Finding CSR Right Under Our Nose

Good management practices pay off for both the firm and society

The essentials

The presence of superior management practices is linked to higher levels of corporate social responsibility, according to a study by Sean Cleary of Smith School of Business and Najah Attig of Saint Mary’s University School of Business. These management practices include performance tracking and review, attracting and retaining human capital, and effectively communicating financial and non-financial targets to employees. Cleary says that management practices affect firms’ corporate social responsibility primarily through two channels: the quality of corporate outputs and the support of top management of a socially responsible culture.

When you rate firms for their level of corporate social responsibility, you usually focus on their community initiatives, supply chain practices, and other typical CSR barometers. You probably don't spend much time studying their day-to-day management practices. If so, you may be overlooking some important intelligence.

Implementing “management quality practices” pays off for shareholders and society alike, says Sean Cleary, professor of finance at Smith University School of Business. Such practices include performance tracking and review, attracting and retaining human capital, and effectively communicating financial and non-financial targets to employees.

“The bottom line is, when you have those procedures and practices in place, it’s good for the company and it’s good for society,” he says. “It’s one of the most important things and probably one of the most underrated features of companies.”

Working with Najah Attig of Saint Mary’s University School of Business, Cleary set out to provide empirical evidence that superior management practices lead to higher corporate social responsibility (CSR) and have a pronounced effect on CSR dimensions directly related to the firm’s stakeholders.

Their findings suggest that good management practices can partly inoculate a firm from the ethical lapses of individual leaders

Cleary and Attig used existing management practices survey data from a sample of 290 medium-sized U.S. manufacturing firms with 50 to 10,000 employees. They used a measure that assesses 18 management practices in the areas of operations, monitoring, targets, and incentives. Management was rated higher if it had introduced more modern manufacturing techniques, if structured processes were in place for performance reviews, if internal targets were communicated to workers, and if there were effective strategies for attracting new talent and retaining existing talent.

Cleary and Attig then cross-referenced the data with CSR ratings of the same firms. “We took our CSR ratings for those companies from previous research,” he says. “We isolated the companies, matched them, and found that companies that had higher management quality practices had higher CSR scores.”

Specifically, Cleary and Attig found that superior management practices are “positively and significantly” related to the CSR dimensions of community relations, diversity, environmental performance, employee relations, and product characteristics – dimensions that are directly related to a firm’s primary stakeholders.

Cleary says that management practices affect firms’ corporate social responsibility primarily through two channels: the quality of corporate outputs and the support of top management of a socially responsible culture.

The findings of their study suggest that good management practices can partly inoculate a firm from the ethical lapses of individual leaders. “If you have procedures and practices in place, it limits the power of those people,” says Cleary. “It’s positive for the company in terms of CSR and positive for the company in general. If they don’t put processes in place, it promotes a lot of pestilence. It promotes a lot of indecision by top leadership.”

— Marjorie Sim

Bundled

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Smith School of Business

Goodes Hall, Queen's University
Kingston, Ontario
Canada K7L 3N6

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