Social responsibility can boost bottom line

We generally think of corporate social responsibility (CSR) as a sort of feel-good policy, as something that is good for public policy or public relations but not a company’s bottom line. But my research finds that good corporate citizenship can actually lead to superior financial performance. A company’s social engagement is actually a resource that can create positive value and improve competitiveness.

In a paper released in September, I examined the effect of CSR-related proposals that passed or failed by a small margin when shareholders voted on them. The results? CSR proposals that narrowly passed led to a significant improvement in firm performance compared to proposals that are lost by a small margin. The stock market also reacted positively when shareholders narrowly passed CSR proposals.

This research is consistent with other work I’ve done looking at the link between CSR and financial performance. In a study last year, for example, I examined stock market reaction to newspaper stories about environmental behavior by U.S. publicly-traded companies from 1980-2009. The data showed that shareholders reward companies for environmentally responsible behavior and punish companies for harmful behavior, such as oil spills.

Such findings that ‘doing good’ pays off have potentially far-reaching implications for corporate decision making and strategic management. They suggest an important, and perhaps unique, feature of CSR: everybody wins:  shareholders, employees, environment, and society at large.

Caroline Flammer, Lecturer, Global Economics and Management

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