Exploring the Impact of Corporate Social Responsibility on Corporate Financial Performance: A Dynamic Perspective

This month, the Centre for Social Impact had the pleasure of hosting Dr. Jacob Brower as part of the Centre’s Brown Bag Lunch series. Dr. Brower is an Assistant Professor of Marketing here at Smith School of Business. Dr. Brower is currently researching the factors that drive the adoption of corporate social responsibility (CSR), and how CSR affects firms.

Dr. Brower opened up the session by throwing out a few key statistics. For instance, did you know that the adoption of CSR initiatives can actually have a positive effect on a corporation’s financial performance? Sure, it’s only 2.5%, but that’s still significant! However, what separates Dr. Brower’s research from the studies supporting these and other such claims, is that he looks into howCSR accomplishes this, whyit accomplishes this, and whether or not it stillaccomplishes this currently. 

What he has found, simply put, is based in the Dynamic Institutional Theory, and can be summed up into three key points: 

1. Early adopters of CSR gained a great competitive advantage

2. As firms adopt CSR in order to compete with this advantage, the financial benefits of CSR have declined

3. Firms now feel they must adopt CSR regardless of it’s declining financial benefits.

So, what does any of this really mean to us? For one thing, we’ve all noticed how commonplace CSR has become. It’s no longer an added benefit to supporting a select number of firms. Across all industries, it has become fundamental to the way that business is done. As Dr. Brower points out in his research, there is a greater risk to notadopting CSR, than there is to adopting it and not seeing a return. You may be seeing this now with CSR’s “insurance effect” – when a corporation makes it public that they’re doing good things, it’s less impactful on their profits when they are found to be doing bad things as well. 

What Dr. Brower points out plays on this ingenuity. His research encompasses the institutionalization of CSR. While this word probably wasn’t intimidating to the MBA candidates surrounding me, it was something that I couldn’t quite grasp until it was put into Dr. Brower’s own words. Essentially, as you’ve probably noticed, firms are now engaging in CSR primarily because they haveto and, as he predicts, firms likely won’t cut these initiatives even as financial benefits decline because they would likely be punished by consumers. That made a whole lot of more sense to me. I know that Nike isn’t doing that many good things anyways, but could you imagine how their image would be impacted if there wasn’t a Nike Pro Hijab ad for every executive that has had to step down in light of the #MeToo movement?

The looming question in my mind, as I was shown the decades of research that have gone into proving Dr. Brower’s claims, is how anyone could ever go out into the world and convince these corporations to care. Not just to put out a political ad every once in a while, or make an empty commitment to reduce climate change, but to care for the sake of caring. What do we do if CSR has been reduced into nothing more than a box for businesses to check off?

There isn’t a simple answer. There never is to things that matter. But, I will leave you with some points that left me with hope. Firstly, as you may already know from any lecture you’ve attended at Smith, CSR isn’t going away. More and more universities are implementing it into their curriculum, and more and more consumers feel empowered enough to demand these initiatives from corporations. Secondly, those ingenuine firms who are inconsistent with their CSR do not see the financial benefits from it. Finally, this could be cyclical! CSR, like any other innovation in business, can be renewed. There is a firm out there who will change the face of CSR, and make it beneficial once again on allfronts. So, don’t fret! There will be a better version of this bandwagon, and it could change the world.

We greatly appreciate Dr. Brower’s work & dedication to his research, and his willingness to present it to us at this engaging session.

The next session is on November 20^thwith Diego Moreira Soares, and he will be discussing the emotional foundations of social enterprises. Don’t miss it!

Written by Aysha Tabassum, Bcom 22