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How Corporate Social

Responsibility Pays Off
Lee Burke and Jeanne M. Logsdon

TOUGHER COMPETITIVE CONDITIONS in recent years Proponents of corporate social responsibility

have put pressure on firms to examine their phil- (CSR) are convinced th~t it 'pays off' for the firm
anthropy and other social responsibility activities. as well as for the organization's stakeholders and
Cutbacks have occurred in many organizations society. This paper examines social responsibility
because the rationales for continuing or upgrading programmes which create strategic benefits for
these programmes have not been clearly articulated. firms. Five strategy dimensions are identified
However, a fundamental belief among its business which help to assess the value created for the firm
supporters and business-and-society scholars is that by CSR programmes: centfality,specificity,
corporate social responsibility 'pays off' for the firm pro8ctivity, voluntarism and visibifity. Guidelines
as well as for the firm's stakeholders and society in for managers to incorporat~ these dimensions
general. But the failure to find strong empirical sup- into a strategic analysis of their social
port for the relationship between socially responsible responsibility are presented to encourage more
behaviour and financial performance 1 ,2 has been support for these mutually beneficial
troubling. Rightly or wrongly, this lack of a clearcut programmes. Copyright © 1996 Elsevier Science
empirical relationship between social responsibility Ltd
and the bottom line is perceived by some executives
and students as evidence that it is irrelevant for suc-
cessful corporate performance, perhaps even anti-
thetical to it. izations with good reputations for CSR have en-
This article approaches the issue of linking cor- countered financial difficulties, we believe that the
porate social responsibility (CSR) to the economic explanation for this decline lies not in their CSR
interests of the firm from a different perspective. activities but rather in their competitive environ-
Rather than focusing only on direct correlations ments and business decisions. A strategic reori-
between CSR programmes and short-term profits, the entation of the firm's CSR philosophy can support
thrust of our approach is to examine the ways in its financial interests as well as other stakeholders'
which CSR programmes can create strategic benefits interests in the firm. How to reorient CSR toward a
for the organization even when they are not readily more strategic perspective is the key to inspiring more
measurable as separable contributions to the bottom CSR activities, thus serving stakeholder and societal
line. The question that is addressed here is: under interests more fully.
what conditions does a firm jointly serve its own stra-
tegic business interests and the societal interests of
its stakeholders? A Tradeoff Between CSR and Profit?
This is an important question for managers and for
stakeholders because without a clearcut under-
Historical Perspectives
standing of strategic benefits that may accrue to the The perception that CSR entails a zero-sum tradeoff
organization, it is more likely that top management with corporate economic interests is strongly ident-
will not invest in CSR practices which contribute to ified with neo-classical economics. Even many
the long-term success of the firm. While a few organ- defenders of CSR accept the zero-sum formulation,

Pergamon Long Range Planning, Vol. 29, No.4, pp. 495 to 502, 1996
PH: 80024-6301(96)00041-6 Copyright © 1996 Elsevier Science Ltd
Printed in Great Britain. All rights reserved
0024-6301/96 $15.00+0.00
______________________________ ~~L _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _

while at the same time embracing the social obli- firm" (Carroll and Hoy, p. 55).20 The concept of stra-
gations of business. The classic literature in business tegic CSR builds on these efforts by demonstrating
and society asserted that while CSR might entail several fundamental ways in which CSR activities can
short-term costs, it paid off for the firm in the long be tightly linked to the strategy of the firm.
run. 3,4 These scholars argued that firms would benefit
from greater social legitimacy with less government
regulation, and that a better society was simply good Strategic Corporate Social
for long-term profitability. A complementary, though
slightly different view held that CSR was appropriate
Responsibility
for underwriting public goods which no single firm Corporate social responsibility (policy, programme or
had a market incentive to provide. 5 process) is strategic when it yields substantial busi-
The next stage in the academic debate over social ness-related benefits to the firm, in particular by sup-
responsibility focused on clarifying and quantifying porting core business activities and thus contributing
the benefits from CSR. Empirical analyses of the to the firm's effectiveness in accomplishing its
relationship between CSR and profitability began to mission. While empirical studies to date have focused
appear in the mid-1970s, but did not result in consen- primarily on the link between CSR and financial per-
1
SUS. ,2 These studies have generally used a single mea- formance (especially, short-term profits), we propose
sure of social performance (such as an external a more comprehensive basis for identifying the
reputational index, content analysis of corporate relationships between CSR and the firm's strategic
annual reports or peer ratings) which was correlated interests. This broader set of criteria or dimensions
with various measures of company economic per- attempts to capture the full range of strategic behav-
formance. Researchers have usually acknowledged iour and opportunities for business to benefit from
the weaknesses of these single CSR measures, but CSR. These dimensions are not intended to
point out the extraordinary difficulty of gathering data encompass all CSR activity. Much observed CSR
about the wide range of CSR behaviours for a suf- behaviour remains nonstrategic, however valuable it
ficient number of firms to perform statistical analyses. is for stakeholders and society. Our attempt here is to
More recently, some have argued that fundamental develop better measures for assessing when and in
definitional problems with the CSR construct itself, what ways CSR activities jointly serve economic and
in addition to measurement problems, make the societal interests.
efforts to find statistical associations between CSR We have identified five dimensions of corporate
and profits highly problematic. 6 strategy which are both critical to the success of the
While CSR researchers struggled with these issues, firm and useful in relating CSR policies, programmes
the field of strategic management was grappling with and processes to value creation by the firm. Value
its own definitional problems. Just what exactly was creation is commonly viewed as the most critical
business strategy? Some theorists defined strategy as objective for the firm and its strategic decision-
the goals, mission, and objectives of the firm. 7,8 Others making process. In assessing the probable con-
focused on strategy as plan,9 pattern/ D.11 process 12 and tributions of CSR activities to value creation, the five
positioning for competitive advantage. 13 ,14 Within the dimensions of strategic CSR are: centrality, speci-
classic strategy literature, discussions of the firm's ficity, proactivity, volunt\lrism and visibility. Figure 1
external environment expanded beyond the tradi- shows the development of these dimensions of value
tional economic or market context. Strategy theor- creation and their linkages to definitions of strategy
ists such as Andrews 1D identified the relationship found in the academic literature.
between corporate strategy and "the economic and
noneconomic contribution [the firm] intends to make Centrality
to its shareholders, employees, customers, and com- Centrality is a measure of the closeness of fit between
munities" (p. 13, emphasis added). Ansofp5 articu- a CSR policy or programme and the firm's mission
lated the need for firms to develop societal strategies. and objectives. 21 Centrality is a critical issue in most
As a result, environmental scanning and monitoring definitions of strategy as goals or objectives. It pro-
systems gained importance as elements of an effective vides direction and feedback for the organization by
information gathering system for strategy revealing whether given actions or decisions are con-
formulation. 16 ,17 Attempts to integrate the concepts of sistent with the mission, goals and objectives of the
CSR and corporate strategy have included the stake- firm. Actions or programmes having high centrality
holder model of strategic management and the are expected to receive priority within the organ-
inclusion of social demands as strategic issues. 18 ,19 ization and to yield future benefits, ultimately trans-
The integration of corporate social policy within the lated into profits for the organization. For example,
traditional strategy model was also furthered by the in the product development area, funds spent by a
recognition that social response policies should be pharmaceutical firm on new drug research and testing
"strategically related to the economic interests of the have very high centrality. By contrast, the internal

How Corporate Social Responsibility Pays Off

--------------------------------~~~---------------------------------

Competitive advantage
(Rumelt, Porter)

Proactivity
Plan
Degree to which the program
(Quinn)
is planned in anticipation of
emerging social trends and in
the absence of crisis

The scope for discretionary

decision-making and the lack
of externally imposed
compliance requirements

Visibility
Observable, recognizable
credit by internal and/or
external stakeholders for the
firm

FIGURE 1. How strategy is linked to corporate social responsibility.

auditing function, while important for the ulti- astute as well as humanitarian. The 18 million Third
mate health and security of firms, generally has low World victims of this disease have clearly benefited
centrality. from Merck's contribution, and Merck itself benefits
With respect to strategic CSR, programmes or poli- because of its enhanced reputation in the indus-
cies which are related closely to the organization's trialized world, including increased reputational
mission or tightly linked to its accomplishment have leverage with medical professionals and government
much higher centrality than traditional broad-based regulators. The company also benefits in terms of
corporate philanthropy programmes. For example, employee morale, productivity and retention by sup-
the design, testing and manufacture of air bags for porting the ethical motivations of the research staff.
automobiles-a socially responsible product-was
highly central to TRW, as was the correction of safety Specificity
problems with this product. Similarly, political Specificity refers to the firm's ability to capture or
activities in support of mandatory automobile safety internalize the benefits of a CSR programme, rather
equipment have high centrality for a manufacturer of than simply creating collective goods which can be
such equipment. But even philanthropy decisions can shared by others in the industry, community or
have a high degree of centrality. Merck's investment society at largeY,14 Externalities (whether positive or
in developing and distributing the river blindness negative) and public goods are by definition non-
drug, Mectizan, is widely regarded as strategically specific. By contrast, investments in research and

Long Range Planning Vol. 29 August 1996

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development leading to patentable products are changes requiring more skilled or differently skilled
highly specific. labour will be better prepared to shift to new tech-
Many CSR behaviours, including many phil- nologies and will encounter less resistance in doing
anthropic contributions, create nonspecific public so. Motorola has excelled in providing remedial edu-
goods that are broadly available to a local or national cation and specialized training for employees so that
community. For example, corporate donations to the Total Quality Management and other improvement
San Francisco Symphony benefit Bay Area sym- programmes could be implemented more effectively
phony-goers and others in the community who feel by a more qualified workforce.
pride in or value the excellence of the local classical An example of pro activity in the CSR context is a
music scene. Neither of these benefits is specific to the manufacturer monitoring emerging social trends and
donating firm since there is no exclusive enjoyment regulatory initiatives regarding pollution control. A
granted to the firm (although some of the firm's company whose active investigation identifies new
employees may hold symphony tickets). Similarly, smokestack technologies to meet forthcoming or pro-
smokestack scrubbers or waste water treatment facili- spective regulations at a low cost would clearly gain
ties create public benefits (or avoid the creation of a long-term competitive advantage over its competi-
negative pollution externalities) which are available tors. But even more proactive is the firm which fosters
to the entire community. The firm discharging 'clean' pollution reduction throughout the organization
smoke or 'pure' water benefits only to the extent that because it has anticipated that pollution-related costs
it shares in the enjoyment of a healthier environment will increase over the long term, For example, 3M
and avoids censure or fines associated with failure to Company developed the Pollution Prevention Pays
meet federal pollution enforcement standards. For a (3P) programme in 1975 and had reduced pollutants
firm that exceeds existing standards for waste treat- by over 575,000tons by the early 1990s. The 3P Plus
ment, the benefit stream produced by pollution programmme was recently introduced to provide an
reductions beyond minimal compliance levels is even more holistic approach to pollution preven-
public, i.e. nonspecific to the firm. One might argue tion. 23 Similarly, a consumer products firm pursuing
that the firm may be motivated by the desire to save an environmental marketing strategy would be better
on future compliance costs. If so, the CSR behaviour positioned to roll out environmentally friendly pack-
may be strategic in terms of proactivity, another of aging in a timely fashion for the 'green' decade of the
the dimensions of strategic CSR. 1990s, as Procter & Gamble has done. By contrast,
Contrast this with the case of a firm investing in cutting back on R&D aimed at finding substitutes
cogeneration technology which recaptures heat dis- for CFCs in the early 1980s may have hurt DuPont's
charged through smokestacks and converts it to dominance of that market niche more than the cut-
energy which substitutes electrical power purchased backs helped the immediate bottom line.
from the local utility. In this case, the benefits of
cogeneration are highly specific to the firm in the form Voluntarism
of energy costs saved. The benefit spillover to the Voluntarism indicates the scope of discretionary
public is the firm's contribution to aggregate energy decision-making by the firm and the absence of
conservation. Cause-related marketing programmes externally imposed compliance requirements. Vol-
offer similar specific benefits to the sponsoring firm untarism is closely linked to proactivity, especially
as well as to recipient nonprofit organizations. to the extent that it presumes the absence of regulatory
or other mandates. In general, philanthropic con-
Proactivity tributions are assumed to be voluntary-although
Proactivity reflects the degree to which behaviour is executives are often subject to social network pres-
planned in anticipation of emerging economic, tech- sure to contribute to favourite charities. 24
nological, social or political trends and in the absence Firms regularly engage in voluntary behaviours in
of crisis conditions. Pro activity has long been ident- their core business functions, e.g. in decisions regard-
ified by business strategists as an important charac- ing product line and new product introductions. In
teristic of planning and scanning systems. 9 ,10,22 In general, normal business activities are considered
turbulent environments firms must constantly scan voluntary in the sense that firms maintain high levels
their environments to anticipate changes likely to of control and discretion over day-to-day operations.
affect the firm. Such changes can range from new In the CSR domain, the firm which exceeds minimum
market opportunities to emerging social issues or standards for quality or safety, such as an airline
threats. which exceeds FAA inspection and maintenance
The firm that recognizes critical changes early will requirements, exhibits voluntarism. These activities
be better positioned to take advantage of oppor- offer both strategic and social responsibility payoffs.
tunities or to counter threats. For example, a firm In many cases additional mandates come into play
which introduces an employee education and retrain- only when such voluntary behaviour ceases, often in
ing programme in advance of coming technological the face of short-run financial pressures. For example,

How Corporate Social Responsibility Pays Off

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the perceived decline in US airline performance in side world. They may also produce economic benefits
the late 1980s with respect to on-time arrivals and for the firm by improving productivity, morale or loy-
baggage handling led to new requirements for airlines alty, thus making it easier for the firm to attract and
to publicly report performance in these areas. retain the best employees.

Visibility Value Creation as Strategic Outcome

Visibility denotes both the observability of a business The ultimate measure of strategic benefits from CSR
activity and the firm's ability to gain recognition from activities is the value they create for the firm. Value
internal and external stakeholders. Visibility can creation refers to the readily measurable stream of
have both positive and negative consequences for economic benefits that the firm expects to receive.
firms. Positive forms of visibility involving normal This dimension also most closely approximates the
business activities include favourable media attempts by earlier researchers to find relationships
mentions, strong earnings announcements, stock between social responsibility and economic per-
price run-ups (not associated with impending hostile formance. Firms create or attempt to create value in
takeovers) and successful new product launches. their ongoing business activities through investments
Instances of negative visibility include government in new technology, new products, brand awareness,
investigations of contract fraud, the indictment or production facilities, training and customer service.
sentencing of company officials, the discovery of To the extent that some of these also constitute or are
dangerous side effects from otherwise beneficent integrated with CSR objectives or goals, these CSR
drugs, cases of poisoning and other forms of com- programmes are among the most likely to create
mercial terrorism, or the disclosure of toxic con- demonstrable economic benefits to the firm. Figure 2
tamination in waste disposal sites. provides a number of examples of potentially stra-
Visibility for CSR activities is less likely to be nega- tegic CSR activities and the benefits which they offer
tive, although the CSR behaviour and resulting pub- to firms.
licity may arise from initially negative events. For Once the concept of strategic CSR is accepted by
example, the discovery of toxic shock syndrome and executives as feasible, the next step is to develop
its link to tampon use were certainly negative events. methods of analysis and guidelines to capitalize on
But Procter & Gamble's response, in the form of its these opportunities.
recall of Rely tampons, generated significant positive
visibility for the company and, by extension,
enhanced the perceived reliability of its many other Implications for Management
products. 25 Similarly, Johnson & Johnson's rapid and
complete response to the Tylenol poisonings under-
Practice and Research
scored the firm's concern for its customers and Increasing competitive pressures have caused execu-
brought high visibility to its long-standing corporate tives to examine the nature and extent of their firms'
code of conduct. An unanticipated consequence of CSR activities. At the same time, governmental capa-
the Tylenol episode is that Johnson & Johnson'S code bilities for solving social problems have been called
is now the most widely known corporate code among into question, and in many cases society is looking to
business students, often used in business-and-society the business sector for assistance in identifying and
courses as a model for all firms. implementing remedies. Meanwhile, many of these
Clearly these two well-known cases illustrate vol- social problems are becoming more acute. It is critical
untary CSR responses which resulted in positive visi- for executives to consider the consequences of these
bility in the wake of negative initial events. This trends. They do not bode well for communities or for
contrasts with Exxon's experience with the Valdez oil firms.
spill. In that case, negative visibility resulting from One answer is strategic corporate social responsi-
the initial event increased when the expected bility. By becoming more aware ofthe benefits to both
response capability failed to materialize. Exxon's the firm and its stakeholders, managers can make bet-
treatment of, and information releases about, the ter decisions about CSR activities. For example, in
extent and nature of the oil spill further reinforced a community suffering from a high drop-out rate in
the already negative publicity surrounding the initial secondary schools, managers can design and
event. implement many effective programmes for keeping
Visibility, unlike most of the other dimensions, may at-risk teenagers in school. Many ofthese programmes
be particularly relevant with respect to the firm's are not very costly to firms, particularly when they
internal constituency-its employees. For example, encourage employees to volunteer. In addition, there
creative and extensive employee benefit programmes, are often payoffs to firms which employ and sell prod-
such as comprehensive health care, on-site day care ucts or services within these communities.
and continuing educational benefits, are likely to be If we recognize the long-term investment charac-
highly visible within the firm, even if not to the out- teristics of CSR (as opposed to thinking of CSR merely

Long Range Planning Vol. 29 August 1996

."
C5
c
fIl
~

~
3
'2.
CD
en
Proactivity Voluntarism Visibility II Value created
a
~
omputer donations to Accustom new users
Philanthropic Communlty
. support I II Customer loyalty
~ contributions r"hOOIS by comp"'e, to firm's products vs
teo
(")
mfrs. competitors'
(S, product, time) Engineering research II Future purchasers
tT
CD fellowships
::::I
~ New or uncommon
Health/wellnness Employee loyalty ~ Internal: II Productivity gains
Cit Employee benefits benefits
mployee loyalty
Day care and morale
(3 (direct or indirect) Higher employee and morale
- Flex-time
3 loyalty
'C/I
,0
(")
..... New products Ul
'!!. e.g. 'green' e
< Environment Public relations
II e
Patent or innovation
management Learning curve and/or marketing New products or
edge in product or Positive relations
(health, advantages with regulators advantage markets
Process innovation process development
safety, pollution)
esp. re pollution

Political activity New business

(PAC, lobby or opportunities if pre- Pre-positioning for New product or
Favourable change in
information, positioned to take changes in geographic market
economic or social
independent or advantage of new regulations opportunities
regulations
industry) rules

Product or service Product reformulations New product on

related e.g. 'green' Environmental First-to-market new markets
Patent or innovation
characteristics, improved design, edge first-to-market scanning to create or leadership
innovations or e.g. fuel efficiency brand loyalty edge in design or benefits Edge in meeting
II. emergency
processes new products, product ideas needs
airbaas
----------------------------------~~~----------------------------------
as current period expenditures), then normal busi- o Identify opportunities to create positive visibility
ness decision rules would select CSR activities which with key internal or external stakeholders from
1. yield the highest total payoffs in terms of collective CSR activities. (Visibility.)
benefits to the firm and its stakeholders and 2. fall o Measure and compare the value or potential value
within the range indicated for strategic CSR. To ident- expected from various CSR projects. (Value
ify such projects, the firm should incorporate CSR creation.)
planning and investment within its corporate plan-
ning function. Specifically, the firm should carry out To the academic community, the concept of strategic
the following analysis: CSR provides an opportunity to measure the benefits
of CSR in a broader context than simple correlations
o Identify the stakeholders which are critically between philanthropic contributions and profits.
important for achieving the firm's mission, goals Recent literature in the business-and-society field
or strategic objectives. implicitly or explicitly takes a more strategic orien-
o Determine the socially valuable CSR policies, pro- tation to various components of CSR. 26,27 Greater pre-
grammes and projects which address the needs cision in specifying the attributes of strategic CSR will
and interests of these stakeholders.
help future researchers to identify the broad range of
o Assess the opportunities offered by these CSR pro- business activities which represent CSR behaviour.
jects to enhance the firm's attainment of strategic
In this vein, work needs to be done on 1. creating
objectives or to solve significant problems and
sound measures of strategic CSR for empirical
threats facing the firm. (Centrality.)
research; 2. exploring the linkage between CSR and
o Assess the degree to which these CSR projects the alliance behaviours of firms; 3. examining the role
offer benefits which can be captured and/or intern-
of industry leaders in establishing norms for CSR and
alized by the firm as opposed to all firms in the
in innovating strategic CSR. A comprehensive frame-
industry or society at large. (Specificity.)
work should help managers to identify opportunities
o Anticipate future changes in the firm's environ- for and justify greater attention to CSR behaviour
ment and changes in the needs of its key stake-
which can be linked to the strategic interests of the
holders which could be addressed through
firm.
proactive CSR policies and activities. (Proac-
tivity.)
o Determine the baseline of mandated requirements Several of these ideas appeared in a paper with Martha Reiner
in order to identify the opportunities for voluntary which was presented at the International Association for Business
acti vities. (Vol un tarism.) and Society 2nd annual conference in Sundance, UT.

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Jeanne Logsdon is an
~$sociateProfe$~or in
the Department of
Organizational Studies
at theljniversitv of
New Mexico,Albu-
querque, NM, USA.

How Corporate Social Responsibility Pays Off