................... 40
vii
LIST OF TABLES
Tables
Page
1. Literature Classification .........................................................................................32
viii
LIST OF FIGURES
Figures
Page
1. CSR Pyramid Model, Adapted from Geva, 2008 ....................................................9
2. CSR Intersecting Circle Model, Adapted from Geva, 2008 ..................................10
3. CSR Concentric Circle Model, Adapted from Geva, 2008 ...................................11
4. Extension Pyramid Model, Adapted from Lantos, 2001… ...................................14
5. CSR Performance Structure ...................................................................................16
6. Environmental CSR Performance Structure ..........................................................16
7. Virtue Matrix, Adapted from Martin, 2002 ...........................................................21
8. Weber’s CSR Impact Model, Adapted from Weber, 2008 ....................................26
9. Process of CSR Development ................................................................................33
ix
1
Chapter 1
INTRODUCTION
Corporate Social Responsibility (CSR) attracts much attention in today’s business
environment. It has become a popular term in both practitioners’ and the academic world.
A survey created by the Boston College Center for Corporate Citizenship and the U.S.
Chamber of Commerce in 2005 showed that a large majority - about 1189 companies - in
the United States considered CSR as one of their main concerns in business practice
(Price, 2007). Over 50% of Fortune 1,000 companies in the U.S. published CSR reports,
and about 10% of investments among these Fortune companies were evaluated and
ensured that they met CSR-related criteria (Galema et al., 2008). Companies begin to
realize that CSR will not decrease the capital of the company. On the contrary, it will in
some way increase stock value, and potentially reduce costs on goods and services.
However, such questions as what responsibility the company should fulfill, and how to
control CSR expenses are still under investigation by senior corporate managers.
CSR can be defined as taking socially responsible actions to contribute to the
environment and social welfare. CSR is a “business function by public consent, and its
basic purpose is to serve constructively the needs of the society—to the benefit of the
society” (The Committee for Economic Development, 1971, as cited in Chaisurivirat,
2009, p.1). By contributing to social welfare, businesses could get benefits from
transforming CSR behaviors into good brand image, high reputation, and benign
competitiveness (Porter and Kramer, 2006; Sprinkle and Maines, 2010; Weber, 2008). It
2
is a win-win status, which means maximizing profits while making contributions to the
society simultaneously. In fact, each corporate has a different formulation of CSR to
practice (Halme and Laurila, 2009). Since additional costs are likely to occur with
implementing CSR, one of the most critical tasks for corporate managers is to ensure and
monitor that the cost of CSR does not overrun company’s correspondent earning.
The purpose of this thesis is to introduce and provide a literature review of CSR
from the following perspectives: 1) cost control and measurement, and 2) performance
and benefits. Moreover, a framework is constructed to explain CSR process. At the end,
some recommendations are provided for managers to manage CSR behaviors.
3
Chapter 2
BACKGROUND OF CSR
What is CSR?
In today’s marketplace, revolution in technology and efficiency in economy have
built a new business model, which is CSR. It is a new generation for corporations in
getting responses from the community and doing sustainability development for the
environment. Howard Bowen, who was respected as “the father of the CSR theory”,
defined CSR as “the obligation of businessmen to pursue those policies, to make those
decisions, or to follow those lines of action which are desirable in terms of the objectives
and values of our society” (Bowen, 1953, p.44). Carroll, who is known for developing a
“CSR pyramid model”, said that, “the social responsibility of business encompasses the
economic, legal, ethical, and discretionary expectations that society has of organizations
at a given point in time” (Carroll, 1979). Meanwhile, Friedman defined the CSR as “the
social responsibility of business is to maximize profit to earn a good return on capital
invested and to be a good corporate citizen obeying the law – no more and no less.”
(Friedman, 1970). In summary, from the above concepts CSR can be understood as
contributing to the social and environmental projects and earning profits at the same time.
When did CSR begin?
Back to 1970s, the term CSR began in use while many multinational companies
appeared - they began to pay attention to ethical practices. At that time, some
4
environmental problems such as the decrease of rainforest, and the decline of the air
quality became serious social considerations. These pieces of evidence led to a general
agreement that there have to be some changes in order to control and protect planet
resources. (http://en.wikipedia.org/wiki/Corporate_social_responsibility)
Where are CSR practiced?
It is commonly known that CSR is very popular and better practiced in
corporations in developed countries, e.g., Starbucks, Coca-Cola, P&G and so on (Global
Economic Issue, 2013). However, in developing countries organizations are also trying to
practice CSR even though they may face more challenges because of political conditions
or less privileged economic conditions. As such the extent of CSR practices varies among
different economic development levels (Dianwei Qi, Chunhua Feng& Meina Jin, 2012,
Dima Jamali and Ramez Mirshak, 2006).
Why does CSR become popular NOW?
From “Corporate Social Responsibility: Background and Perspective” by John
Samuel and Anil Sarri (http://infochangeindia.org/corporateresponsibility/backgrounder/corporate-social-responsibility-background-aperspective.html), main of supporting forces for CSR came from the United States and
Europe in the '80s and '90s. Eighty percent of 4,000 surveyed people who were 15 years
or older prefer to consume items from companies that engaged in social responsibility.
The market leans to younger consumers, and the increasing number of people who
5
support and think CSR is necessary in today’s market. Another reason is that the
corporate sectors cover and control most resources on earth today, so corporations have
to balance the usage and protection of resources on earth and fulfill social responsibilities
immediately.
6
Chapter 3
REVIEW OF PREVIOUS RESEARCH ON CSR
3. 1 CSR Responsibility:
The first important key point is what responsibilities corporations should focus on
and contribute to. Based on empirical studies, the following models are summarized to
describe the relationships between different levels of corporate social responsibilities.
3.1.1 Model A: Carroll’s CSR Pyramid
Background: This model was developed by Archie B. Carroll and has become the
most popular and widely accepted CSR model. According to this model, CSR refers to
the “economic, legal, ethical, and discretionary expectations that society has of
organizations at a given point in time” (Carroll and Buchholtz, 2001, p.36). Indeed, CSR
means that corporations should follow these responsible rules in addition to only focus on
earning business returns and profits. Based on this CSR pyramid model, responsibilities
can be categorized into the following four dimensions depending on the different
objectives of the classification (Carroll, 1991):
1. Economic responsibilities
2. Legal responsibilities
3. Ethical responsibilities
4. Philanthropic responsibilities
7
Four Dimensions:

The economic responsibility is that firms have responsibilities to get better profits
by making high-quality goods and services while selling them with a reasonable
and fair price to their customers/consumers (Carroll, 1999). The economic
responsibility is linked to the financial status of the company that includes profit,
margin, cost, etc. The core term of the economic responsibility is value. The
essential problem is how to achieve the balance by earning profits and providing
reasonable prices to consumers simultaneously. Using the Proctor and Gamble
Company demonstrated as one of the most successful examples, research shows
that Proctor and Gamble Company brought in new equipment to disinfect and
purify water for some developing countries where living conditions were
comparatively poor and when nearly two million children were dying from water
related diseases,. Nevertheless, this new machine is affordable to those families in
the third world (Business Respect, 2004). This behavior from Proctor and Gamble
Company could build a positive brand image and earn a good reputation in public.

The legal responsibility means that corporate behaviors are supervised and limited
by law. It is determined by the legal system about what is right or wrong. Simply,
the legal responsibility requires corporations to abide by legal rules and
constraints. Corporations have numerous laws they need to obey, such as business
law, product law, employment law, environment law and so on. For example, the
Coca-Cola Company demonstrated a good citizenry by creating a project that
minimized their wastewater, constrained under the environmental law (Haskel,
8
2008). Sometimes, firms should also require responsibilities to their suppliers.
Starbucks Co., one of the most famous coffee shops in the world, had taken
actions based on the labor law. They used to purchase their coffee beans or coffee
supplies from some developing countries such as Guatemala and Kenya.
However, some news exposed that some coffee farmers in Guatemala employed
under-aged (by law) labors to produce coffee supplies and plant coffee beans.
Once they learned about this practice, Starbucks stopped buying material from
those companies immediately even though the price they provided was attractive
(Global Economic Issue, 2013). By doing so, Starbucks Co. established their
justiciable position in the world.

The ethical responsibility is to follow obligations that people and the society think
are morally right and fair, sometime these obligations are even far beyond the law.
It is commonly agreed that CSR is in essence an ethical behavior. Their
contributions to the society, economic or legal, should be ethical behaviors. To
this extent, the three cases mentioned above also demonstrate ethical
responsibility behaviors.

The philanthropic responsibility is a volunteering responsibility that some firms
have the ability to follow. This is the upgrading step, which can lead to a betterquality life. Specific practices include giving benefit to employees and helping
alleviate public welfare deficiencies among others.
9
3.1.2 Extension:
There are three branches extended from Caroll’s leading pyramid model in the
article “Three Models of Corporate Social Responsibility: Interrelationships between
Theory, Research, and Practice” written by Aviva Geva (Geva, 2008):
a. CSR Pyramid:
philanthropic
ethical
legal
economic
Figure 1. CSR Pyramid Model, Adapted from Geva, 2008
Background: This formulation is built by the hierarchy order of four levels of
responsibilities with decreasing importance from bottom to top (Geva, 2008). The most
important and basic one is economic responsibility. Generally, the purports of the
pyramid CSR model are to describe a group of necessary and significant responsibilities
that corporations should focus on, and to build the importance order among these four
responsibilities. It states that these purports are not goals, but businesses should treat CSR
as constraints to obey (Geva, 2008). Businesses should use these responsibilities to
restrain their behaviors while maximizing their profits. CSR pyramid model is
10
accommodating, because corporations are in different levels and they might behave
according to different levels of responsibilities in the pyramid model.
Research tool: The most common used research tool in CSR pyramid studies is
the “constant-sum instrument” created by Aupperle (Geva, 2008). “This sort of
comparative rating scale involves relative judgments of the importance of each
component with direct reference to the other components being evaluated.” The
hypothesis of this method assumes that “societal concerns and concern for economic
performance are mutually subversive rather than mutually supportive”. This assumption
has attracted widespread criticism in business and society literature, and certainly cannot
be justified in the framework of the pyramid that requires simultaneous fulfillments of all
four responsibilities. (Geva, 2008, p.10)
b. Intersecting Circles
philanthropic
ethical
legal
economic
Figure 2. CSR Intersecting Circle Model, Adapted from Geva, 2008
11
Background: This formulation focuses on the major of interrelationship among
these four responsibilities. Interrelationship means that they have interactive effects with
each other. Different from pyramid study, intersecting circles model breaks the hierarchy
of the importance, but claims that they have equal positions and advance harmonies
(Geva, 2008). It also has the ability to solve conflicts among these responsibilities.
Therefore, an outstanding advantage of this model is its flexibility.
Research Tool: Schwartz and Carroll’s three-domain model is the main research
approach adopted for the Intersecting Circles model. This model is an attempt to develop
the CSR domains “more completely both in terms of what each means or implies and in
terms of the over- lapping categories that are identified when the three domains are
depicted in a Venn diagram format.” (Geva, 2008, p.20)
c. Concentric circles (CON):
philanthropic
ethical
legal
economic
Figure 3. CSR Concentric circles Model, Adapted from Geva, 2008
12
Background: The concentric circles model is brought in by the Committee for
Economic Development (CED), an American association of influential business leaders
in 1971 (Geva, 2008). This model is similar to the two prior models to some extent.
Comparing to the pyramid model, they both have economic responsibility as the core and
foundation; comparing to the intersecting circles model, they both have interacting
relationships among all four responsibilities. However, they also have many differences.
Differing from pyramid and intersecting circle models, the concentric circles model
highlights its interdependence. The concentric circles model explains the relationships
between business and society from two perspectives: outside-in and inside-out. Outsidein means “the long-standing concept of social control that refers to society’s need to
impose some standards of behavior on business activity in order to preserve the core
function of business as an important instrument for social progress.” (Geva, 2008, p.23)
The inside-out represents “the internalization of social norms that reside and operate
within business itself as affirmative or positive duties. It maintains that all corporate
social responsibilities share a common core.” (Geva, 2008, p.22) From the two
perspectives, it clearly clarifies the interdependence between the responsibilities.
As for the structure of concentric circles, it “represents a system of inclusion
relations rather than a scheme of mutually exclusive domains. In a system of concentric
circles, every member of the inner circle is also a member of the wider, more inclusive
outer circle, but not vice versa.”(Geva, 2008, p.23) Thus, the responsibilities in the
concentric circles have interactive relationships. For example, legal and ethical aspects of
CSR practices may affect economic responsibility and vice versa.
13
Research tool: Because all responsibilities share a mutual core concept in the
concentric circles model, a different measurement tool should be adopted. Facet analysis,
a modern classification theory, is one of the methods. It is a powerful tool to do the
research on relationship between different facets in the construction (Geva, 2008). See
Hjorland’s article “Facet analysis: The Logical Approach to Knowledge organization”
discussed the facet analysis in details. (Hjorland, 2012)
3.1.3 Model B: Extension CSR Pyramid Model
Another structure of the CSR responsibility is an extension of CSR Pyramid
model. The study named “The Ethicality of Altruistic Corporate Social Responsibility”
written by Geoffrey P. Lantos introduced this new extension model (Lantos, 2001,
Godelnik, 2012).
14
Strategic CSR
Altruistic CSR
Ethical CSR
Figure 4. Extension CSR Pyramid Model, Adapted from Lantos, 2001
The basic core responsibility of CSR is the ethical CSR that is the substance of
this model. In Lantos’s CSR study, mentioned in Godelnik’s article “Philanthropy, CSR
and the Social Responsibility of Business” (Godelnik, 2012), the author supported that
ethical responsibility was the mandatory factor of economic responsibility, legal
responsibility and ethical responsibility. Ethical responsibility reflects obligations that the
society deems as right and fair, and these obligations may be beyond legal rules in some
ways. Here Lantos indicated one more matter of fact that all those three responsibilities
were included in ethical responsibility arrangement.
The next layer in this extension model is the altruistic CSR. It is a practice of
philanthropic responsibility, as Godelnik said “going beyond preventing possible harms
(ethical CSR) to helping alleviate public welfare deficiencies, regardless of whether or
15
not this will benefit the business itself.” (Godelnik, 2012) “Firms practicing altruistic
CSR help to alleviate various social ills within a community or society, such as lack of
sufficient funding for educational institutions, inadequate moneys for the arts, chronic
unemployment, urban blight, drug and alcohol problems, and illiteracy, among others.”
(Lantos, 2001, p.3) Lantos summarized the specific practical behaviors included in the
altruistic CSR.
The third hierarchy is the top level, the strategy responsibility. The success of a
corporation is to reach its goals and maximize its profits. “Here, corporations contribute
to their constituencies not only because it is a kind and generous thing to do, but also
because they believe it to be in their best financial interests to do so, thereby fulfilling
their fiduciary responsibilities to the stockholders” (Lantos, 2001, p.3). Therefore, this
responsibility is to help the corporation to achieve its strategic business goals.
3.2 CSR Performances:
The next section covers CSR performance. CSR performance is more or less
inflecting investors’ asset allocation processes. Since CSR performance can be treated as
the result of CSR, most investors use CSR performance as a measurement while they are
planning the investments. In this study CSR performance is summarized into two
different parts in this study: environmental performance and financial performance.
16
Environmenal
Good
Performance
Financial
Figure 5. CSR Performance Structure
3.2.1 Environmental Performance:
Environmental
Performance
Social Humanistic
Environmental
Performance
Internal
External
Natural
Environmental
Performance
Internal
Figure 6. Environmental CSR Performance Structure
External
17
Environmental performance has social humanistic performance and natural
performance. Both environmental performances can be separated into internal
environment performance and external environmental performance.
3.2.1.1 Social Humanistic Environmental Performance:
A. Internal social humanistic environmental performance prefers to the internal
relationship in a firm, such as employer vs. employee, employee vs. employee,
stakeholder vs. others and so on. The article titled “Overview of the links between
Corporate Social Responsibility and Competitiveness” and published in the European
Competitiveness Report in 2008 summarized that the internal environmental performance
should be included in human resource performance of a firm. The most significant aspect
of this performance is that a better human resource CSR performance equals to a better
employees relationship, which can decrease the labor turnover rate and improve the
motivation of employees (European Competitiveness Report, 2008). What’s more, acting
human resource performance well can be a good advertisement to attract more potential
employees to apply for the jobs and join the “big family”. Cochran describes a
performance regarding how the operational-site dimensions of CSR can help create an
ideal atmosphere for high-productivity and high-innovation of labor/employee (Cochran,
2007). Obviously, the result of this performance should make the relationship between
employer and employee more harmonious. Montgomery and Ramus’s research studies
how graduate students would choose their dream enterprises or workplaces by providing
personal interviews, and the result suggests that more than 90% business school students
18
choose to join highly ethical firms with a high rate of environmental concern instead of
going to financially focused ones (Montgomery and Ramus, 2003). In a survey of MBA
students published by the Aspen Institute in 2008, 26% of the selected students agreed
that the ability of contributing to the society is an important and necessary factor in their
job selection process (Aspen Institute, 2008). Only under a harmonious atmosphere, firms
can develop and improve in a long run.
B. External social humanistic environment performance is the relationship
between outer customers and inner employees. This performance could lead to customer
loyalty, an attractive and desirable asset for businesses. Customers will provide positive
performance to a firm if they can trust and be satisfied with this firm. This performance is
always a controversial topic. Some analysts argue that there is no obvious evidence that
can explain and support why CSR can motivate customers’ behaviors. For example,
Meijer and Schuyt’s analysis claimed that the consumers’ performance in Dutch was not
motivated by CSR performance, i.e., customers were not persuaded to buy the products
based on a firm’s CSR behaviors (Meijer and Schuyt, 2005). However, another group of
analysts supports the opposite opinion. They endorse that if a firm does social
responsibility right, such as giving the reasonable price to customers, obey the law rules,
and help building harmonious society and so on, customers in return will give their
loyalty to this firm. For example, Tuppen’s research of a telecommunication firm shows
that CSR related behaviors are important drivers of corporate brand image and reputation,
which can be a determinant of customer satisfaction (Tuppen 2004). Mandl and Dorr
pointed out that “high employee satisfaction and publicity attributed to CSR activities can
19
also have a beneficial outcome in terms of customer loyalty as well.” (Mandl and Dorr,
2007, p.46) An Italian survey shows that positive customer loyalty is what they are
expecting in their CSR engagement (Longo, Mura, and Bonoli, 2005).
3.2.1.2 Natural Environmental Performance
Another aspect is the natural environmental performance, which can also be
divided into internal and external parts. Internal performance should be creating inner
innovation. External outcome should be protecting the outer environment.
A. Innovation means company improves itself to produce more valuable goods
and services, and at the same time to earn more desirable profits. From David Grayson
and Adrian Hodges’s book “Corporate Social Opportunity”, CSR could be a guide to help
on creating innovation in the company and practicing the responsibilities simultaneously
in order to gain its ideal marketplace (Grayson and Hodges, 2004). The European
Competitiveness Report introduced three innovation performances or methods:
innovation resulting from engagement with other stakeholders; identifying business
opportunities through addressing societal challenges; and creating work places that are
more conducive to innovation (European Competitiveness Report, 2008). These three
performances illustrate that CSR has a positive impact on the innovation performance and
gain desirable benefits.
B. External natural environmental performance should focus on the environmentprotection. This is easy to understand. One of the basic ethical behaviors of CSR is to
protect natural environment.
20
3.2.2 Financial Performance:
“Companies with high ratings for corporate social responsibility and
environmental, social and governance factors have a lower cost of capital and are a
lower risk to investors, according to a report by Deutsche Bank’s climate change
investment research group.” (Environmental Leader, 2012)
Financial performance is an important measurement for shareholders and the
CEO. Fulfilling social responsibilities and keeping the company profitable is what
stakeholders should focus on. Profitable status is the foundation and the premise for
supporting CSR in most stakeholders’ mind.
First of all, we briefly relate the financial performance to the four responsibilities
in previous pyramid model. The financial performance of this model is positive (Branco
& Rodrigues, 2006). First, pyramid model emphasizes that the economic responsibility is
the foundation and core responsibility. This can further explain that profitability is the
primary purpose and ultimate benefit of CSR. So there is a directly proportional
statement that if a company has a favorable (unfavorable) reputation, it will have a
favorable (unfavorable) CSR financial performance. Second, Geva said pyramid model
was also an expectation-based model, which means a company could get benefits from
different stakeholders. Because different stakeholders can bring various gains, the
company can match their supply-demand easier. As Geva say, “well-matched attention to
CSR domains can increase the efficiency of the company’s adaptation to internal and
external demands” (Geva, 2008, p.13). Third, this model supports that the company with
21
higher-ranking position in CSR will have higher financial performance.
In addition, in Margarita Tsoutsoura’s study named “Corporate Social
Responsibility and Financial Performance”, she pointed out the relationship between the
CSR and financial performance was positive with using some control variable
measurements such as Return on Assets, Return on Equity and so on. She brought out
Roger L. Martin (2002)’s “virtue matrix” as a framework to measure CSR performance
and calculate the return of CSR (Tsoutsoura, 2004). “Corporations often willingly engage
in socially responsible behavior precisely because it enhances shareholder value.”
(Martin, 2002)
strategy
frontier
structural
frontier
choice
compliance
Figure 7. Virtue Matrix. Adapted from Martin, 2002
The following part covers some studies that discussed CSR performance, in hope
to provide a brief framework and some suggestions for measuring the financial
performance under the CSR context.

In Wartick and Cochran’s study in “The Evaluation of Corporate Social
22
Performance Model”, they built three frameworks, which extended Carroll’s
pyramid model. The three frameworks are Principle of CSR, Processes of social
responsiveness, and Policies of social issues management. These dimensions can
help investors and stakeholders evaluate financial performance of a company
(Wartick and Cochran, 1985).

Donna Wood (1991) rebuilt the image based on Carroll’s and Wartick and
Cochran’s models in her study in “Corporate Social Performance Revisited”. She
reformulated the model in order to get a better idea to evaluate the financial
performance from CSR behaviors (Wood, 1991).

Swanson (1995) recomposed Wood’s model, because the author thought the
financial behavior was not integrated in Wood’s model. The author introduced
interactions between principles, processes, and outcomes in order to make the
financial performance of CSR more complete for measurement (Swanson, 1995).

From economic perspectives, behaving environmental-responsible to the society
might cause companies to invest in new technology innovations. These
investments might also lead to financial advantages for a company. (Cetindamar
& Husoy, 2007; Orlitzky, Schmidt, and Rynes, 2003; Waddock and Graves, 1997)
There are many such studies, and research can explain and provide evidences to
support the positive correlations between CSR and the organization’s financial
performance (Devinney, 2009; McWilliams and Siegel, 2000; Peters and Mullen,
2009; Weber, 2008). Profitability is the key point that stakeholders are
considering, and this study supports the view that business with good CSR scores
23
tends to have better financial performance.
3.3 CSR Benefits:
CSR benefits are results of good performances. This study discussed CSR
performance from different perspectives above. The next part will cover CSR benefits.
Using the reference from Nurn and Tan’s study, benefits can be separated into two
different parts. One is tangible benefit; the other one is intangible benefit. (Nurn and Tan,
2010)
More and more people attach importance to CSR. Customers will no longer
accept unethical behaviors. Chahal and Sharma (2006) stated CSR is doing something to
protect the environment and to improve the harmony of the society, and at the same time,
to provide sustainable welfare and benefits to companies’ diverse stakeholders (Chahal &
Sharma, 2006). Friedman said CSR is “to conduct the business in accord with
[shareholders’] desires, which generally will be to make as much money as possible
while conforming to the basic rules of the society, both those embodied in law and those
embodied in ethical custom”(as cited in Business Ethics Now, p. 211). So the basic
benefit and core value from attending in CSR is still the profit, and the companies are
trying to maximize their benefits.
What’s more, firms need to consider the preconditions of profit, such as
enterprise’s positive brand image, good reputation, reliable goodwill and so on
(Galbreath, 2010; Weber, 2008). The relationship between customers and company’s
24
brand image is the foundation of achieving benefits (Brown and Dacin 1997; Maignan
and Ferrell, 2001; Sen and Bhattacharya, 2001).
CSR profitable benefits can be included in financial performance. The reason is
that CSR can increase cash-inflow and decrease cash-outflow. Because customers begin
to treat CSR as a necessary factor in their daily purchasing, they volunteer to pay more in
order to support this CSR related behaviors (Sprinkle and Maines, 2010). At the same
time, with an efficient operational cost structure resulting in reduced operational risks,
value is added to assets in the long term. Furthermore, CSR can be treated as
advertisements to “increase demand for products and services and/or reducing consumer
price sensitivity and even enabling firms to develop intangible assets” (Dorfman and
Steiner, 1954; Navarro, 1988; Sen and Bhattacharya, 2001; Milgrom and Roberts, 1986,
Gardberg and Fomburn, 2006; Hull and Rothernberg, 2008; Waddock and Graves, 1997,
as cited on Cheng, Ioannou and Serafeim, 2001, p.5).
This study classifies different kinds of benefits. Sometimes, intangible benefits
can lead to tangible benefits.
A. Intangible benefits:

Reputation: Reputation is much more important for the company even though it is
an intangible benefits. It is the basis of some tangible benefits. Fombrun and
Shanley (1990) pointed out that no matter from a theoretical or practical
perspective; reputation of a company is always one of the most important CSRCFP (Corporate Financial Performance) mediators (Fombrun and Shanley, 1990,
as cited in Nurn and Tan, 2010). Getting better reputation will increase customer
25
loyalty in order to maximize profits.

Information: knowledge is an intangible benefit for both employers and
employees. Information and knowledge can balance the performance of CSR
(Orlitzky et al., 2003). Getting more information, employees will have better
ability to learning new skills and knowledge to contribute to the company and the
society.

Emotion and Efficiency: Emotion should be an intangible benefit from CSR,
which can lead to a good efficiency that is also an intangible benefit. Company
having good CSR behaviors will increase the amount of “happy workforce”,
which can boost the efficiency of producing better goods or services (Branco and
Rodrigues, 2006).
B. Tangible benefits:

Potential Employees: People are tangible. Absorbing more potential employees
can increase the value of the company (Backhaus, Stone, and Hainer, 2002;
Greening and Turban, 2000; Turban and Cable, 2003; Turban and Greening,
1996).

Profitability: this part can have some extensions, such as reducing operating cost,
increased investment opportunities, and so on.

Competitors: this is a debatable perspective. Some believed that competitors are
not benefits because they might lead to cutthroat competitions and would put
employees in a high-pressure working environment. However, other scholars treat
competitors as a benefit since competition is mostly benign and transparent.
26
Competition can make people or organizations get a better knowledge about what
are their disadvantages. Only by realizing weaknesses, can they improve
themselves to get more benefits. Therefore, competition is good and is a benefit
from CSR. It can improve business to maximize profits, and business will not fear
competition and no longer give themselves much pressure.
Benefits from CSR can be summarized in the following perspectives: 1) tax
deductions or tax credits, 2) free advertising, 3) cost saving, 4) reduction in turnover, and
5) level of purchases or customer satisfaction (Sprinkle and Maines, 2010).
Figure 8. Weber’s CS Impact Model, Adapted from Weber, 2008
3.4 CSR Cost Control and Cost Measurements
Questions 1: Is there a relationship between CSR performance and CSR cost?
For this question, most answers yes. Most people agree that investments in
developing responsible and good employee-relationships, contributing in environmental
27
protections, and making product strategies to reducing firms’ cost of equity. “Barnea and
Rubin (2005) suggest that CSR investments are motivated by the desire of managers to
burnish their reputations as responsible stewards of industry at the expense of
shareholders. This represents an agency cost of equity similar to the purchase of
unnecessary corporate jets (Yermack, 2006) or other excessive perquisite consumption.”
(Goss and Roberts, 2011, p.4)
At the same time with performing, there should be some rules that can control the
contest. Here Lamont group introduced the term “Capital constraints”. It creates the
ability to prevent a firm from funding all wishful investments. This ability can be called
market friction, which is a measure that can influence any of the trading activities in the
market. This limitation in finance may be “due to credit constraints or inability to borrow,
inability to issue equity, dependence on bank loans, or illiquidity of assets” (Lamont,
Polk, and Saa-Requejo, 2001, p.1). In fact, it is not a bad practice. From empirical
studies, “capital constraints” is a significant aspect in helping operating managers making
strategic decisions by creating some rules to control the commercial behaviors. It has
impacts on the ability of a firm to undertake financial decisions, and it can influence the
capital structure choices in a firm (Stein, 2003, Hennessy and Whited, 2007).
Moreover, capital constraints are related to a firm’s subsequent financial
performances (Lamont, Polk, and Saa-Requejo, 2001). In a study titled “Corporate Social
Responsibility and Access to Finance” by Cheng, Ioannou and Serafeim (2011), the
authors believed that a better CSR performance would lead to a better access to the
financial market. They pointed out a statement “firms with better CSR performance face
28
lower capital constraints.”(Cheng, Ioannou and Serafeim, 2011, p.3) In the article by
Ghoula et al., (2011), they found that positive CSR scores are related to the cheap equity
financing.
Question 2: Is there any evidence to track and measure the relationship?
There are many evidences and measurements that can be used to prove the
internal relationship between CSR performance and costs. Information asymmetry system
should be one of them. Information asymmetry would most likely happen in low CSR
score firms for hiding some negative information to public. Dhaliwal et al. (2009)
explained that high CSR score firms prefer to disclose more information to public rather
than low firms since they want to create their positive brand images with letting
consumers know them as a highly responsible corporation. Then, most investors are
willing to focus more on those high CSR score firms who related to high information
disclosure rather than to low CSR score firms to invest in. The more information
available, the more people can trust in. As mentioned in Cheng, Ioannou and Serafeim’s
(2011) study, they support that CSR reports can create a positive feedback loop in
following options:

It could increase the transparency around the social and environmental impact of
companies, and their governance structure.

It may change the internal control system that further improves the compliance
with regulations and the reliability of reporting.
(Cheng, Ioannou and Serafeim, 2011, p.3)
29
To sum up, “the information asymmetry from CSR reports can be an evaluation to
support the hypothesis that a firm with superior CSR performance will face lower capital
constraints.” (Cheng, Ioannou and Serafeim, 2011, p.11)
Another method from Ghoula et al. (2011) is using the ex ante cost of equity as a
measurement, which could be used to analyze beneficial earnings, capital forecasting and
stock prices. This is an accounting-based approach and it has two important advantages.
“First, unlike traditional measures of firm value, it allows one to control for differences in
growth rates and expected future cash flows when estimating firms’ cost of equity (Hail
and Leuz, 2006). Second, it circumvents the use of noisy realized returns and the failure
of traditional asset pricing models to deliver accurate estimates of firm-level cost of
equity capital (Pástor et al., 2008).” (Ghoul, Guedhami, Kwok, and Mishra, 2011, p.3)
Question 3: Are CSR and Premium in proportional status?
There is always an argument between CSR and the financial performance. In
particular, “researches based on neoclassical economics perspective supported that CSR
does not have to increase firms’ costs of capital with providing the firms the ability of
competitive disadvantage vis-à-vis its competitors” (Friedman, 1970; Aupperle et al.,
1985; McWilliams and Siegel, 1997; Jensen, 2002, as cited in Cheng, Ioannou and
Serafeim, 2011, p.4). Some analysts argued that firms could get more managerial benefits
rather than financial benefits (Brammer and Millington, 2008). However, there are some
scholars supported that CSR has good impacts on financial benefits (Cochran and Wood,
1984; Waddock and Graves, 1997). This is always a debate question between the two
30
sides, and people are still on the way in seeking answers. “From a stakeholder’s
perspective (Freeman, 1984; Freeman et al., 2007; Freeman et al., 2010), CSR includes
managing multiple stakeholder ties concurrently, scholars have argued that CSR can
mitigate the likelihood of negative regulatory, legislative or fiscal action (Freeman, 1984;
Berman et al., 1999; Hillman and Keim, 2001), attract socially conscious consumers
(Hillman and Keim, 2001), or attract financial resources from socially responsible
investors (Kapstein, 2001).” (Cheng, Ioannou and Serafeim, 2011, p.5)
Question 4: Is there any risk?
From empirical studies, analysts suggested that firms with lower CSR scores
would bear a higher level of risks (Frederick, 1995; Robinson et al., 2008; Starks, 2009).
Bad CSR performance firms should have some troubles in explicit claims, which mean
those firms will face to more risks and CSR costs in terms of existing in this competitive
market (Waddock and Graves, 1997). So people should think about “whether the
perceived risks that low CSR firms have can be diversified away into any investment
portfolios so that it will not have much affect in the cost of capital or not.” (Ghoul,
Guedhami, Kwok, and Michra, 2011, p.8) However, the reason why investors will not
invest in low CSR firms is not only because of the beta risk, but idiosyncratic risk based
on Merton’s model, but also because there are so many neglected and limited risk
happened in low CSR firms (Hong and Kacperczyk, 2009). Therefore, low CSR firms
will bear a higher cost of capital and higher risk.
31
Chapter 4
LITERATURE CLASSIFICATION
The following table is a summary of the literatures with respect to different
aspects of CSR, which are responsibilities, performances, benefits, and costs. This
classification table provides a better understanding on how analysts previously
contributed to field of CSR, and which part can be further investigated in the future.
32
Research
Responsibility
Performance
Lindorff and Peck,
2010.
Lindorff and Peck,
2010.
Qi, Feng and Jin, 2012
Geva, 2008
Halme and Laurila,
2009
Carroll, 1999
Friedman, 1970
Carroll and Buchholtz,
2001
Carroll, 1991
Global Economy Issue,
2013
Business Respect, 2004
Haskel, 2008
Godelnik, 2012
Lantos, 2001
Cochran, 2007
Montgomery and Ramus,
2003
Pava and Krausz, 1996
Valiente,Ayerbe and
Figueras, 2012
Jamali and Mirshak, 2006
Giannarakis, 2011
Ramon Paz-Vega, 2008
Cho, Lee, and Pfeiffer,
2012
Meijer and Schuyt, 2005
Mandl and Dorr, 2007
Longo, Mura, and Bonoli,
2005
Grayson and Hodges,
2004
Wartick and Cochran,
1985
Wood, 1991
Swanson, 1995
Waddock and Graves,
1997
Devinney, 2009
McWilliams, Seigel and
Wright, 2006
First hand data
(Survey,
Calculation)
Carroll and Buchholtz,
2001
Aspen Institute, 2008
Longo et al., 2005
Valiente,Ayerbe and
Figueras, 2012
Jamali and Mirshak, 2006
Tsoutsoura, 2004
Montgomery and Ramus,
2003
Ramon Paz-Vega, 2008
Grayson and Hodges,
2004
Martin, 2002
Wartick and Cochran,
1985
Orlitzky, Schmidt and
Rynes, 2003
Second hand data
Lindorff and Peck,
2010.
Carroll, 1999
Carroll and Buchholtz,
2001
Pava and Krausz, 1996
Tsoutsoura, 2004
Ramon Paz-Vega, 2008
Cho, Lee, and Pfeiffer,
2012
Benefit
Cost
Falck and Heblich, 2007
Olsen, Cudmore, and
Hill, 2004
European
Competitiveness Report,
2008
Nurn and Tan, 2010
Chaisurivirat, 2009
Branco and Rodrigues,
2006
Chahal and Sharma,
2006
Baron, 2007
Galbreath, 2010
Brown and Dacin, 1997
Maignan and Ferrell,
2011
Sen and Bhattacharya,
2001
Sprinkle and Maines,
2010
Dorfman and Steiner,
1954
Navarro, 1988
Milgrom and Roberts,
1986
Gardberg and
Formbrun, 2006
Baron, 2007
Flammer, 2012
Weber, 2008
Cheng,Ioannous, and
Serafeim,2011
Ghoul, Guedhami,
Kwok, and Mishra,
2011
Fombrun and Shanley,
1990
Backhaus, Stone, and
Heiner, 2002
Stein, 2003
Tsoutsoura, 2004
Flammer, 2012
Weber, 2008
Ghoul, Guedhami,
Kwok, and Mishra,
2011
Fombrun and Shanley,
1990
Hennessy and
Whited, 2007
Methodology
Interview
Strategic Analysis
, Discuss, and
Research Study
Table 1. Literature Classification
Weber, 2008
Flammer, 2012
Fombrun and Shanley,
1990
Hong and Kacperczyk,
2009
Robinson, Kleffner,
and Bertels, 2008
33
Chapter 5
CSR DEVELOPMENT AND IMPLEMENTATIONMANAGERIAL AND PRACTICAL IMPLICATION
Strategic
Planning
Management
of
Responsibility,
Environment,
and Cost
Improvement
and Reformat
Analysis and
Measurement
Figure 9. Process of CSR Development
Strategic CSR Planning:
The primary step of developing CSR is to have a strategic planning. The strategic
planning for an organization is “an organizational management activity that is used to set
priorities, focus energy and resources, strengthen operations, ensure that employees
and other stakeholders are working toward common goals, establish
agreement around intended outcomes/results, and assess and adjust the organization's
direction in response to a changing environment.
34
(http://www.balancedscorecard.org/BSCResources/StrategicPlanningBasics/tabid/459/De
fault.aspx)” Simply, this step can answer the questions: What want to get? How to get it?
To focus on the CSR project, the goals for the company are developing CSR theory and
paying-off the cost at the same time.
There are some propositional step-instructions we can use to help with making
strategic planning:

Analysis: this part includes analyzing the internal and external environment, and
analyzing the potential of the company, e.g. analyzing the status of the company
from financial and social perspectives in order to get a good knowledge about
whether the company can afford taking actions of CSR.

Framework: this is the documentation process. Organize the analysis results and
standard rules in the document. Create a framework of how to develop CSR, such
as estimate how much can be spent in doing CSR, and how much can be earned
after covering those expenses; what CSR behaviors they can contribute to; how to
pursue their employees to understand the CSR and join the effort and so on. From
empirical studies, some companies created SOP (Standard Operating Procedure)
standard documents to monitor the process.

Practice: after the formulation, they need to take actions to practice their planning.
However, this is not a widespread practice; it can be treated as a test stage, which
means it is not the final planning. Doing experiments, both employees and
stakeholders need to abide by the standards they made.
35

Evaluation: when the practice is completed, people should perform evaluations
on the performance, communication, and management so that managers can track
their behaviors and gain knowledge about whether their planning is useful or not.
B. Specify CSR Practice and management:
After making the plan, next is to implement the finalized plan. In this part,
managers should focus on some critical factors.

Manage Responsibility Behaviors: even though we strive to develop CSR, we still
need to monitor the behaviors and make sure everything is on the right track.
Managers can manage the behaviors based on Carroll’s CSR four-parts pyramid.
The company should fulfill their responsibilities depending on their scopes, e.g.
most companies can focus on the foundational economic responsibility and legal
responsibility, but not every company can fulfill the volunteering responsibility.
Manage the Work Environment: at the same time with contributing to the CSR,
managers should pay some attention on the internal and external environment.
The purpose is to ensure that the behaviors are performed under a good teamwork
and good competitive environment, and the entire process can be successful and
reach common goals.

Manage the Cost: another important perspective is to manage the cost. For
managers, how to pay off the CSR cost and maximize the profit is the most
important and core problem. Cost-control and cost-measurement have been
extensively discussed in the literature. Managers can first focus on whether costs
are spent in the right way and then try to reduce cost.
36
CSR Analysis and Measurement:
Development is an ongoing project. Next step is to analysis the current status
while practicing the planning and to check if there is anything needed to be changed and
revised. Also, here are some suggested steps in the analysis procedure.

Reviewing the whole process: there might be some problems happened during
implementing the plan, such as employment changes, CSR behaviors’ allocation,
and so on. Managers should record the problems for analysis purposes.

Organizing information: Collect data regardless of good-performance or serious
problems in order to perform analysis. If needed, manager should sort the
information such as which part should belong to performance, which should
belong to cost, and so on.

Analysis and Measurement: analyze and measure the status of the implementation
based on data and make suggestions on how to adjust the processes and improve
the whole CSR systems.
CSR Improvement and Reformat:
This is the anticipated part of developing CSR. Everything needs to improve in
order to gain long-run sustainability. After planning, practicing, and analyzing, managers
should evaluate the performance and realize where is needed to have improvements and
reformulations. Using evaluation form is a common method to collect the information
about the performance.
37
Besides doing regular improvements that mentioned above, there are some
additional matters that need attention.

Confidence: To build confidence for both employees and stakeholders.
Confidence is a necessary factor that can affect the results. People who have
confidence in working can get more efficiency and success comparing with
people who do not have confidence.

Education: Managers should provide training opportunities for both employees
and customers. For employees, managers can educate employees how to preform
CSR behaviors better and inform them about the company’s strategic planning.
For customers, to ensure the profit for the corporation when focusing on the CSR,
consumers play an important role. A customer must be interested in CSR and
feels confidence that supplier does the right thing in achieving in CSR. At the
same time with persuasion, managers still have the responsibilities to educate
their customers about the possibility of damage from not having CSR and suggest
benefits in their goods or services. It is also a social responsibility for company in
educating customers about CSR.

Reality: Let people know the reality. Developing the CSR with getting revenues
through new innovations takes time, money and effort. This is the reality. Only by
realizing the reality, can employees work accordingly and help the company
recover the expenses that they spend on CSR and achieve corporate goals.
38
Chapter 6
CONCLUSION AND RECOMMENDATION
In this research, we introduce the background of corporate social responsibility in
Chapter 1 and Chapter 2. We review the literature from responsibilities, performances,
benefits and cost controls and measurements of corporate social responsibility in Chapter
3. We stress the development and implementations of CSR in Chapter 5. Even though
there are existing debates on remaining questions, e.g., whether consumers’ behaviors are
related to the CSR or not, whether CSR can reduce cost of capital or not, and so on, we
support CSR is a good investment for businesses to focus on and contribute to.
In summary, there are some other recommendations in addition to the basic rules
for operating managers to follow in order to increase the efficiency of CSR and have a
sustainable development and implementation of CSR.
1) Be engaged in CSR at the initial steps of any projects.
2) Efficient-use of investment budgets with strategic CSR financial planning.
3) Training all employees about CSR responsibilities, performance, and cost.
4) Build and consolidate teamwork spirits and cooperate skills among employees.
5) Implement a complete analysis system to review CSR performances and costs.
6) Create a reward system to give incentives to employees.
We suggest the following future research directions from the classification of this
study:
39

More accurate and precise estimation of the reduction in cost of capital and risk of
CSR investments.

Estimate the perceived risks for low CSR firms that can be diversified away from
investment portfolios so that it will not effort more in the cost of capital.

Research and develop approaches in measuring the impact on cost of capital.
40
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