CORPORATE SOCIAL

RESPONSIBILITY AND SMEs

The world’s people and their leaders face a complex and multifaceted set of
‘eco-social questions’. As the productivity of humanity increases, the negative
external environmental effects of production and consumption patterns become
increasingly problematic and threaten human welfare. As the regulating power of
national and international governments is limited, this challenge has generated a
strong interest in the corporate social responsibility (CSR) of companies. Firms
find it increasingly important to meet the expectations of stakeholders with
respect to the company’s contribution to profit, planet, and people.
The primary aim of this book is to introduce the reader to the impacts and
drivers of CSR, with a special focus on small and medium-sized enterprises
(SMEs). Research into the social and environmental impacts of CSR is rare.
This is a serious gap because if CSR were to fail to have favourable social and
environmental impacts on society, the whole concept may become redundant.
If societal impacts of CSR are substantial, it is important to know the drivers of
CSR. This book considers (1) factors internal to the company, (2) the competitive
environment of the company, (3) institutions external to the company, and (4)
how the impacts of institutions are mediated or moderated by company internal
factors.
This book will fill this gap by estimating various types of models that integrate
the external and internal factors driving CSR and its impacts on environment,
innovation, and reputation, making it a valuable resource for researchers,
academics, and students in the fields of business management and CSR.

Johan J. Graafland is Professor in Economics, Business, and Ethics at Tilburg

University, The Netherlands, and Fellow of the Tilburg Sustainability Center.
Routledge Studies in Management, Organizations
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CORPORATE SOCIAL
RESPONSIBILITY
AND SMEs
Impacts and Institutional Drivers

Johan J. Graafland
Cover image: © Getty Images
First published 2022
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Library of Congress Cataloging-in-Publication Data
Names: Graafland, J. J., author.
Title: Corporate social responsibility and SMEs : impacts and institutional
drivers / Johan J. Graafland.
Description: 1 Edition. | New York, NY : Routledge, 2022. | Series:
Routledge studies in management, organizations and society | Includes
bibliographical references and index.
Identifiers: LCCN 2021037243 (print) | LCCN 2021037244 (ebook) |
ISBN 9781032106717 (hardback) | ISBN 9781032106724 (paperback) |
ISBN 9781003216483 (ebook)
Subjects: LCSH: Social responsibility of business. | Small business.
Classification: LCC HD60 .G6923 2022 (print) | LCC HD60 (ebook) |
DDC 658.4/08—dc23
LC record available at https://lccn.loc.gov/2021037243
LC ebook record available at https://lccn.loc.gov/2021037244
ISBN: 978-1-032-10671-7 (hbk)
ISBN: 978-1-032-10672-4 (pbk)
ISBN: 978-1-003-21648-3 (ebk)
DOI: 10.4324/9781003216483
CONTENTS

List of figuresxii
List of tablesxiii
About the Author xvi
Prefacexvii
Acknowledgementsxix

1 Introduction 1
1.1 Introduction 1
What Does CSR Mean? 1
Link between CSR and Financial Performance 2
1.2 Gaps in our Knowledge of CSR 2
CSR of Small- and Medium-Sized Enterprises 3
Impacts of CSR 4
Drivers of CSR 4
1.3 Purpose and Structure of the Book 7
Part I: Impacts of CSR 8
Part II: Internal Drivers of CSR 9
Part III: Impacts of Competition on CSR 10
Part IV: Institutional Drivers of CSR 11
Part V: Integration and Management Lessons 12
vi Contents

PART I
Impacts of Corporate Social Responsibility 15

2 Environmental Impacts of Formal Management Instruments 17

2.1 Introduction 17
2.2 Conceptual Framework 18
2.3 Methodology 20
2.4 Results 22
2.5 Conclusion 23

3 Environmental Impacts of ISO 14001 and the Mediating

Role of Networks 25
3.1 Introduction 25
3.2 Conceptual Framework 26
ISO 14001 and Environmental Impacts 26
Networks and Environmental Impacts 28
ISO 14001 and External Networks 29
Set of Hypotheses 30
3.3 Methodology 31
3.4 Results 31
3.5 Conclusion 33

4 Impacts of Corporate Social Responsibility on Innovation 35

4.1 Introduction 35
4.2 Conceptual Framework 36
4.3 Methodology 37
4.4 Results 39
4.5 Conclusion 40

5 Does Corporate Social Responsibility Put Reputation

at Risk? 43
5.1 Introduction 43
5.2 Conceptual Framework 44
CSR and Monitoring 44
Moderation by Company Size 46
CSR and Exposure to Criticism: Moderation by
Monitoring 46
5.3 Methodology 47
5.4 Results 49
5.5 Conclusion 50
 Contents vii

PART II
Internal Drivers of Corporate Social Responsibility 53

6 Intrinsic Versus Extrinsic Motivations and Company Size 55

6.1 Introduction 55
6.2 Conceptual Framework 56
Extrinsic Motives 56
Intrinsic Motives 58
The Influence of Company Size on Extrinsic
and Intrinsic Motivation 59
Set of Hypotheses 61
6.3 Methodology 61
6.4 Results 64
6.5 Conclusion 64

7 Family Business Ownership, Family Management,

and Company Size 66
7.1 Introduction 66
7.2 Conceptual Framework 67
SEW Theory on Family Business Ownership
and Environmental Performance 68
The (Non-linear) Moderating Role of Family
Involvement in Management 69
The Moderating Role of Company Size 71
7.3 Methodology 71
7.4 Results 74
7.5 Conclusion 74

8 Women in Management and Relational Environmental

Management Instruments 77
8.1 Introduction 77
8.2 Conceptual Framework 78
Gender and Relational Environmental Management
Instruments 78
Relational Management Instruments and Environmental
Performance of SMEs 79
Mediation 80
8.3 Methodology 81
8.4 Results 82
8.5 Conclusion 84
viii Contents

9 Business Culture and Corporate Social Responsibility 86

9.1 Introduction 86
9.2 Conceptual Framework 87
Open Systems Business Culture 88
Open Systems Business Culture and CSR 89
9.3 Methodology 91
9.4 Results 92
9.5 Conclusion 93

PART III
Impacts of Competition on Corporate Social
Responsibility95

10 Price Competition, Short-termism, and Corporate Social

Responsibility97
10.1 Introduction 97
10.2 Conceptual Framework 99
Price Competition and Time Horizon 99
Time Horizon and Implementation of CSR 100
CSR Implementation and CSR Impacts 102
10.3 Methodology 102
10.4 Results 103
10.5 Conclusion 105

11 Technological Competition, Innovation Motive,

and Corporate Social Responsibility 107
11.1 Introduction 107
11.2 Conceptual Framework 109
Innovation Motivation of Top Managers and CSR 109
Technological Competition and the Innovation
Motive 110
Mediation 111
11.3 Methodology 111
11.4 Results 113
11.5 Conclusion 114

12 Competition in Innovation, Intrinsic Motivation,

and Environmental Policy 116
12.1 Introduction 116
12.2 Conceptual Framework 117
 Contents ix

Motivation Crowding Theory 117

Technological Competition, Innovation, and Intrinsic
CSR Motivation 118
Intrinsic Motivation and Environmental Policy
Practices 120
12.3 Methodology 120
12.4 Results 121
12.5 Conclusion 123

PART IV
Institutional Drivers of Corporate Social
Responsibility125

13 Reconsidering the Relevance of Social Licence Pressure

and Government Regulation for Environmental Impacts
of SMEs 127
13.1 Introduction 127
13.2 Conceptual Framework 129
Social Licence and Company Size 130
Social Licence and CSR: Mediation by Market
Benefits 131
Direct Effect of Social Licence on CSR 133
Environmental Impacts and Government
Regulation 133
13.3 Methodology 134
13.4 Results 136
13.5 Conclusion 138

14 How NGO and Media Pressure Influence Intrinsic

Motivation of Corporate Social Responsibility 140
14.1 Introduction 140
14.2 Conceptual Framework 141
NGOs and Media: Direct Effects on Intrinsic
Motivation 142
Effects of NGOs and Media on Intrinsic Motivation
Through Market Benefits 144
Mediation 145
14.3 Methodology 146
14.4 Results 148
14.5 Conclusion 149
x Contents

15 Government Regulation, Business Leaders’ Motivation,

and Environmental Impacts 152
15.1 Introduction 152
15.2 Conceptual Framework 154
Motivation and Environmental Performance of Small
Businesses 154
Government Regulation and Motivations 155
Conceptual Framework 156
15.3 Methodology 157
15.4 Results 158
15.5 Conclusion 162

16 Economic Freedom and CSR: Moderation by Intrinsic

Motivations164
16.1 Introduction 164
16.2 Conceptual Framework 166
Participation in Environmental Networks and
Environmental Impacts 167
Economic Freedom, Internal Motivations, and
Participation in Environmental Networks 167
16.3 Methodology 169
16.4 Results 170
16.5 Conclusion 174

17 Economic Freedom and Corporate Social Responsibility:

The Role of Long-Term Orientation 176
17.1 Introduction 176
17.2 Conceptual Framework 177
Economic Freedom 178
National Culture 178
Long-Term Orientation 179
17.3 Methodology 180
17.4 Results 181
17.5 Conclusion 182

18 Collective Agreements and Equal Opportunities for

Women and Minorities 184
18.1 Introduction 184
18.2 Conceptual Framework 185
Collective Agreements and Labour-Related CSR 185
Collective Agreements and Equal Opportunities
of Women and Disadvantaged Groups 186
 Contents xi

Interrelationship Between Women Management and

Hiring of Disadvantaged Groups 187
18.3 Methodology 187
18.4 Results 189
18.5 Conclusion 189

PART V
Integration and Management Lessons 193

19 Overview of Results and Integration 195

19.1 Overview of Hypotheses and Empirical Results 195
Impacts of CSR 195
Internal Drivers of CSR 197
Competition and CSR 198
Institutional Drivers of CSR 199
19.2 An Integrative Analysis of the Effects of Company
Size on CSR 200
19.3 Limitations and Directions for Future Research 205
Data and Measurement Limitations 205
New Hypotheses 207

20 Policy and Management Implications 210

20.1 Impacts of CSR 210
20.2 Internal Drivers of CSR 212
20.3 Impacts of Competition on CSR 214
20.4 External Institutional Drivers of CSR 216

References219
Appendix 1: Survey Questions 252
Appendix 2: Sample and Methods of Statistical Testing 260
Index276
FIGURES

1.1 Mediation model 7

1.2 Moderation model 7
1.3 Overall framework 8
3.1 Conceptual framework of hypothesized relationships 30
3.2 Estimation results of structural relations: core relationships 32
5.1 Conceptual framework 45
6.1 Conceptual framework 56
7.1 Conceptual framework 68
8.1 Conceptual framework 80
10.1 Conceptual framework 99
11.1 Conceptual framework 109
12.1 Conceptual framework 121
13.1 Conceptual framework 130
14.1 Conceptual framework 142
15.1 Conceptual framework 157
16.1 Conceptual framework 166
TABLES

2.1 Reasons for (not using) formal management instruments by SMEs 19

2.2 Measures 21
2.3 Reasons for improvement in environmental impacts
(% of respondents) 22
2.4 Effort and targets for energy consumption, ISO 14001,
and company size 22
2.5 Results of multiple regression analysis 23
2.6 Binary logistic regression analysis of companies that improved
environmental impacts 23
2.7 Impact multipliers 23
3.1 Descriptive statistics of dependent and independent variables 32
3.2 Estimation results of structural equation model 32
3.3 Estimation results for direct, indirect, and total effects of
ISO 14001 on environmental impacts 33
4.1 Descriptive statistics and exploratory factor analysis 38
4.2 Regression analysis 39
5.1 Descriptive statistics and factor analysis 48
5.2 Results of multivariate regression analysis 49
5.3 Effects of CSR on monitoring and criticism 52
6.1 Company size and sample distribution 61
6.2 Measurement of CSR indices 62
6.3 Motives of CSR 63
6.4 Results of regression analysis 64
7.1 Sample characteristics (in %) 72
7.2 Estimation results of environmental performance 73
8.1 Exploratory factor analysis 82
xiv Tables

8.2 Estimation results of the structural equation model 83

8.3 Indirect effects of the share of women in management on
environmental performance 84
9.1 Descriptive and exploratory factor analysis 91
9.2 Results of multivariate regression analysis of CSR 93
10.1 Descriptive statistics 103
10.2 Estimation results 104
10.3 Indirect effects of price competition on environmental impacts 105
11.1 Factor analysis of CSR 112
11.2 Internal reliability of CSR motives 113
11.3 Estimation results 114
11.4 Estimation results of indirect and total effects 115
12.1 Descriptives 121
12.2 Estimation results 122
12.3 Effects of technological competition on intrinsic CSR
motivation and ISO 14001 certification 122
13.1 Descriptive statistics of variables 135
13.2 Estimation results of structural equation models 136
13.3 Estimation results for subsamples 137
13.4 Effects of social licence pressure and regulation motive
on environmental impacts 138
14.1 Descriptive statistics and factor analysis of survey items 147
14.2 Estimation results 149
14.3 Direct and indirect effects 150
15.1 Factor analysis of survey items 159
15.2 Estimation results 160
15.3 Direct, indirect, and total effects of regulation on
environmental performance 161
16.1 Descriptives and factor analysis 171
16.2 Estimation results 172
16.3 Direct, indirect, and total effects on environmental impacts 173
16.4 Estimated total effect of difference in economic freedom on
environmental impacts 174
17.1 Descriptives and factor analysis 181
17.2 Descriptives macro variables 182
17.3 Structural equation model 182
18.1 Sample characteristics (in %) 188
18.2 Descriptive statistics 188
18.3 Estimation results 189
19.1 Impacts of CSR: Overview of hypotheses and test results 196
19.2 Internal drivers of CSR: Overview of hypotheses and test results 197
19.3 Competition and CSR: Overview of hypotheses and test results 199
19.4 Institutions and CSR: Overview of hypotheses and test results 200
 Tables xv

19.5 Results of structural equation model 202

19.6 Indirect and total effects 206
A1.1 List of survey questions 253
A2.1 Response to SME survey in 2011 and 2014 per country 261
A2.2 Company size (employees, FTE) (in %) 262
A2.3 Sector division (in %) 263
A2.4 Application of general CSR measures in 2011 and 2014 (%) 263
A2.5 Trends in issue-specific implementation (in %) 264
A2.6 Overview of estimation methods per chapter 267
A2.7 Descriptive statistics of control variables 271
A2.8 Estimation results of control variables 272
A2.9 Indirect and total effects 274
ABOUT THE AUTHOR

Johan J. Graafland (1960) is Full Professor of Economics, Business, and Eth-

ics at Tilburg University, The Netherlands, since 2000 and is Fellow of Tilburg
Sustainability Center. He is a member of the Department of Economics at the
Faculty of Economics and Business Administration, Philosophy at the Faculty
of Humanities, and Theology at Tilburg University. He studied economics at
Erasmus University, Rotterdam, and theology at Utrecht University. His research
focuses on economic ethics, business ethics, CSR, and the relationship between
economics and religion. From 2017 until 2021, Johan J. Graafland led a large
multidisciplinary research of a consortium of Tilburg University, Radboud Uni-
versity, Erasmus University, and the Vrije Universiteit on the research project
‘What good markets are good for’. He has published seven books and about
70 articles in peer-reviewed journals. He teaches the courses Philosophy of Eco-
nomics and Economic Ethics, History of Economic Thought, Christianity in
Dialogue with Social Economic World, and Corporate Social Responsibility at
Tilburg University. His work has attracted over 3000 ISI citations.
PREFACE

The market system has generated welfare and economic growth. However,
increasing income inequalities, depletion of the natural environment, the finan-
cial crisis in 2008, and the current Covid crisis have led to an intense debate
about the negative side effects of markets. As the regulating power of national and
international governments is limited, this challenge has generated a strong interest
in the corporate social responsibility (CSR) of companies.
Research has shown that CSR is potentially a promising mechanism to foster
sustainable development because there is some evidence that the financial per-
formance of companies is positively related to CSR. However, if CSR is really a
‘business case’, why is sustainable development so challenging, and why do gov-
ernments put so much stress on stimulating CSR? This begs the question of how
companies can be motivated to CSR.
The primary aim of this monograph is to introduce the reader to the impacts
and institutional drivers of CSR, with a special focus on small and medium-sized
enterprises (SMEs). Although the effects of CSR on financial performance have
been well researched, research into the social and environmental impacts of CSR
is very rare. This is a serious gap because if CSR were to fail to have favourable
social and environmental impacts on society, the whole concept may become
redundant. A second type of question concerns the drivers of CSR. In this book,
we consider three types of drivers: factors internal to the company, the competi-
tive environment of the company, and institutions external to the company. We
particularly focus on the impacts and drivers of CSR of SMEs. A focus on SMEs
is important because small businesses collectively account for up to 70% of indus-
trial pollution worldwide.
Fourteen chapters (e.g. Chapters 2, 3, 5, 7, 8, and 10–18) are based on aca-
demic articles published previously in various scientific journals. The unpublished
xviii Preface

chapters (Chapters 1, 4, 6, 9, 19, and 20) fill some of the gaps that remained after
the published articles. The added value of bringing together this material in one
volume and combining it with unpublished academic work is that the book pre-
sents a complete framework of the impacts and drivers of CSR of SMEs, in which
the individual chapters are embedded. In this way, the book gives an integra-
tive account of the impacts and drivers of CSR rather than isolated mechanisms
described in the individual articles. The integrated analysis makes the book more
apt for educational purposes than the individual papers.
The book will be used as a textbook in a master’s course on CSR. The course
aims to inspire master’s students in management to develop new ideas on the
mechanisms that explain the links between the fundamental causes and outcomes
of CSR. Access to the data used in the analysis in the various chapters will pro-
vide students with material for exercises.
ACKNOWLEDGEMENTS

At the start of this book, I want to thank my colleagues who co-authored some
of the articles published in this book: Frank de Bakker (Chapter 14), Lans Boven-
berg (Chapter 15), Reyer Gerlagh (Chapter 16), Niels Noorderhaven (Chap-
ters 9, 11, and 17), and Hugo Smid (Chapters 2 and 13). Working together with
them substantially improved the quality of these papers and was always great fun
for me.
I also keep good memories to the IMPACT research team of the European
FP7 programme (SSH-2009–2.1.3), headed by Regine Barth, that provided the
starting point for this study.
Furthermore, I want to thank the European Union and ING bank for financ-
ing the surveys in 2011 and 2014, respectively, and CentERdata (particularly
Marije Oudejans) for programming and sending out the surveys.
Finally, the Templeton World Charity Foundation Inc. is greatly acknowl-
edged for providing me financial assistance for the research project ‘What good
markets are good for’ that allowed me to devote a substantial part of my time on
research in the relationship between free market institutions and CSR during
2017–2020.
1
INTRODUCTION

1.1 Introduction
Today, the world’s people and their leaders face a complex and multifaceted set
of ‘eco-social questions’. As the productivity of humanity increases, the negative
external environmental effects of production and consumption patterns become
increasingly problematic and threaten the human welfare. As the regulating power
of national and international governments is limited, this challenge has generated
a strong interest in corporate social responsibility (CSR) of companies. Firms find
it increasingly important to meet the expectations of stakeholders with respect
to the company’s contribution to profit, planet, and people. This interaction
between companies and various stakeholders constitutes a third mechanism that
supplements the shortcomings of the market mechanism and government regula-
tion in serving the well-being of the society.

What Does CSR Mean?

This book analyses the impacts and drivers of CSR. Based on a study of 37 defi-
nitions, Dahlsrud (2008) identifies five common dimensions of CSR: the eco-
nomic, social, environmental, stakeholder, and voluntariness dimensions. These
elements are nicely illustrated by the well-known definition of CSR by the Euro-
pean Commission (2001): ‘Corporate social responsibility refers to a concept
whereby companies integrate social and environmental concerns in their business
operations and in their interaction with their stakeholders on a voluntary basis.’
The economic dimension links to the P of profit in Elkington’s triple bottom
line (Elkington, 1997) and refers to the profitability and other economic dimen-
sions of welfare, such as innovations and the resulting employment opportunities

DOI: 10.4324/9781003216483-1
This chapter has been made available under a CC-BY-NC 4.0 license.
2 Introduction

for society. The social dimension (the P of people) is concerned with the ability
of a firm to contribute to a better society, including respect of civil and human
rights, abolition of world poverty, and better working conditions for employ-
ees. The environmental dimension refers to the P of planet and relates to the
natural environment and natural resources. The stakeholder element means that
the three dimensions – economic, social, and environmental – are important for
various types of stakeholders who are affected by the corporate behaviour of the
firm. The voluntary dimension reflects that CSR mostly concerns actions that go
beyond the legal obligations of the organization.
The concept of CSR is closely related to the concept of corporate social per-
formance (CSP). This concept distinguishes CSR policies, CSR implementation,
and their impacts (Carroll, 1979). One of the most influential, parsimonious,
and yet comprehensive conceptualizations of CSP is Wood’s CSP model (Wood,
1991, 2010). In her model, Wood synthesizes the various previous attempts to
model CSP. Wood defines CSP as ‘a business organization’s configuration of prin-
ciples of social responsibility, processes of social responsiveness, and policies, pro-
grams and observable outcomes as they relate to the firm’s societal relationships’
(Wood, 1991: 693). Wood’s model thus consists of three main parts. The first part
concerns the principles of social and environmental responsibility, which includes
the motivations for companies to be involved in CSR. The second part refers
to the processes of social responsiveness, including environmental assessments,
stakeholder management, and issues management. The third part includes imple-
mentation of CSR through programmes and the impacts of CSR in terms of the
effects on stakeholders and society. By analysing the motives, implementation,
and impacts of CSR, this book links to all three parts of Wood’s model.

Link between CSR and Financial Performance

Research has shown that CSR is potentially a promising mechanism to foster
sustainable development because there is some evidence that the financial perfor-
mance of companies is positively related to CSR (Orlitzky, 2001; Van Beurden
and Gössling, 2008; Margolis et al., 2007). In a well-known meta-analysis of
52 empirical studies, Orlitzky et al. (2003) found that CSR is significantly corre-
lated with corporate financial performance (CFP). The causation seems to be that
CSR and CFP mutually affect each other through a virtuous circle: financially
successful companies spend more to CSR because they can afford it but CSR also
helps them become more successful.

1.2 Gaps in our Knowledge of CSR

The empirical indications of a positive relationship between CSR and CFP
would suggest that the market provides companies incentives to engage in CSR
 Introduction 3

and contribute to sustainable development. However, there remain several

important questions that need to be answered before we can conclude that
relying on CSR will effectively meet the eco-social challenges that the world
faces in the long run.

CSR of Small- and Medium-Sized Enterprises

First, current research into corporate environmental responsibility is often limited
to large companies. As far as small and medium-sized enterprises (SMEs) are con-
cerned, large-scale empirical research is rare. SMEs (defined by the EU as firms
with fewer than 250 employees and with a turnover of less than €50 million or a
balance sheet of less than € 43 million) account for more than 98% of EU firms
and for 67% of EU-19 employment (European Commission, 2012). A focus on
SMEs is important because small businesses collectively account for up to 70%
of industrial pollution worldwide. There are several reasons to expect systematic
differences between large and small companies. As small firms are less visible to
the public and the media, the reputational significance of CSR will be weaker
for SMEs than for large companies, making investment in CSR less rewarding for
them. Furthermore, because SMEs operate on a smaller scale, the costs involved
with the development and implementation of CSR programmes are relatively
large. Moreover, as small firms face more intense competition on their output
markets than large firms, their profit rates will be lower. Large companies will
therefore have more slack resources that can be invested to obtain long-term
gains from CSR. Lack of money and lag of time are among the most frequent
reasons for SMEs for not being involved with CSR (ENSR, 2001). This raises
important questions, such as how much SMEs engage in CSR and how SMEs
can be encouraged to contribute to meeting the environmental challenges the
world faces. As large-scale empirical research on the drivers and impacts of CSR
of SMEs is very scarce, these questions are still insufficiently answered.
A main reason for the lack of large-scale empirical research of CSR by SMEs is
lack of data. In this book, we fill this gap by using a large database of 5,205 SMEs
from twelve European countries (Denmark, Finland, Sweden, The Netherlands,
Germany, France, Austria, Hungary, Poland, Italy, Spain, and the UK), which
will be used throughout the book for empirical testing. The data stem from a
large survey, which the author conducted in 2011 and repeated in 2014 (8,838
observations in total). The survey consisted of 130 questions that surveyed the
institutional and economic drivers of CSR, the implementation of CSR poli-
cies and programmes, and their impacts. The survey document was translated
from English into the languages of the 12 countries in which the companies
were located. This survey, which was financed by the European Union, provides
a unique means of testing the research questions addressed in this volume on a
consistent data base.1
4 Introduction

Impacts of CSR
More and more companies now employ various kinds of CSR instruments, such
as codes of conduct, ISO certifications, and stakeholder dialogue. But the impacts
of these instruments in terms of the realization of social and environmental goals
are uncertain. Therefore Banerjee (2008) argues that CSR initiatives are really
nothing more than window dressing. Whereas the triple bottom line approach
calls on companies to weigh the effects on stakeholders and the environment
alongside profit, in practice companies have co-opted it and shifted towards a busi-
ness ethics agenda that supports rather than questions business practices and only
adopted CSR insofar it can be aligned to narrow strategic interests (Marens, 2008).
Whereas the various models of CSP conceptualizes CSR policies, CSR
implementation, and their impacts, there are relatively few empirical studies that
analyse the causal relationship between these three elements. Part I of the book
addresses this research gap by analysing the incidence of decoupling, defined as
the divergence between implementation of CSR instruments and CSR impacts.
By studying the relationship between CSR implementation and their impacts, we
can identify if CSR is merely ceremonial or if it really creates substantial impacts.
Because of limited empirical evidence, it remains uncertain to what extent the
implementation of CSR really leads to impacts. This is a serious gap in the field
of CSR research because if CSR would fail to have favourable social and environ-
mental impacts on society, the whole concept may become redundant.
Another type of impact of CSR concerns innovation. Literature has recog-
nized that CSR may be of strategic value because it contributes to innovation.
Several researchers claim that CSR can stimulate innovation (Porter and Kramer,
2006; Frondel et al., 2007; Clausen and Loew, 2009; Wagner, 2007b; Bocquet
et al., 2011). One of the reasons is that CSR attracts highly qualified people
who foster innovation in general (Turban and Greening, 1997). With its focus
on sensitivity to industrial and societal needs, CSR represents an approach that
supports innovation (Midtun, 2007). However, innovation may also reversely
impact CSR. Innovation frequently is a condition for bringing about the changes
required for the realization of CSR (Shrivastava, 1995; McWilliams and Siegel,
2000; Scholtens, 2008). Hence, innovation could be seen as a factor stimulating
CSR and R&D intensity (an indicator of innovation at the firm level) has indeed
been shown to lead to CSR (Padgett and Galan, 2009). This two-way causation
suggests that innovation and CSR can form a virtuous circle. Still, the empirical
evidence of a virtuous circle between CSR and innovation remains weak, par-
ticularly for SMEs.

Drivers of CSR
A third gap in our knowledge of CSR concerns other drivers than financial per-
formance. As discussed earlier, some researches indicate that companies may be
 Introduction 5

interested in CSR in terms of the ‘business case’, as CSR might improve financial
performance and innovation. However, if CSR is really a ‘business case’, why is
sustainable development so challenging and governments put so much stress on
stimulating CSR? If CSR is in a company’s own interest, we would expect that
companies take responsibility for the society’s welfare by developing CSR initia-
tives that contribute to the three dimensions of value creation outlined earlier.
Social and environmental challenges that the world faces would be solved in a
natural way by the market, provided that companies devise rational strategies
that guarantee their economic success. In reality, the data indicate that, although
companies have increased their CSR strengths between 1991 and 2005, this was
more than countered by a rise in the number of CSR concerns, which means that
the average (net) CSR decreased (Lougee and Wallace, 2008). Apparently, CSR
is not always a ‘business case’.
Indeed, the empirical evidence of a positive link between CSR and CFP is
not undisputed. Some studies found a neutral or negative relationship between
CSR and CFP (    Jones and Wicks, 1999; McWilliams and Siegel, 2000). This also
holds more specifically for the environmental dimension of CSR. For example,
Filbeck and Gorman (2004) and Telle (2006) did not find a positive relationship
between environmental and financial performance, rather the opposite. The latter
conclusion is supported by Cañón-de-Francia and Garcés-Ayerbe (2009), who
found that the relationship between ISO 14001 certification and the market value
of companies is negative for less-polluting and less-internationalized companies.
The argument that companies care about CSR because it increases the company’s
financial performance therefore seems too superficial, particular in the case of
SMEs.
A study into other drivers than financial performance to explain the CSR
of SMEs more thoroughly is therefore warranted. If the influence of CSR on
profitability is ambiguous, one wonders why companies would take up a proac-
tive attitude towards CSR. What factors other than the profit motive stimulate
companies to engage in CSR? In this book, we consider two types of drivers of
CSR: factors that are internal to the company and factors that are external to the
company.
Internal drivers include motives of business-owners and managers to engage
in CSR. Research into the motives for enterprises engaging in CSR other than
strategic motives to ensure the financial success of the firm is still considered
embryonic (Campbell, 2007). The main strategic reasons to engage in CSR are
enhancement of reputation, meeting pressures from governmental and civil pres-
sure groups, strengthening the competitive advantage of a firm, and the potential
retention of employees (Whitehouse, 2006). Within the boundary condition of
maintaining or enhancing profitability, stakeholder expectations are satisfied as
much as possible. However, there are indications that other motives matter as
well, particularly in the case of SMEs. ENSR (2001) found that ethical reasons,
improved relations with community and public authorities, and customer loyalty
6 Introduction

are the most important motives of CSR for SMEs in Europe. Graafland and Van
de Ven (2006) and Basu and Palazzo (2008) found that ethical motivation is a
stronger driver of CSR of SMEs than the financial motive.
Research into CSR has recently also become more focused on external driv-
ers, such as competitive landscape and national and global institutions (Aguilera
and Jackson, 2003; Campbell, 2007; Matten and Moon, 2008; Brammer, Jackson
et al., 2012). The concept of institutions has been famously defined by North
(1991: 97) as ‘the humanly devised constraints that structure political, economic
and social interactions’.2 National and international institutions shape corpo-
rate decisions by giving rise to different competitive environments that affect
the behaviour of important external stakeholders of the company.3 Other studies
have conceptualized CSR as resulting from a combination of internal and exter-
nal factors (Delmas and Toffel, 2004; Aguilera et al., 2007; Brown et al., 2010;
Delmas and Burbano, 2011). This type of literature provides more insight into the
interaction between the internal and external drivers of CSR. Differences in the
internal environment can explain why firms exposed to very similar external con-
texts differ with regard to their CSR. When researchers only focus on external
factors, there is insufficient consideration for differences in CSR at the individual
company level given the external environment. On the other hand, studies that
only consider internal factors ignore contextual factors that might also influence
and explain CSR. Because of the fragmented character of the available empirical
studies, there is little knowledge about how external conditions interact with the
internal factors driving CSR, particularly for SMEs. The empirical validity of the
theoretical models that aim to integrate institutional theory with a perspective of
the internal factors that drive CSR therefore remains very fragile. As the links
between external and internal factors remain a black box from an empirical point
of view, policy advises based on integrative theoretical models of the company
are still ill founded.
For modelling the interaction between the external and internal factors of
CSR, this book uses two types of models: mediation models and moderation
models. Mediation models give insight into how an independent variable affects
the dependent variable by changing an intermediate variable, the so-called medi-
ator. In the frameworks used in this book, the independent variable is an external
factor of CSR, whereas the mediator is an internal driver of CSR that is affected
by this external factor and, in turn, has an effect on CSR. The external factor
thus influences CSR indirectly through changing the internal factor. The media-
tion model consists of three relations (see Figure 1.1). Relation (a) explains how
the internal factor is affected by the external factor, and relation (b) explains how
CSR is affected by the internal factor. Relation (c) depicts a possible direct effect
of the external factor on CSR. The total effect of the external factor on CSR
is equal to the sum of the direct effect (c) plus the indirect effect defined as the
multiplication of relation (a) and (b) (e.g. a * b).
 Introduction 7

FIGURE 1.1 Mediation model

FIGURE 1.2 Moderation model

Moderation models explain when an independent variable affects a dependent

variable (relation (a) in Figure 1.2). The strength of this effect depends on the
level of a third variable, the so-called moderator (relation (b) in Figure 1.2). In
our book, we use the moderation model to explain how the effect of an external
driver on CSR may depend on the level of an internal driver.

1.3 Purpose and Structure of the Book

In this book, we aim to fill these gaps by various studies that analyse the impacts
of CSR and the interactive influences of external with internal drivers of CSR
using a large sample of European companies that includes large companies as well
as SMEs. The overall framework of the study is depicted in Figure 1.3.
The reader will gain insight into:

1 The impacts of the use of CSR instruments on environmental performance

(EP), innovation, and reputation (Part I);
2 How CSR is affected by internal factors (e.g. intrinsic motivations, owner-
ship structure, the gender composition of management, and the business
culture of the company) (Part II);
3 The effects of the competitive environment (e.g. intensity of price competi-
tion and technological competition) on CSR and how these influences are
mediated or moderated by company internal factors (Part III);
4 The effects of external institutions on CSR (e.g. CSR monitoring by NGOs
and media, free market institutions, and government regulation) and how these
influences are mediated or moderated by company internal factors (Part IV).
8 Introduction

FIGURE 1.3 Overall framework

These insights will help to develop effective policy and management strategies
that improve the social and EP of SMEs. Here we describe the content of each
part in more detail.

Part I: Impacts of CSR

Part I studies the impacts of CSR on environmental outcomes, innovation of
companies, and their reputation.
Much literature on CSR suggests that formal management tools to manage
environmental impacts, such as environmental reporting or ISO 14001 certi-
fication, are not suitable for SMEs. Other studies, however, argue that using
some form of formalization helps SMEs to improve environmental management.
Chapter 2 studies empirically the effects of relatively simple formal management
tools in the form of SMEs using targets for environmental impacts. The test
results show ample support for a positive impact of target setting on environmen-
tal outcomes. Since only 25% of SMEs use targets, there is scope for substantial
improvement in environmental impacts if all SMEs were to implement this rela-
tively simple process step.
In academic literature, it is argued that the adoption of ISO 14001 certification
is symbolic, aiming to improve an enterprise’s public image, without substantial
favourable environmental impacts. However, previous research has neglected pos-
sible mediators through which ISO 14001 may have a positive indirect influence
 Introduction 9

on environmental outcomes. Chapter 3 conjectures that ISO 14001 certification

stimulates participation in external environmental networks, and that such net-
works generate favourable effects on the EP of their participants. This mediation
channel seems particularly relevant for SMEs. They often lack knowledge of how
to handle the increasingly complex issue of EP and can receive guidance about
managing these processes from other parties in the network. Test results confirm
that participation in networks – through cooperation in the supply chain and
partnerships with training institutes or local organizations – mediates the impact
of ISO 14001 certification on the environmental outcomes of SMEs. Based on
these results, we conclude that promotion of ISO 14001 certification among
SMEs is particularly useful if combined with participation in external networks
that facilitate its implementation.
As discussed earlier, literature has argued that CSR has a favourable impact
on innovation. Empirical verification of this causal relationship is, however, chal-
lenging because of potential reverse causality. Some recent studies have used
instrumental variables to identify a causal impact of stakeholder orientation on
innovation. However, this research is limited to publicly traded companies and
cannot be held to be representative of SMEs. In Chapter 4, we test the CSR–
innovation link on a sample of SMEs. Using instrumental variables, CSR is found
to have a significant causal effect on innovation.
CSR is not only believed to improve a company’s innovation, but also its repu-
tation. However, CSR may also put reputation at risk by making the company
a more attractive target for activists’ campaigns. Test results in Chapter 5 show
that CSR increases the future probability that an SME is monitored by local
non-governmental organizations (NGOs) and that this increases the criticism on
the SME’s CSR. The results imply that SMEs that implement CSR only half-
heartedly are more vulnerable to public criticism than SMEs that do not engage
in CSR at all.

Part II: Internal Drivers of CSR

Part II of the book focuses on the internal factors driving CSR, including intrin-
sic and extrinsic motivations, ownership structures, gender structure of manage-
ment, and business culture.
Motivation (i.e. the reason upon which one acts) is an important anteced-
ent to behaviour (Treviño et al., 2006). Companies may have different motives
for actively pursuing CSR. Literature often distinguishes extrinsic or strategic
motives (market demand, regulation or reputation) from intrinsic motives (moral
duty or pleasure) (Muller and Kolk, 2010; Aguilera et al., 2007; Child and Tsai,
2005; Lindenberg, 2001; Weaver et al., 1999). Previous research on the motives
of CSR has produced mixed results. Chapter 6 studies the relevance of both types
of motives and shows that CSR is more driven by intrinsic than by extrinsic
motives. Both intrinsic and extrinsic motivation increase with company size.
10 Introduction

An important internal institution driving CSR is the ownership structure of

companies. Recent theoretical research suggests, however, that the relationship
between family business ownership and EP is contingent. Chapter 7 makes two
contributions to this literature. First, we conjecture that the relationship between
family business ownership and CSR is weaker for large firms than for small firms.
Second, we surmise that the involvement of family members in management
moderates the relationship between family business ownership and CSR in a
non-linear way. Test results support both hypotheses. The difference in CSR
between family owned and non-family-owned enterprises is largest for small
companies managed by a combination of family and non-family members.
CSR may also be related to the gender structure of management. The litera-
ture on the relationship between gender diversity in management and CSR of
large companies has produced mixed results. Whether and how gender diversity
stimulates the CSR of SMEs has not yet been researched. In Chapter 8, we
hypothesize that having more women in management positions improves the
CSR of SMEs because this encourages the use of relational management instru-
ments. Small business literature has shown this type of instrument to be more
effective in improving the CSR of SMEs than bureaucratic management instru-
ments. Test results support this hypothesis. However, the effect is non-linear and
CSR reaches its maximum when the proportion of women managers is 54%.
Chapter 9 investigates the influence of business culture on CSR. While the
relationship between business culture and innovation at the firm level has been
established in the academic literature, very little research has been done into the
relationship between business culture and CSR. Using the competing values
framework for organizational culture, we hypothesize that an open systems busi-
ness culture fosters CSR. Test results support this hypothesis and show that an
open systems business culture that combines a flexibility orientation and external
focus is most conducive to CSR.

Part III: Impacts of Competition on CSR

In Part III of the book, we research how competitive conditions affect CSR and
how these relationships are mediated by factors internal to the company.
Chapter 10 studies the relationships between the intensity of price compe-
tition, the firm’s time horizon, and EP. More intense price competition may
discourage EP by inducing short-termism in companies. The test results show
that price competition shortens the time horizon that companies apply in stra-
tegic decisions and that a (long) time horizon increases their EP. However, the
total negative effect of the intensity of price competition on EP is rather small in
absolute terms.
Besides price competition, companies also compete on innovation (Bengtsson,
1998; Vickers, 1995). In the free market perspective of the Neo Austrian School
of economic thought, economic growth does not result from price competition
 Introduction 11

but rather from the competition in innovation in new consumer goods, new tech-
nologies, sources of supply, and new types of organizational structures (Schum-
peter, 1976). Companies that operate in markets that compete on technology
may be particularly interested in the innovation-enabling potential of CSR. Aca-
demic literature has proposed various motives for firms to engage in CSR but no
attention has been paid to innovation as a motive. In Chapter 11, we explore the
role of this motive and hypothesize that it is particularly important for companies
facing intensive technological competition. Test results show that the innovation
motive mediates the relationship between the intensity of technological competi-
tion and CSR and is the most (second most) important motive for environmental
(social) CSR.
Competition in technology may not only stimulate the innovation motive but
also affect the intrinsic motivations towards CSR. Chapter 12 investigates the the-
oretical and empirical relevance of this so-called motivation crowding effect for
owner-managers’ intrinsic motivation towards CSR. Motivation crowding theory
has argued that external pressures enforce (crowd in) intrinsic motivation if these
pressures are perceived as supportive. Based on this theory, we conjecture that a
competitive environment that is characterized by a high intensity of competition
on technology will crowd in intrinsic CSR motivation if owner-managers believe
that CSR increases the innovative capability of their company. The test results
support this hypothesis.

Part IV : Institutional Drivers of CSR

In Part IV, we address the external institutional drivers of CSR and how they
interact with factors internal to the company.
Whereas social licence pressure is held as a strong motive for the CSR of large
enterprises, it is argued in academic literature that it will not sufficiently motivate
SMEs. We conjecture, however, that social licence pressure may also be important
for SMEs because of the strong embeddedness of SMEs in their local commu-
nities, but large-scale empirical studies supporting this hypothesis are still lack-
ing. Chapter 13 shows that social licence pressures significantly affect the EP of
micro, small, and medium-sized enterprises directly as well as indirectly through
mediation by the perceived market benefits of CSR. In all cases, the social licence
pressure provides a stronger stimulus to improving EP than the motive to comply
with government regulation.
Chapter 14 studies the crowding effects of non-governmental organizations
(NGOs) and media pressure on intrinsic motivations towards CSR. We surmise
that the monitoring of CSR by NGOs and media may influence the intrinsic
motivations of managers positively as well as negatively and that the perceived
financial benefits of CSR mediate this relationship. Test results show that NGOs
and media pressures increase the financial benefits of CSR that, in turn, crowd in
intrinsic motivation. These findings emphasize the important role of NGOs and
12 Introduction

media. By increasing transparency in the marketplace, they not only strengthen

the business case for CSR but also intrinsic motivations in corporations.
Besides competition in innovation and NGOs and media pressure, intrinsic
motivations towards CSR may also be affected by government regulations. Pre-
vious literature did not test how governmental regulation affects CSR motiva-
tion. Empirical evidence of motivation crowding by government regulations is
therefore still lacking. Chapter 15 fills this research gap and shows that govern-
ment regulation enhances EP directly but harms it indirectly by crowding out
the intrinsic and extrinsic motivations of business leaders. Only if business leaders
have low intrinsic CSR motivation, government regulation stimulates the EP,
because crowding-out effects are absent in that case.
Chapters 16 and 17 study the influence of free market institutions on CSR as
measured by economic freedom. The effect of free market institutions on firms’
CSR is still unconcluded. In Chapter 16, we conjecture that the effects are con-
ditional on a firm’s internal motivation. Test results show clear support that the
effects of economic freedom and intrinsic motivation on corporate EP interact
with each other. These findings explain the ambiguous results of previous empiri-
cal studies at the aggregate level.
Studies trying to explain international differences in CSR tend to focus on
either regulative institutional or cultural factors. In Chapter 17, we propose that
the influence of both types on CSR interact. More specifically, we theorize that
free market institutions only have a positive influence on CSR practices in socie-
ties with a culture of long-term orientation. Test results confirm this expectation.
This finding exemplifies the importance for international comparative research of
exploring the interactive effects of institutions and cultures.
Part IV concludes with a study in Chapter 18 into the relationship between
collective agreements and CSR. More specifically, we research the impact of col-
lective agreements on female management and job opportunities of employees
from disadvantaged groups (e.g. migrants, people with disabilities, and long-term
unemployed). We find that collective agreements stimulate the female presence
in board and executive positions and the inflow of employees from disadvan-
taged groups. Moreover, female management further enforces job opportunities
of disadvantaged workers. Countries with high coverage of collective agreements
therefore, directly as well as indirectly, through female management foster inte-
gration of employees from disadvantaged groups into the labour market.

Part V: Integration and Management Lessons

Chapter 19 gives an overview of the hypotheses and empirical results of Parts
I–IV and explores the interactions between the different parts of the overall
framework presented in Figure 1.3. We use the integrated framework to explain
CSR differences between large and small companies and how these are mediated
 Introduction 13

by internal factors, competitive environment, and external institutions. Chap-

ter 20 summarizes the policy and management implications of this study.

Notes
1 For more details of the survey questions, see Appendix 1.
2 In his definition, North includes both so-called regulative or formal institutions, which
refer to rules, laws and constitutions created and codified by the polity, as well as so-
called normative or informal institutions, which consist of (mostly uncodified) norms
of behaviour, taboos, traditions, convention, and self-imposed codes of conduct. For
North, informal institutions are part of culture. Culture refers to decision-making heu-
ristics, which typically manifest themselves as values, beliefs, or social norms. Or, in
the words of Guiso et al. (2006: 23) ‘those customary beliefs and values that ethnic,
religious, and social groups transmit fairly unchanged from generation to generation’.
3 There is a discussion if organizations are also institutions, because North (1990) made
a distinction between institutions and organizations. In his view, institutions are the
rules of the game and organizations and their entrepreneurs are the players. Therefore,
it seems that North is saying that organizations are not institutions. But North does not
actually write this. In saying that ‘organizations are players’, he is making an abstrac-
tion rather than defining organizations in this way. Organizations involve structures or
networks, and these cannot function without rules of communication, membership, or
sovereignty. The unavoidable existence of rules within organizations means that even by
North’s own definition, organizations must be regarded as a type of institution (Hodg-
son, 2006).
PART I

Impacts of Corporate
Social Responsibility
2
ENVIRONMENTAL IMPACTS
OF FORMAL MANAGEMENT
INSTRUMENTS*

2.1 Introduction
CSR, and environmental management in particular, has long been perceived as
being the province of large companies and not necessarily well adapted to the
world of SMEs (European Commission, 2007). However, Hillary (2000) esti-
mated that SMEs collectively account for up to 70% of industrial pollution world-
wide. Hence, it is evidently important to study the CSR of SMEs. The question
of whether CSR contributes to the environmental impacts of SMEs, such as a
reduction of energy consumption and waste disposal, has rarely been adequately
addressed. Few empirical studies considered the environmental impacts of the
CSR of SMEs. For example, Friedman and Miles (2001) and Ammenberg and
Hjelm (2003) found that the establishment of an environmental management
system (EMS) in Britain and Sweden, respectively, resulted in environmental
improvements. Surveying environmental managers in Spanish hotels, Armas-
Cruz (2011) found that environmental management improves both commercial
and EP. However, these studies are based on a limited number of case studies of
SMEs in specific countries and sectors, and further research into the impacts of
CSR is in need of a much larger dataset to test if these findings apply more gen-
erally. In this chapter, we used a large dataset consisting of 5,205 companies from
12 European countries to assess the environmental impacts of the CSR of SMEs.
Many studies suggest that formal environmental management instruments,
such as public environmental reports, audits, and EMSs, are not suitable for
SMEs. Fassin (2008) argued that the way large companies deal with CSR cannot
be simply transposed to SMEs as they are less bureaucratic and often need to solve
problems on a day-to-day basis (Battaglia et al., 2010). In addition, Tilley (2000)
argued that SMEs tend to govern their businesses in a less systematic way than

DOI: 10.4324/9781003216483-3
This chapter has been made available under a CC-BY-NC 4.0 license.
18 Impacts of Corporate Social Responsibility

larger companies as they have limited resources and have difficulties in identifying
a clear environmental vision to build on. Tilley (1999) argued that outsiders often
regard the environmental impacts of SMEs as negligible compared to those of
large companies and therefore do not urge them to communicate their impacts,
making formal reporting for SMEs less relevant. Generally speaking, SMEs can be
regarded as being more embedded in the local environment. Because of this char-
acteristic, Spence et al. (2003) and Perrini (2006) argued that studies into SME’s
environmental management can be better based on the concept of social capital,
rather than on stakeholder theory. Welford and Frost (2006) concluded that the
main challenge for the future is moving away from an inspection and auditing
mentality and towards capacity building on the ground and creating longer term
trusting relationships down the supply chain.
However, not formalizing CSR at all may also result in suboptimal environ-
mental management practices by SMEs. It can be argued that relatively simple
formal instruments, such as using targets for environmental improvements, will
help managers of SMEs to provide a systematic framework for tracking and com-
municating issues. Formalization improves the quality of internal management
and cost efficiency (Hillary, 2004; Zorpas, 2010) and stimulates the environmen-
tal awareness of employees and internal communication (Ammenberg and Hjelm,
2003; Rao et al., 2009; Zorpas, 2010).
The research question that we address in this chapter is therefore to what
extent simple formal management instruments as target setting are used by SMEs
to improve their environmental impacts and how effective these instruments are
compared with an informal way of managing environmental issues or full-fledged
management systems such as ISO 14001.
In the following section, we introduce the conceptual framework and the
hypothesis of this study. We then describe the methodology and present the
results of the empirical analysis. The last section summarizes the main findings.

2.2 Conceptual Framework
Large companies often use formal management instruments to improve their
environmental impacts (e.g. ISO 14001 and EMAS (Eco Management and
Audit System EMAS)). However, these management systems are less appli-
cable to SMEs. SMEs are not just miniature versions of large companies, but
are often considered as having distinctive characteristics (see Table 2.1 for an
overview).
Due to the informal and diversified nature of SMEs, many studies supposed
that formal environmental management instruments, such as public environmen-
tal reporting, auditing, and environmental management programmes, are not suit-
able for SMEs, and that SMEs should stick to informal management. However,
not formalizing CSR implies that it is difficult to hold the company accountable
for its CSR achievements. The tools of sustainability management assist managers
 Environmental Impacts of Formal Instruments 19

TABLE 2.1 Reasons for (not using) formal management instruments by SMEs

Reasons for not using formal measures References

by SMEs

SMEs are embedded in informal Tilley (2000), Spence et al. (2003), Murillo and
and local social network Lozano (2006), Perrini (2006), Battisti and
Perry (2011), Baden et al. (2011)
Limited time, expertise, and Tilley (2000), Spence et al. (2003); Lepoutre and
finances for environmental Heene (2006), Perrini (2006), Studer et al.
management (2006), Welford and Frost (2006), Russo and
Tencati (2009)
No separation of ownership and Dewhurst and Thomas (2003), Beaver and
control Prince (2004), Lepoutre and Heene (2006),
Murillo and Lozano (2006), Revell and
Blackburn (2007), Aragón-Correa et al.
(2008), Revell et al. (2010)
Reasons for using formal measures References
by SMEs
Cooperation in industrial cluster Battaglia et al. (2010)
Quality of internal management Hillary (2004), Zorpas (2010)
and cost efficiency
Environmental awareness of Ammenberg and Hjelm (2003), Rao et al.
employees and internal (2009), Zorpas (2010)
communication
Organizational learning and Stewart and Gapp (2014)
innovation
Systematic and continuous Jones (1999), Leroy et al. (2013)
implementation
Reducing value-action gap Perez-Sanchez et al. (2003), Cassells and Lewis
(2011), Tilley (1999), Studer et al. (2006),
Gadenne et al. (2009), Revell et al. (2010)

in monitoring and evaluating internal developments while simultaneously engag-

ing in a dialogue with external stakeholders on sustainable development issues
(Perrini and Tencati, 2006). This can lead to organizational efficiencies and to
internal cost savings in the long run, even for SMEs. Furthermore, formal pro-
cedures can help in making employees and other stakeholders more aware of
CSR (Ammenberg and Hjelm, 2003). By creating feedback channels, they will
foster organizational learning and innovativeness (Stewart and Gapp, 2014). Fur-
thermore, the owner-directors, on whom CSR often depends in SMEs, can be
erratic in their implementation of CSR and therefore not realize the full potential
of the company. Using formal management tools can therefore improve the inter-
nal management of CSR by making CSR less dependent upon the subjective
judgments of its director (Studer et al., 2006).
20 Impacts of Corporate Social Responsibility

Balancing the disadvantages of costly, fully-fledged management systems for

SMEs on the one hand, and the advantages of using some formal environmental
management instruments on the other, we hypothesize that the use of relatively
simple formal management instruments fosters improvements in environmen-
tal impacts. Whereas fully-fledged formal systems, such as public environmental
reporting or ISO 14001 certification, may not fit the context of SMEs, small
process steps will raise the quality of the environmental management of SMEs
without necessarily incurring high bureaucratic costs. We therefore focus on a
relatively simple procedure: setting targets for environmental impacts. Target set-
ting is a proven management instrument for initiating change and improvement
that is also feasible for small companies (Palmer and Van der Vorst, 1997). When
appropriate, targets can be defined in quantitative terms (e.g. reduce energy con-
sumption by 10%) or refer to qualitative objectives (e.g. build a bund wall to
contain spills). Whereas reducing energy, water, and waste may be considered
low hanging fruits, targets on environmental conditions of suppliers represent a
more ambitious strategic form of EP because it involves other stakeholders. The
establishment of voluntary targets is an essential first step. It requires the identi-
fication and specification of concrete, measurable performance indicators and a
commitment to management plans that specify how much they can be improved
(Hummels and Karssing, 2007).
Our framework thus posits the following hypothesis:

Hypothesis 2.1 Formalization of environmental management by the use of targets

reinforces the effects of informal efforts to improve the environmental impacts of
SMEs.

Informal efforts refer to all kinds of practical actions to improve environmental

impacts. For example, ICT companies can take all kinds of practical measures to
reduce the energy consumption of their main operations. These actions are often
not formalized into policy statements or environmental programmes, as in large
companies, but limited to making an effort to act appropriately (Fassin, 2008).

2.3 Methodology
The data were taken from the survey conducted in 2011.1 Table 2.2 reports the
descriptive statistics of the measures that are used in the empirical analysis. We
distinguish five environmental issues: energy consumption, use of renewable
energy, water consumption, disposal of waste, and recycling of waste. In order
to measure informal efforts, respondents were asked to indicate for each envi-
ronmental issue whether their enterprise actively improves it. The response was
measured by a three-point scale ranging from 0 (no effort), 0.5 (incidental effort)
to 1 (continuous effort). The use of targets is measured by a binary scale (0: no; 1:
yes). Environmental impacts are measured by a seven-point scale for the change in
 Environmental Impacts of Formal Instruments 21

TABLE 2.2 Measuresa

Variables Mean

Informal Reduction in energy consumption and increase in use of 0.62

efforts renewable energy (91)
Reduction in water consumption (92) 0.56
Reduction in waste disposal and increase in waste 0.72
recycling (93)
Use of targets Reduction in energy consumption and increase in use of 0.26
renewable energy (96)
Reduction in water consumption (97) 0.20
Reduction in waste disposal and increase in waste 0.29
recycling (98)
Environmental Growth in energy consumption (102) −0.46
impacts Increase in % renewable energy (103) 0.19
Growth in water consumption (104) −0.35
Growth in waste disposal (105) −0.38
Increase in % recycling of waste (106) 0.36
Number of Reduced energy consumption 0.38
companies as Increased % renewable energy 0.16
a share of all Reduced water consumption 0.28
companies Reduced waste disposal 0.32
that Increased % recycling of waste 0.30
a The numbers in brackets refer to the numbers of the survey questions in Appendix 1.

the respective variable between 2007 and 2010. Besides this seven-point scale, we
also used binary scales for companies that improved their environmental impacts.
In this way, we can test whether formal instruments increase the chance that
companies improve their environmental impacts.
Improvements in environmental impacts may result from several causes: com-
panies’ own voluntary initiatives, collective voluntary initiatives in the supply
chain and/or industry, legally enforced requirements, or market pressure. In order
to test to what extent the changes in EP are voluntary (one of the five dimensions
of CSR) rather than initiated because of direct regulation or market pressure, we
asked the respondents of companies that improved their environmental impacts
to indicate for each aspect which of the four aforementioned causes contributed
most to the improvement on that aspect. The results are reported in Table 2.3.
Most SMEs indicate that the improvements are due to their own voluntary initia-
tives. This illustrates that the voluntary dimension is very relevant for our sample.
In order to test the influence of the use of targets as a stand-alone measure,
we control for the use of the ISO 14001 management system as the use of targets
may be a part of a larger management system. Table 2.4 shows that small compa-
nies relatively more often use (informal) efforts to improve their environmental
impacts. If they use targets, these are often applied independently from a larger
22 Impacts of Corporate Social Responsibility

TABLE 2.3 Reasons for improvement in environmental impacts (% of respondents)

Voluntary measures Collective initiatives Legal Market

own company industry requirements pressure

Energy consumption 74 5 11 11
Renewable energy 67 7 17 8
Water consumption 76 5 12 7
Waste disposal 72 6 15 7
Recycling of waste 70 6 17 6

TABLE 2.4 Effort and targets for energy consumption, ISO 14001, and company sizea

Micro (≤10) Small (11–50) Medium (51–250) Large (>250)

Effort (mean score) 0.56 0.61 0.66 0.77

Use of targets (%) 15 23 29 39
ISO 14001 (%) 4 10 20 41
a Company size is measured in number of employees (in full time equivalents)

management system. In contrast, large companies are more likely to use an ISO
14001 programme. This supports the notion of our conceptual framework that
small companies differ from large companies and more often only use infor-
mal measures or small process steps than fully-fledged management systems to
improve their environmental impacts.

2.4 Results
Tables 2.5 and 2.6 report the estimation results of the multiple regression
analysis.
Table 2.5 shows that for all four environmental aspects both putting more
effort into a certain environmental issue and targeting significantly improve its
impacts. The empirical analysis thus supports the hypothesis of our conceptual
framework that formal measures reinforce environmental impacts. In addition,
ISO 14001 certification significantly improves environmental impacts.
Table 2.6 shows that if we use binary logistic regression analysis, we find that
informal efforts, targeting, and ISO 14001 all significantly increase the odds that
companies decrease their energy consumption, water consumption or waste dis-
posal and increase the use of renewable energy and recycling of waste.
If we combine the estimated unstandardized coefficients reported in Table 2.5
with the average effort, use of targets, and ISO 14001 certification as reported in
Tables 2.2 and 2.3, we can calculate the maximum improvement in environmental
impacts if all companies were to put continuous effort, target their environmental
impacts, or apply an ISO 14001 system. Table 2.7 shows that if all companies
 Environmental Impacts of Formal Instruments 23

TABLE 2.5 Results of multiple regression analysisa

Energy consumption Water consumption Waste disposal Recycling of waste

Effort −0.49*** −0.44*** −0.35*** 0.22***

Use of targets −0.26*** −0.32*** −0.23*** 0.09*
ISO 14001 −0.18** −0.11* −0.19*** 0.19**
a Unstandardized coefficients; * p < 0.05; ** p < 0.01; *** p < 0.001; N = 5,205. Controlled for
company size, sector, regional, and inverse Mill’s ratio.

TABLE 2.6 Binary logistic regression analysis of companies that improved environmental

impactsa

Renewable Energy Water Waste Recycling

energy consumption consumption disposal

Effort 1.78*** 1.21*** 1.58*** 1.15*** 1.05***

Use of targets 0.28** 0.38*** 0.61*** 0.46*** 0.31***
ISO 14001 0.30** 0.41*** 0.26** 0.39*** 0.38***
a Unstandardized coefficients; * p < 0.05; ** p < 0.01; *** p < 0.001; N = 5,205. Controlled for
company size, sector, regional, and inverse Mill’s ratio.

TABLE 2.7 Impact multipliersa

100% effort 100% use of targets 100% ISO 14001 Total

Energy consumption −0.12 −0.13 −0.11 −0.36

Water consumption −0.13 −0.17 −0.06 −0.36
Waste disposal −0.06 −0.11 −0.11 −0.28
Recycling 0.04 0.04 0.11 0.19
a Measured by change in annual increase (in %).

were only to fully target their impacts (without increasing their informal efforts
or introducing an ISO 14001 system), the improvement would be relatively large
for energy consumption, water consumption, and waste disposal.

2.5 Conclusion
In this chapter, we have tested a conceptual framework on the environmental
impacts of CSR for SMEs. Until now, the actual environmental impacts for
SMEs have not been assessed on a large scale (mostly only case studies). We
focused on SMEs and not on large companies, as SMEs generate the biggest
part of environmental pollution in Europe. Because of their smaller size, SMEs
are more embedded in their local environments, have fewer skills, and have less
financial resources to devote to environmental management. Formal management
instruments therefore are often regarded as inappropriate for SMEs. Nevertheless,
24 Impacts of Corporate Social Responsibility

certain process steps could help the management of environmental impacts by, for
example, bringing focus, improving communication, and making the company
less dependent on the subjective judgments of the owner-manager. To test this
hypothesis, our framework for SMEs explicitly distinguished the use of formal
process steps to foster environmental impacts from only making some unspecified
‘effort’. In our empirical analyses, we make use of a unique dataset of 5,205 SMEs
from 12 European countries to estimate our model.
The results show that for all environmental issues examined, targeting impacts
significantly improves environmental impacts. This supports our hypothesis that
simple process steps reinforce environmental impacts. This result challenges the
common opinion in literature that SMEs, in contrast to large companies, should
not formalize CSR because they are different in nature from large companies (see
e.g. Fassin, 2008). We agree that procedures adopted by large companies, such
as ISO14001, may not always fit the context of SMEs. But there are many small
process steps that SMEs can take to raise the quality of environmental manage-
ment in their organization, without necessarily incurring high bureaucratic costs.
Even for a very small company with ten or less employees, it is fairly easy to set
targets for issues such as energy or water consumption or waste disposal, without
having to resort to complex and costly bureaucratic procedures. Our results show
that a combination of informal and such formal instruments seems to be espe-
cially fruitful in generating impacts as it provides a more systematic framework for
tracking issues, bringing focus and discipline, and creating awareness.

Notes
* An extended text of this chapter has been published in: Graafland, J., and Smid, H.
(2016). Environmental impacts of SMEs and the effects of formal management instru-
ments: Evidence from EU’s largest survey. Corporate Social Responsibility and Environmen-
tal Management, 23: 297–307. Hugo Smid co-authored this article when he was doing
PhD at Tilburg University. Hugo Smid published his dissertation (titled ‘Rhetoric and
realities of corporate social responsibility’) in 2014. He is currently working at De Ned-
erlandsche Bank.
1 For a description of the survey questions, see Appendix 1. Appendix 2 describes the
methodology of the survey.
3
ENVIRONMENTAL IMPACTS OF
ISO 14001 AND THE MEDIATING
ROLE OF NETWORKS*

3.1 Introduction
Increasingly, enterprises are using EMSs (Darnall and Sides, 2008). A widely
used voluntary programme is the ISO 14001 certificate (Delmas and Montes-
Sancho, 2011). However, research has cast doubt on the effectiveness of this
system in improving environmental impacts (Koehler, 2007; Aravind and Christ-
mann, 2011; Boiral, 2012). The reason that companies with ISO 14001 may
not produce better environmental results than other companies might be that
these companies employ this voluntary measure primarily to prevent government
interventions (Maxwell et al., 2000) or to safeguard their reputation (Castka and
Prajogo, 2013). As a result, the implementation of ISO 14001 could be a superfi-
cial gesture disconnected from the internal practices that could improve environ-
mental impacts (so-called decoupling). Decoupling of programmes and outcomes
could be especially relevant for SMEs. Because of the specific characteristics of
these businesses, standardized management systems may not be a proper tool for
SMEs (Welsh and White, 1981; Tilley, 2000; Spence et al., 2003; Perrini, 2006;
Aragón-Correa et al., 2008; Battisti and Perry, 2011) and these tools may even be
counterproductive (Fassin, 2008).
However, research has ignored the fact that ISO 14001 may also indirectly
improve the environmental impacts of SMEs. One of the mechanisms that may
mediate the effect of ISO 14001 on environmental impacts is the participation in
external networks to foster information exchange on best environmental man-
agement practices. Some studies into the effectiveness of ISO 14001 for SMEs
have referred to this mechanism but without empirically verifying whether it
explains any positive effects of ISO 14001 on environmental impacts (Ammen-
berg and Hjelm, 2003; Darnall and Sides, 2008; Lopez-Gamero et al., 2009). The

DOI: 10.4324/9781003216483-4
This chapter has been made available under a CC-BY-NC 4.0 license.
26 Impacts of Corporate Social Responsibility

aim of this chapter is therefore to analyse the following research question: Does
participation in external networks mediate a positive impact for ISO 14001 on
the environmental impacts of SMEs? The research is conducted on a large sample
of 3,633 SMEs in 12 countries in Europe. The data are taken from the surveys
conducted in 2011 and in 2014.
In the next section, we present the literature review and hypotheses. In sec-
tion 3.3, we discuss the methodology. Section 3.4 describes the empirical results,
followed by a conclusion.

3.2 Conceptual Framework
This section first reviews recent literature on the impacts of ISO 14001 certifica-
tion on environmental impacts. Then we highlight the importance of external
networks for improving the environmental impacts of SMEs. Subsequently, we
will argue that ISO 14001 certification and external networks are not independ-
ent because ISO 14001 may stimulate the company to participate in external
environmental networks. The section then presents a set of hypotheses, including
a mediation hypothesis postulating that external networks mediate the impact of
ISO 14001 on environmental impacts.

ISO 14001 and Environmental Impacts

Companies aiming to improve their environmental impacts can apply various
types of standardized instruments. Standardized instruments refer to systems that
provide procedures and specifications for the integration of environmental meas-
ures into an enterprise’s everyday practices and are designed for all kinds of com-
panies (Barth and Wolff, 2009). Examples are the ISO 14001 standard and the
European EMAS (Eco Management and Audit Scheme) that set requirements for
an EMS, the Greenhouse Gas Protocol Initiative that sets a standard for how to
measure, manage, and report greenhouse gas emissions, or the Global Reporting
Initiative (GRI) that provides standardized approaches and principles on social
reporting.
This chapter focuses on ISO 14001. This is a global standard, open to all
organizations and having a practical focus. Each year the firm has to define an
environmental plan that sets targets for those areas of the business to be improved,
specifying the activities it will undertake to achieve that improved performance.
The environmental plan goes into the specific detail of how these actions will
be implemented, such as the costs per action, which division is responsible for
implementing them, and the date that the target will be reached.
But for SMEs that implement ISO 14001 certification, it cannot simply
be assumed that this generates favourable environmental impacts. Institutional
theory states that companies are more likely to decouple implementation from
impacts if they experience a tension between gaining social legitimacy from their
 Impacts of ISO 14001 Mediated by Networks 27

stakeholders and pressure to maintain internal efficiency (Davis, 2005). By show-

ing that they qualify for ISO 14001, companies may obtain legitimacy from exter-
nal stakeholders (Martín-de Castro et al., 2017). But, at the same time, discretion
over how the enterprise improves its environmental impacts provides room for
symbolic policies generating sufficient internal flexibility to avoid measures that
might be too costly (David et al., 2007). As a result, the environmental impacts
may be disconnected from ISO 14001. This kind of decoupling is invited by the
absence of mechanisms to monitor the environmental impacts of most companies
(and particularly SMEs) (Ogawa and Scribner, 2002). Several empirical studies
on corporate social outcomes indeed showed that managers, when responding to
external pressures, tend to adopt formal measures that have little impact on core
processes (Weaver et al., 1999). Jamali (2010) also found that most companies
respond in a symbolic way to strong pressure, adapting their formal structures
to signal coherence with external expectations, but then barely changing their
internal processes so as to avoid incurring costs.
Decoupling may be particularly relevant for ISO 14001 as it merely indi-
cates the enterprise has a well-documented and consistent EMS (Oliveira et al.,
2010). The system does not require that the degree of control over environmen-
tal impacts is revealed. When scrutinizing the documents provided by organiza-
tions, ISO 14001 audits focus on procedures (Heras-Saizarbitoria et al., 2013)
and not on the real environmental impact. It is therefore not surprising that many
researchers have found that the use of ISO 14001 is merely symbolic (Aravind
and Christmann, 2011; Boiral, 2012) and that mature adoption of ISO 14001 is
associated with low improvement in environmental impacts (Testa et al., 2014).
Castka and Prajogo (2013) found that ISO 14001 brings reputational benefits
because NGOs and industry watchdogs accept it as evidence of a firm’s envi-
ronmental efforts but that this does not contribute to the substantive effect of
ISO 14001. Schylander and Martinuzzi (2007) found that the desire to improve
public image by credibly communicating activities that receive outside recogni-
tion is the most important motivation behind the implementation of ISO 14001.
Another explanation of the limited effects of ISO 14001 is that many companies
have already been applying targets long before they formalized their EMS (Steger,
2000; King et al., 2005). As a result, the instrument does not lead to substantial
changes in the realization of these goals.
Nevertheless, there are also studies showing that ISO 14001 certification does
improve environmental impacts for SMEs (Ferenhof et al., 2014; Nguyen and
Hens, 2015). Several studies have argued that the use of ISO 14001 is an effective
way of raising the quality of the environmental management of SMEs because
it disciplines the enterprise to pay continuous attention to improving environ-
mental impacts through information gathering and auditing (Seiffert, 2008; Rao
et al., 2009; Parisi and Maraghini, 2010). Although the ISO 14001 standard does
not establish specific performance criteria, it prescribes requirements for hav-
ing an environmental policy, as well as the planning, implementation, operation,
28 Impacts of Corporate Social Responsibility

verification, corrective action, and critical analysis by management (Oliveira

et al., 2016). It contributes to better internal communication and helps manag-
ers to track issues systematically, while making it easier for outsiders to check the
environmental efforts and hold companies more accountable for their behaviour.
Guerrero-Baena et al. (2015), who evaluated the effects of ISO 14001 certifica-
tion for Spanish olive oil firms, found that ISO 14001 certification stimulates
environmental awareness among employees. Nguyen and Hens (2015), who con-
ducted a study on the influence of ISO 14001 certification in the cement industry
in Vietnam, also found a significant improvement in environmental awareness in
certified plants. Moreover, their analysis showed that certification has a significant
positive effect on EP. Singh et al. (2015) showed that ISO 14001 significantly
reduced the waste of SMEs in India. Oliveira et al. (2016) estimated that organi-
zations having an ISO 14001 certification with full scope tend to adopt more so-
called cleaner production practices, and these have been shown to be one of the
most successful proactive environmental strategies (Van Hoof and Lyon, 2013).
A recent case study by Wong et al. (2017) of a ISO 14001 certified coal power
plant in Malaysia concluded that the company not only achieved relatively better
EP but also the ISO 14001 certification induced better compliance with Malay-
sia’s environmental rules and regulations. In line with this finding, Ferreira Rino
and Salvador (2017) found that among 11 Brazilian companies, ISO 14001 cer-
tification over time led to a reduction in the number of environmental penalties
imposed by the state environmental agency because it fosters a preventive culture
and develops practices that deal with environmental impacts. These findings are
confirmed in a study by Mazzi et al. (2016) who asked Italian practitioners of
ISO 14001 certification what, in their view, are the greatest advantages of ISO
14001 certification. According to these practitioners, the main benefits of ISO
14001 certification are that it stimulates environmental competences and aware-
ness among employees, increases compliance with legal requirements, and facili-
tates operational control of EP. From the information provided by this literature
review, it is likely that the implementation of ISO 14001 has a positive impact on
the environmental impacts of SMEs.

Networks and Environmental Impacts

Apart from standardized instruments, a number of specific, tailor-made tools exist
by which businesses strive to improve their environmental impacts. Some of these
non-standardized instruments are internally oriented, such as employee training
(Graafland et al., 2003). Other instruments are externally oriented, such as partic-
ipation in external networks to share best practices (Maon et al., 2009; Schouten
and Remmé, 2006; Pirsch et al., 2006).
In research among participants in a German energy efficiency network,
Wohlfarth et al. (2017) found that the companies participating in the network
were mainly motivated by the need for practical knowledge and information
 Impacts of ISO 14001 Mediated by Networks 29

about specific measures and technologies that would reduce energy cost. The
second most important reason was decision support provided by the exchange of
experiences. A further important set of reasons (with an average score of 4 on a
scale from 1 to 5) concerned organization and implementation, such as gaining
information about crucial aspects of planning and about difficulties in implemen-
tation. In a second survey, Wohlfarth et al. (2017) estimated the extent to which
these expectations were met by the network. They did not find any significant
differences between the ranking of expectations and the ranking of the extent to
which those expectations had been fulfilled by the energy efficiency network.
They concluded that the network was well able to meet the expectations of the
participants. The majority of participants reported implementation of measures
that would not have been implemented without participation in the network.
Other studies have also shown that collaboration on environmental issues leads
to more positive results (Perz et al., 2010; Valentine, 2016). Cooperation with
other parties is particularly appropriate for SMEs (Albino et al., 2012) as they
are often part of a larger enterprise’s network of suppliers or of a local network
of SMEs (Battaglia et al., 2010). As small firms are more resource constrained,
they must rely on external experts to provide them with appropriate solutions to
environmental challenges. Cooperation and partnerships in the supply chain, or
guidance from training institutes, will help bring expertise to the enterprise and
provide knowledge both on technology and on how to integrate environmental
concerns into the businesses. From these networks, SMEs can also learn what the
most important environmental issue is to focus on (Tilley, 2000). Collaboration
with suppliers or customers in the supply chain can compensate for a lack of tech-
nical capacity but also for legal and business skills that a small enterprise may lack.
Supply chain management, and practices implemented along the supply chain,
are an important driver of environmental impacts. Research has shown that sup-
pliers provide SMEs with various solutions that have significant effects on envi-
ronmental impacts (Arimura et al., 2008; ECEI, 2010; Darnall and Sides, 2008;
Bos-Brouwers, 2010). Participation in projects with training institutes aimed at
reducing environmental impact, or at anticipating the technological evolution of
products or services, was also found to contribute to better environmental results
(ECEI, 2010; European Commission, 2002). From all of this, it is likely that
participation in external networks has a positive impact on the environmental
impacts of SMEs.

ISO 14001 and External Networks

ISO 14001 and participation in external networks are probably not independ-
ent. On the basis of a literature study, Ferenhof et al. (2014) concluded that
the implementation of EMS-based methods not only improves environmental
impacts but also leads to better collaborative networks. Lopez-Gamero et al.
(2009) also argued that the use of an EMS stimulates the development of informal
30 Impacts of Corporate Social Responsibility

information exchange channels for best management practices as well as the

capacity to cooperate with external stakeholders. Similarly, on the basis of an
analysis of nine U.S. studies, Darnall and Sides (2008) argued that EMSs help
SMEs to establish peer networks and encourage greater collaboration among the
participating firms. These networks stimulate the exchange of information on
best management practices, strengthening a firm’s management of their environ-
mental capabilities. Battaglia et al. (2010) argued that cooperation with stakehold-
ers or other enterprises in their local networks helps SMEs to overcome barriers
in the implementation of formal CSR policies and practices. The cooperation
makes it possible to improve results and decrease the costs of implementing CSR
(European Commission, 2007). According to Ferenhof et al. (2014), the costs of
implementing EMSs can be reduced by up to 50% if an enterprise uses systems of
cooperation instead of implementing the scheme on an individual basis.
Ammenberg and Hjelm (2003) described an illustrative case study of SMEs
in Sweden where certified EMSs generated more cooperation in peer networks.
Small enterprises formed an environmental group and a network to jointly imple-
ment an EMS. Each enterprise fulfilled the requirements of ISO 14001 and had
a certificate of its own but the administration was done by a central organiza-
tion. This cooperation in turn improved the environmental impacts. Therefore,
it could be that the importance of ISO 14001 for SMEs lies in it stimulating the
formation of networks that reduce the costs of implementation and generate
positive indirect impacts on environmental impacts through exchange of best
practices within a firm’s network.

Set of Hypotheses
On the basis of the literature review and the arguments in the previous sections,
we hypothesize that (see also Figure 3.1):

Hypothesis 3.1 The implementation of ISO 14001 positively affects the environmen-
tal impacts of SMEs.
Hypothesis 3.2 Participation in external networks positively affects the environmental
impacts of SMEs.
Hypothesis 3.3 ISO 14001 stimulates participation in external networks.

FIGURE 3.1 Conceptual framework of hypothesized relationships

 Impacts of ISO 14001 Mediated by Networks 31

The combination of Hypothesis 3.2, that participation in networks leads to better

environmental impacts, and Hypothesis 3.3, that ISO 14001 stimulates participa-
tion in external networks, implies that external networks mediate the impact of
ISO 14001 on environmental impacts. Hence, our final hypothesis is:

Hypothesis 3.4 External networks mediate the impact of ISO 14001 on environmen-
tal impacts.

3.3 Methodology
The data were taken from the surveys conducted in 2011 and in 2014. The survey
results in 2011 were used for measuring the independent, mediating, and control
variables and the survey results in 2014 for measuring the dependent variables.
In this way, it can be tested if ISO 14001 and participation in external networks
improve environmental impacts in later years.
ISO 14001 was measured by a three-point scale, with 0 if the enterprise is not
certified for ISO 14001 at all, 0.5 if it is certified for part of the enterprise’s opera-
tional sites, and 1 if it is certified for all operational sites of the enterprise. This is in
line with the methodology of Oliveira et al. (2016) who distinguished those com-
panies with ISO 14001 certification with a partial score, covering just one sector of
the organization, from companies that have ISO 14001 certification with full scope.
The participation in external networks was measured by three indicators.
First, companies can participate in networks in the supply chain (Bos-Brouwers,
2010; Pirsch et al., 2006; European Commission, 2007). Second, companies can
develop partnerships with professional training institutes (technical schools, labo-
ratories, etc.) in order to anticipate the technological evolution of products or
services (ECEI, 2010; European Commission, 2002). Third, SMEs can partici-
pate in the local initiatives of governments and/or social organizations (Barth and
Wolff, 2009). Each instrument is measured by a binary scale.
For environmental impacts, we used similar indicators as in Chapter 2 to meas-
ure the change in energy consumption, waste production, and water consump-
tion between 2010 and 2013.
The scores for the three measures for networks were highly correlated. In addi-
tion, the various environmental impacts significantly correlate. The Cronbach’s
alphas (see α in Table 3.1) indicate the internal consistency of these two factors,
as both meet the accepted threshold of 0.60 (Kline, 2000). These test results show
that networks and outcomes measure single, unidimensional, and latent constructs.

3.4 Results
The estimation results are reported in Figure 3.2 and Table 3.2. As the mediat-
ing and independent variables are likely to be interdependent, we used structural
equation modelling (SEM) in STATA (Version 14) with maximum likelihood
32 Impacts of Corporate Social Responsibility

TABLE 3.1 Descriptive statistics of dependent and independent variablesa

Variable Measure Mean SD Year

ISO 14001 0.10 0.28 2011

External networks Cooperation supply chain (46) 0.26 0.44 2011
(α = 0.68) Partnerships with training institutes (47) 0.24 0.43 2011
Participation in local initiatives (48) 0.27 0.44 2011
Environmental impact Reduction energy consumption (102) 0.53 1.18 2014
(α = 0.73) Reduction in waste (104) 0.44 1.01 2014
Reduction in water consumption (105) 0.32 0.87 2014
a * p < 0.05, ** p < 0.01, *** p < 0.001. The numbers in brackets refer to the number of the survey
questions reported in Appendix 1.

FIGURE 3.2 Estimation results of structural relations: core relationships

TABLE 3.2 Estimation results of structural equation modela

External networks Environmental impact

ISO 14001 0.27*** 0.04

External networks 0.09**
Measurement model
External networks
- Cooperation supply chain 0.59***
– Partnerships with training institutes 0.63***
– Participation in local initiatives 0.69***
Ecological outcome
- Energy 0.69***
- Waste 0.67***
- Water 0.75***
a Standardized coefficients; * p < 0.05 ** p < 0.01, and *** p < 0.001. Controlled for sector, region,
position in the chain, intensity of price competition, age structure, skill level of employees, organi-
zational culture, and time horizon. Global fit indices: CFI = 0.964; TLI = 0.944; RMSEA = 0.020;
R2 = 0.205.

with missing values as estimation technique. The structural model is simultane-

ously estimated with the measurement model. The model is confirmed by the
global fit indices. The Comparative Fit Index (CFI), the Tucker–Lewis Index
(TLI), and RMSEA measure are all acceptable (Kaplan, 2009).
 Impacts of ISO 14001 Mediated by Networks 33

TABLE 3.3 
Estimation results for direct, indirect, and total effects of ISO 14001 on
environmental impactsa

Independent Mediator Dependent Direct effect Indirect effect Total effect

variable variable
ISO 14001 Environmental Environmental 0.131 0.068*** 0.199**
network impact
a Unstandardized coefficients; * p < 0.05, ** p < 0.01, and *** p < 0.001.

The estimation results show that ISO 14001 has no significant direct effect
on environmental impacts, but stimulates participation in networks. Based on
these results, we reject Hypothesis 3.1 and accept Hypothesis 3.3. Participation
in external networks has a significant positive effect on environmental impacts,
which provides support for Hypothesis 3.2.
For large samples (as in our case), a convenient method to test for media-
tion is by using the estimates that SEM provides for the significance of the
indirect effects by way of the Wald statistic (Shrout and Bolger, 2002; Lit-
tle et al., 2007). For the indirect effect from ISO 14001 on environmental
impacts, this effect equals a * b, where a is the unstandardized coefficient
of ISO 14001 in the equation of external networks and b the coefficient of
external networks in the equation of environmental impacts (Preacher and
Hayes, 2008). The total effect on environmental impacts is equal to the direct
effect of ISO 14001 on environmental impacts and the indirect effect as medi-
ated by environmental networks.
Table 3.3 shows that the indirect and the total effects are both significant.
These results show that participation in networks positively mediates the effect
of ISO 14001 on environmental impacts, which provides support for Hypoth-
esis 3.4.

3.5 Conclusion
This chapter investigates the relationship between ISO 14001 certification, exter-
nal environmental networks, and the environmental impacts of SMEs in 12 Euro-
pean countries. The chapter contributes to the academic literature by analysing
the patterns of the impact of ISO 14001 on the environmental impacts of SMEs
by distinguishing direct effects from indirect effects mediated by participation in
environmental networks. Previous research has not conjectured that participation
in external networks mediates the influence from ISO 14001 certification on
environmental impacts, although several authors do hint at the existence of this
mechanism (Ferenhof et al., 2014; Lopez-Gamero et al., 2009; Darnall and Sides,
2008; Battaglia et al., 2010; Ammenberg and Hjelm, 2003).
A second major contribution to the academic literature is that we test the
mediation model on a large sample of 3,633 SMEs from 12 countries by structural
34 Impacts of Corporate Social Responsibility

equation modelling. Our test results confirm that participation in external net-
works mediates the relationship between ISO 14001 certification and EP.
Our study is important because it bridges two opposing positions on the effec-
tiveness of ISO 14001 certification that are found in the literature. According to
Martín-de Castro et al. (2017), the question of whether ISO 14001 certification
really contributes to better EP or could be just ‘greenwash’ is still unanswered. On
one hand, several studies found low improvements in environmental impacts from
ISO 14001 certification (    Jamali, 2010; Aravind and Christmann, 2011; Boiral,
2012; Testa et al., 2014; Castka and Prajogo, 2013) and that the main motive
to employ ISO 14001 certification is to improve public image (Schylander and
Martinuzzi, 2007). On the other hand, there are several other studies that did
identify the positive effects of ISO 14001 certification on EP and suggested that
it stimulates environmental awareness among employees and better compliance
with environmental regulation (Ferenhof et al., 2014; Nguyen and Hens, 2015;
Guerrero-Baena et al., 2015; Nguyen and Hens, 2015; Singh et al., 2015; Oliveira
et al., 2016; Wong et al., 2017; Ferreira Rino and Salvador, 2017). In this debate,
our analysis takes an intermediate position. Our empirical analysis corresponds
to the first line of research – that ISO 14001 does not significantly improve the
future environmental impacts of SMEs, as we find no direct effect from ISO
14001 certification on the growth in energy consumption, waste production,
and water consumption. At the same time, our findings support the second line
of research – that ISO 14001 does contribute to better EP, but we find that this
influence is indirect and mediated by participation in networks.
This mediation channel seems particularly relevant for SMEs, on which we
focused our sample. SMEs often lack the resources to have up to date knowledge
of the increasingly complex issue of environmental impacts (Baumann-Pauly
et al., 2013). They need guidance from external parties to manage such processes
and ISO 14001 certification may be the trigger for the SME to collaborate with
other network partners who can offer this guidance. Getting involved in external
networks helps SMEs share best practices and compensates for a lack of technol-
ogy and/or skills.

Note
* An extended text of this chapter has been published in: Graafland, J. (2018). Ecological
impacts of the ISO 14001 certification of small and medium sized enterprises in Europe
and the mediating role of networks. Journal of Cleaner Production, 174: 273–282.
4
IMPACTS OF CORPORATE SOCIAL
RESPONSIBILITY ON INNOVATION

4.1 Introduction
Literature has recognized that CSR may be of strategic value because it contrib-
utes to innovation. Several researchers claim that CSR can stimulate innovation
(Porter and Kramer, 2006; Frondel et al., 2007; Midtun, 2007; Wagner, 2007a;
Surroca et al., 2010; Lioui and Sharma, 2012; Luo and Du, 2015). Still, the
empirical evidence that CSR stimulates innovation remains weak. One of the
problems which is encountered by this type of research is reverse causality. CSR
may require the introduction of a new technique or new product attribute and it
is found that these kinds of investments are positively related to innovation (Hitt
et al., 1997). Product innovation is necessary for redesigning products to make
them more environmentally responsible, whereas process innovation allows rede-
signing manufacturing processes to make them less contaminating (Christmann,
2000). Therefore, innovation frequently is a condition for bringing about the
changes required for the realization of CSR (McWilliams and Siegel, 2000; King
and Lenox, 2002; Scholtens, 2008; Padgett and Galan, 2009). This suggests two-
way causation and indeed MacGregor and Fontrodana (2008) hypothesized that
innovation and CSR can form a virtuous circle.
In a recent article, Flammer and Kacperczyk (2016) solved the causality issue
by using an instrumental variable approach and found support for a causal impact
of CSR (measured by stakeholder orientation) on innovation. One of the limita-
tions of the analysis of Flammer and Kacperczyk (2016) is that their sample is lim-
ited to public traded companies. In this chapter, we test the causal effect of CSR
on innovation for SMEs. SMEs make up 90% of business worldwide and account
for 50–60% of employment ( Jamali et al., 2008) and it is evidently important to
know if the findings of Flammer and Kacperczyk also apply to SMEs. SMEs are

DOI: 10.4324/9781003216483-5
This chapter has been made available under a CC-BY-NC 4.0 license.
36 Impacts of Corporate Social Responsibility

not just miniature versions of large companies, but are often thought to have
distinctive characteristics (Battisti and Perry, 2011). The level playing field on
which most SMEs operate means that they face severe competition which puts
their profitability under pressure. Lack of time, finances, skills, and knowledge are
commonly identified by SMEs as constraints to CSR (Tilley, 2000; Spence et al.,
2003; Lepoutre and Heene, 2006; Studer et al., 2006; Welford and Frost, 2006;
Russo and Tencati, 2009) and are also a barrier to innovation (Madrid-Guijarro
et al., 2009; Hewitt-Dundas, 2006; Bergman et al., 2006; Mosey et al., 2002).
SME managers tend to have a short-term horizon focusing on survival (Burt
and Van der Heijden, 2003) and are less likely to carry out strategic planning
(Laverty, 2004). The long-term benefits of CSR and innovation therefore often
remain beyond the strategic horizon of SMEs. This raises the question whether
the results of Flammer and Kacperczyk also apply to SMEs.
The research question in this chapter is therefore: Does CSR causally influ-
ence innovation of SMEs? In what follows, we first describe three hypotheses
of Flammer and Kacperczyk (2016) that we test for SMEs. Next, we discuss our
methodology. Then we present the test results and conclude with a summary of
our results.

4.2 Conceptual Framework
CSR has been claimed to stimulate innovation, for several reasons. First, CSR
helps in attracting highly qualified employees who may foster innovation (Clausen
and Loew, 2009). Turban and Greening (1997) argued that CSR will enable com-
panies to attract more intelligent, motivated, experienced, visionary, creative, and
committed employees, and this will likely also foster the innovative capability of
the firm. Second, Surroca et al. (2010) argued that the innovative capacity of a
firm is enhanced by the quality of the relational capital of a company. Since build-
ing team morale by good relationships among employees is an important social
dimension of CSR (Mandl and Dorr, 2007), CSR will strengthen the affective
commitment and knowledge sharing behaviour of current employees, which in
turn is a determinant of innovative performance. Third, the stakeholder orienta-
tion dimension of CSR may stimulate innovation by making the company more
sensitive to industrial and societal needs (Midtun, 2007; Bocquet et al., 2011).
Fourth, Flammer and Kacperczyk (2016) defended the CSR-innovation link by
arguing that stakeholder orientation is likely to relieve customers and employees
from short-termism. Long-term orientation will stimulate customers to be more
loyal to the firm and tolerate failures of new products and encourage employ-
ees to invest more effort in risky innovation. Furthermore, stakeholder orienta-
tion will increase employees’ job satisfaction, which is likely to foster employees’
engagement with innovation. Fifth, Jamali et al. (2011) showed that companies
that have strategic CSR partnerships with NGOs can be more capable of innova-
tion (dependent on the social capital of the partnership). More directly, engaging
 Impacts of CSR on Innovation 37

in CSR may stimulate a company to perform innovations that are necessary to

accomplish certain aspects of CSR (McWilliams and Siegel, 2000; Clausen and
Loew, 2009; Surroca et al., 2010). For example, the adoption of an environmental
programme may stimulate product innovation of environmentally friendly prod-
ucts or process innovation by redesigning production processes to realize CSR-
related goals (e.g. reduction of energy consumption).
Based on this literature, we posit three hypotheses of which 4.2 and 4.3 are
taken from Flammer and Kacperczyk (2016):

Hypothesis 4.1 The implementation of CSR instruments contributes to innovation.

Hypothesis 4.2 The positive impact of CSR instruments on innovation is greater in
consumer-focused industries.
Hypothesis 4.3 The positive impact of firms’ CSR instruments on innovation is greater
in less eco-friendly industries.

In defence of the second hypothesis, Flammer and Kacperczyk argued that

positive attitudes among consumers leading to greater demand for the firm’s prod-
ucts provide an incentive to product innovation because the firm knows there is a
market for the product. It will take more risks if consumers are committed to the
company. Furthermore, stakeholder orientation may encourage consumers to act
as a source of new ideas by participation in an exchange in ideas on new products.
The third hypothesis is built on the argument that stakeholder orientation will
particularly encourage eco-friendly innovation as this type of innovation appeals
to various stakeholders and that eco-friendly innovation matters more in indus-
tries engaged in high-polluting activities than in other industries.

4.3 Methodology
For CSR instruments, the responses from the 2011 survey were used. CSR instru-
ments were operationalized by five management instrument measures that com-
panies can use to improve their CSR impacts (see Table 4.1). An internal code
of conduct and CSR training increase the CSR awareness of employees (Adams
et al., 2001; Yu, 2009). Other instruments that are particularly relevant for SMEs
are participation in CSR networks or in local CSR initiatives. As small firms
are more resource constrained, they must rely on external experts for appropri-
ate solutions to, for example, environmental challenges. Cooperation with other
enterprises or NGOs will help bring expertise to the SME (Arimura et al., 2008;
Bos-Brouwers, 2010). Furthermore, we included ISO 14001 certification.
Innovation was based on the responses in the 2014 survey. Innovation was
measured by one question on product information (‘Has your enterprise intro-
duced new or significantly improved products or services since 2010? Exclude
the simple resale of new goods and changes of a solely aesthetic nature’) and
one question on process information (‘Has your enterprise introduced new or
38 Impacts of Corporate Social Responsibility

TABLE 4.1 Descriptive statistics and exploratory factor analysisa

Mean SD Factor loadings

CSR instruments Innovation

Internal code of conduct (43) 0.48 0.50 0.61

CSR training employees (53) 0.29 0.45 0.69
ISO 14001 (57) 0.14 0.32 0.50
CSR cooperation supply chain (46) 0.36 0.48 0.62
Participation in local CSR initiatives (47) 0.41 0.49 0.55
Position in the chain (6) 1.88 1.00
High pollution sector 0.10 0.31
Product innovation (123) 4.14 1.81 0.91
Process innovation (124) 4.11 1.74 0.91
Eigen value 2.08 1.39
Cronbach alpha 0.60 0.81
a The numbers in brackets refer to the numbers of the survey questions in Appendix 1.

significantly improved production or organizational processes since 2010?’), both

measured on a seven-point Likert scale. The internal consistency of CSR and
innovation is confirmed by exploratory factor analysis and the Cronbach’s alphas,
which exceed the lower limit of 0.60 (Hair et al., 1998). Based on these results,
average values for CSR and innovation were used.
The position in the chain was measured by one survey question in the 2011
survey asking whether companies operate in business-to-consumer (B2C) rela-
tions or business-to-business (B2B) relations, measured on a five-point Likert
scale. Furthermore, a dummy for high-polluting industries was constructed, fol-
lowing Flammers and Kacperczyk’s definition that includes metal mining, electric
utilities, chemicals, primary metals, paper, food, beverages, tobacco, and hazard-
ous waste.
Using a lag of three years for CSR instruments in the regression analysis for
innovation reduce potential simultaneity bias in the relationship between CSR
instruments and innovation. But to further control for simultaneity bias, we also
used IV estimation technique with two instrumental variables for CSR instru-
ments. First, we used CSR information provided by industrial associations to
the company. Institutional theory argues that business associations can educate
their members on CSR (Campbell, 2007); for example, by providing information
on codes of conducts. The second instrumental variable measures the degree of
monitoring of the company’s CSR by NGOs and/or media, which increases the
probability of reputational harm for companies with low CSR. Since it is likely
that these variables affect innovation only indirectly through stimulating the use
of CSR instruments, we assumed that they can serve as instrumental variables
for CSR instruments. The variables are measured in the 2011 survey (see survey
questions 41 and 42 in Appendix 1).
 Impacts of CSR on Innovation 39

Besides IV regression analysis, we also tested for predictive causality by

employing Granger causality tests by including innovation measured in the 2011
survey as additional control variable. CSR instruments are said to Granger cause
innovation if the lagged CSR instruments significantly affect innovation, while
controlling for lagged innovation and all other control variables. An advantage
of controlling for lagged innovation is that it also captures the influence of other
unobserved variables driving innovation.

4.4 Results
Table 4.2 reports the results of the regression analysis. We used the bootstrap
estimation procedure with 1,000 bootstrap samples to estimate the model. First,
we tested the strength of the instrumental variables. Column 1 of Table 4.2 shows
that CSR information of industrial associations and CSR monitoring by NGOs
and media have very significant positive effects on CSR instruments (T-values are
7.03 and 7.42, respectively). Hence, they satisfy the condition that the instrumen-
tal variables must sufficiently be correlated with the independent variable.

TABLE 4.2 Regression analysisa

1 2 3 4 5 6

CSR Innovation
instruments

Info industrial 0.197**

organizations (0.001)
Monitoring NGOs & 0.208**
media (0.001)
CSR 0.237** 0.164** 0.164** 0.166** 0.079**
(0.002) (0.001) (0.001) (0.001) (0.003)
CSR * B2C −0.011
(0.677)
CSR * polluting −0.004
(0.892)
Innovation lagged 0.397**
(0.001)
R2 0.234 0.127 0.143 0.143 0.143 0.275
P value Hausman–Wu 0.309
test
P value Sargan test 0.183
Estimation method OLS IV OLS OLS OLS OLS
a OLS estimated with bootstrap N = 1,000. Standardized coefficients; p-values in brackets. * p < 0.05;
** p < 0.01. Controlled for sector, country, price competition, organizational culture, time horizon,
age structure, skill structure, tenure, ownership structure, and company size. Details of the control
variables are reported in Appendices 1 and 2.
40 Impacts of Corporate Social Responsibility

The IV estimation results reported in column 2 of Table 4.2 show that CSR
instruments significantly stimulate innovation, thus confirming Hypothesis 4.1.
The Sargan test shows that the instrumental variables pass the exogeneity require-
ment. Furthermore, the Hausman–Wu test shows that CSR instruments are
exogenous to innovation, indicating that there is no reverse causal influence of
innovation on CSR. Based on the Hausman–Wu test, omitted variable bias or
other biases that result from correlation between the independent variable and the
residual can also be excluded.
Since OLS is preferable to IV if there is no endogeneity, we proceeded with
OLS (column 3 in Table 4.2). In comparison to the IV estimation results, the
significance of CSR instruments further increases. In column 4 and 5, we added
(centered) moderators for B2C and high-pollution industries but we find no sup-
port for hypotheses 4.2 and 4.3. In column 6, we controlled for lagged innovation
from 2011. CSR instruments remains highly significant, showing that it Granger
causes innovation.

4.5 Conclusion
In this chapter, we tested three hypotheses derived from a recent study by Flam-
mer and Kacperczyk (2016) on the influence of CSR instruments on innova-
tion by SMEs. It is widely recognized that SMEs have several characteristics
that distinguish them from public-traded companies (Tilley, 2000; Spence et al.,
2003; Burt and Van der Heijden, 2003; Laverty, 2004; Bergman et al., 2006;
Lepoutre and Heene, 2006; Studer et al., 2006; Welford and Frost, 2006; Hewitt-
Dundas, 2006; Russo and Tencati, 2009; Madrid-Guijarro et al., 2009; Battisti
and Perry, 2011). First, SMEs often operate on a level-playing field and are sub-
ject to intensive price competition. SME managers respond to this market pres-
sure in a reactive way rather than undertaking proactive investments in CSR or
innovation. Second, because of the intensive price competition, SMEs’ profitabil-
ity is lower than the profitability of large public-traded firms that operate more
on oligopolistic markets. As a consequence, SMEs have limited resources in the
form of time, money, and human capital. They often face short-term payment
problems and lack the necessary skills and capabilities to pursue CSR and innova-
tion strategies. Third, SMEs tend to think and plan in the short term and focus on
survival. Consequently, the long-term strategic benefits of CSR and its impact on
innovation often remain beyond the strategic horizon of SMEs. Because of these
characteristics, size might be a crucial factor for the CSR–innovation link. The
findings of Flammer and Kacperczyk (2016) can therefore not be generalized to
SMEs without further research.
In our study, we found confirmative evidence of the finding of Flammer and
Kacperczyk (2016) that the implementation of CSR instruments has a positive,
causal effect on innovation. This finding is very reassuring not only because the
 Impacts of CSR on Innovation 41

companies in our sample differ markedly in size (34% being micro companies
with 10 or less employees) from the companies in Flammer and Kacperczyk’s
sample but also because we studied SMEs in Europe instead of US. Our finding
thus provides a strong indication that the conclusion of Flammer and Kacperczyk
that stakeholder orientation sparks innovation holds more generally.
However, our analysis does not support Flammer and Kacperczyk’s find-
ing that the CSR-innovation link is moderated by consumer-focused indus-
tries. A possible reason is that the argument of Flammer and Kacperczyk that
positive attitudes among consumers provide an incentive to product innovation
applies equally to SMEs operating in B2B relationships. The stimulating effect
of large customers setting responsibility targets for their smaller suppliers has
been widely acknowledged (Lepoutre and Heene, 2006). As the reputation
of large companies with strong brands can be severely harmed by negative
publicity about issues in their supply chain, they have a major interest in the
CSR performance of their suppliers (Roberts, 2003). If an SME builds a strong
relationship with a large business customer by meeting CSR standards that this
customer applies in its supplier relationships, the SME’s risks will be lower and
it will have a stronger incentive to invest resources in the development of new
products or processes.
In addition, moderation of the CSR-innovation link by high-pollution indus-
tries is not supported. A possible explanation is that the stakeholder orientation
in SMEs is foremost directed towards the own employees and less to stakeholders
with a high concern for the environment. Jamali et al. (2008) found that out of
six stakeholder groups, SMEs rank employees as the most important and environ-
ment as the second-least important stakeholder group. Mandl and Dorr (2007)
showed that much of the SMEs’ CSR initiatives aim at stimulating engagements
and building team morale of the SMEs’ own employees (Mandl and Dorr, 2007).
Therefore, it is likely that the social dimension (e.g. employee training, healthy
working conditions, and fair reward systems) is more important than the environ-
mental dimension of CSR for SMEs and, hence, that the innovation effects from
CSR are to be found as much in labour-intensive sectors as in high-pollution
sectors. As argued by Flammer and Karcperczyk’s, a strong stakeholder focus on
employees encourages the employee’s engagement in innovation and it is likely
that this mechanism also explains why we found a link between CSR instruments
and innovation for SMEs. Our results that the CSR-innovation link is not mod-
erated by consumer-focused industries or by high-pollution industries illustrate
that not all findings of Flammer and Kacperczyk (2016) can be generalized to the
context of SMEs.
Another interesting result is that CSR instruments appear to be exogenous
to innovation. Hence, we find no evidence of a virtuous circle between CSR
instruments and innovation for SMEs. This result might be explained by the
analysis of Hull and Rothenberg (2008) who found that CSR and innovation
42 Impacts of Corporate Social Responsibility

are alternative ways for companies to differentiate themselves from other com-
panies. Companies that are already innovative do not need CSR instruments to
maintain or gain market share. Hence, the virtuous circle probably only holds
for CSR-related innovation that improves CSR outcomes, but not for innova-
tion in general.
5
DOES CORPORATE SOCIAL
RESPONSIBILITY PUT
REPUTATION AT RISK?* IMPACTS

5.1 Introduction
One of the advantages of engaging in CSR is that it can improve the firm’s repu-
tation (Gardberg and Fombrun, 2006; Heikkurinen, 2010; Babiak and Trenda-
filova, 2011; Melo and Garrido-Morgado, 2012; Lin et al., 2016). The enhanced
stakeholder perceptions are a valuable resource that will lead to improved financial
performance (Walker and Mercado, 2015). Environmental certifications can sig-
nal quality, mobilize trust of stakeholders, and help to differentiate the firm from
competitors (Djupdal and Westhead, 2015). Moreover, CSR often effectively
carries with it a kind of insurance-type protection by reducing business and cor-
porate risks (Godfrey et al., 2009; Lin et al., 2016). For example, a strong CSR
programme can help limit reputational damage if accidents happen.
While most papers look at the positive effects of CSR, a few others consider
the potential negative reputational effects (Rhee and Haunschild, 2006; Wagner
et al., 2009; De Vries et al., 2015). King and McDonnell (2012) challenged the
insurance like capability of CSR by pointing at the so-called reputational liability
effect. They argued that if activists want the maximum amount of attention in the
media, it is better for them to target a firm with a good CSR reputation. Thus,
by investing in CSR to improve its reputation a firm sets itself up to be targeted
by activists. King and McDonnell tested this effect by relating data on boycotts
that targeted publicly traded firms in the U.S to the Forbes reputation index.
Their study showed that firms in the highest tier of CSR reputation have a higher
chance of being boycotted.
The question is whether this reputational liability effect is also relevant for
SMEs. Large companies are more visible and hence more likely to be targeted by
non-governmental organizations (NGOs) (Hendry, 2006). Given their limited

DOI: 10.4324/9781003216483-6
This chapter has been made available under a CC-BY-NC 4.0 license.
44 Impacts of Corporate Social Responsibility

means to gather information, it is more efficient for activists to focus on large

enterprises, as they are often market leaders in their organizational field and indi-
rectly affect the behaviour of SMEs through supplier–customer relations in the
chain. Still, the reputational liability effect of CSR might also be important for
SMEs. As they are embedded in their local community (Doshi et al., 2013), their
CSR may be noticed by local activists in their local community and become
known in local media (Fuller and Tian, 2006). King and McDonnell’s finding
that an increase in CSR activities makes a company a more likely target of activ-
ists’ engagement, may therefore also apply to SMEs.
At present, there is no research that tested this potential negative effect of CSR
for SMEs. In contrast with King and McDonnell (2012), our analysis therefore
focuses on SMEs. The main research questions of this chapter are: ‘What is the
effect of CSR of an SME on the intensity that its CSR is monitored by exter-
nal parties like activists?’ and ‘How does this CSR monitoring affect the SME’s
exposure to public criticism on its CSR?’ These research questions are not only
interesting for the academic community but also for the practitioners of CSR.
Many SMEs may not realize that by engaging in CSR activities they might be
setting themselves up to be monitored by external parties. If the reputational
liability effect is also operating for SMEs, they should be careful in positioning
themselves as firms that proactively pursue CSR policies to gain reputational ben-
efits, because these benefits of CSR may easily turn into reputational liabilities.
The model is tested on a sample of 1,355 SMEs in 12 European countries
that have been surveyed twice with an interval of three years. By using data for
two periods, we can analyse how CSR affects CSR monitoring and criticism on
CSR in later years. The content of this chapter is as follows. First, we present the
conceptual model and the hypotheses. Section 5.3 describes the methodology
and data. Section 5.4 presents the results of the regression analysis. Section 5.55
summarizes the main findings.

5.2 Conceptual Framework
The conceptual framework is depicted in Figure 5.1.

CSR and Monitoring

We take our starting point in social movement theory (King, 2008; Fligstein and
McAdam, 2011). Social movements are group-based, coordinated attempts to
change relationships among people and social institutions (Hendry, 2006). Com-
panies require a social licence to operate, that is an ongoing acceptance of a com-
pany’s operations by the surrounding civil society (Lynch-Wood and Williamson,
2007). Civil society can vary from grassroot organizations and neighbourhoods
at the local level to non-governmental organizations (NGOs) at the regional,
national, and international level (Dare et al., 2014). NGOs are potentially an
 Does CSR Put Reputation at Risk? 45

FIGURE 5.1 Conceptual framework

important stakeholder of companies. They can monitor companies and generate

attention in the media about situations they find undesirable, which will reflect
negatively on the public’s perception about the firm.
To prevent such negative reputational effects, companies can pursue an active
CSR policy to deter NGOs from damaging the reputation of the firm (Maxwell
et al., 2000). Being known as a company with highly ranked CSR is believed to
discourage NGOs from monitoring a firm (Klein and Harford, 2004). If a com-
pany signals that it is meeting societal expectations regarding social and EP, NGOs
will have more trust in the company and be less inclined to monitor it and there-
fore less frequently uncover reasons to make complaints. Godfrey et al. (2009)
explain that participating in CSR activities creates a form of goodwill for the
firm. Analysing firm-level CSR activities and 178 negative actions against firms
during 1993–2003, they found that participation in institutional CSR activi-
ties provided an ‘insurance-like’ protection. The policy implication of this belief
would be that by taking pre-emptive actions through instituting socially responsi-
ble practices, firms can prevent becoming targets of future monitoring by NGOs.
The incentive that community-level pressures provide companies to pursue CSR
seems even to be stronger than CSR’s direct effects on company profitability or
market value (Marquis et al., 2007).
However, social movement theory has cast doubt on this belief that CSR
diminishes monitoring by external parties. King and McDonnell (2012) argued
that firms developing positive CSR reputations put themselves in the spotlight,
thereby increasing activists’ attention to the firm. To attract public attention,
activists target well-known companies with a good reputation. They use the
good reputation of the firm as a resource they can draw on to generate public
attention as the public will pay more attention to NGOs’ grievances when they
make critical claims of a well-known firm (Hendry, 2006; Vogel, 2010). High
reputation increases the chance that a company responds to the criticism of the
NGO (Baron and Diermeier, 2007; McDonnell and King, 2013). Companies
that express commitment to CSR raise expectations among their stakeholders
46 Impacts of Corporate Social Responsibility

and become obligated to uphold their commitment (    Joyner and Payne, 2002).
Stakeholders will react more negatively when such a firm is found to lack behind
(Rhee and Haunschild, 2006; Wagner et al., 2009). Testing their model on 157
publicly traded firms that were boycotted during 1990–2005 and 471 comparable
firms, King and McDonnell (2012) indeed found that firms in the highest tier
of Fortune’s Most Admirable Firms Index are significantly more likely to be tar-
geted. Similarly, McDonnell et al. (2015) found that firms issuing a CSR report
are significantly more open to being challenged by NGOs in the future, as the
publication of CSR reports empowers external monitors by providing them with
easier access to information about a firm’s social activities, which makes it easier
to identify areas in which the firm still needs to improve.
Based on these arguments and findings, we postulate the following hypothesis:

Hypothesis 5.1 High CSR intensifies CSR monitoring by NGOs and media.

Moderation by Company Size

Although SMEs are less visible, it can be argued that they also need a social
licence from the local community. Since SMEs are highly embedded in their local
community, they will be seriously harmed if local NGOs spread bad news about
their CSR in the media in the local community (Doshi et al., 2013; Fuller and
Tian, 2006).
Still, it is likely that the reputation liability effect is dependent on company size
(Gunningham et al., 2004). Previous research has shown that SMEs are heteroge-
neous in nature (Brammer, Hoejmose et al., 2012). The smaller the company, the
less public attention it will attract. Naming and shaming strategies are less relevant
for very small companies than for medium-sized companies (Lynch-Wood and
Williamson, 2007). Therefore, it is to be expected that the strength of the repu-
tational liability effect depends positively on firm size. When a micro firm starts
to upgrade its CSR, for example by participating in CSR networks in the supply
chain, it will attract less attention from NGOs than when a medium-sized firm
does so, because the small firm is less visible. Therefore, we propose that:

Hypothesis 5.2 Firm size positively moderates the positive influence of CSR on CSR
monitoring.

CSR and Exposure to Criticism: Moderation by Monitoring

The last part of our conceptual framework concerns the relationship between
CSR and the probability that a company is criticized for its (low) CSR. More
and more companies have become aware that low CSR can harm economic per-
formance by damaging their corporate reputation (Lin et al., 2016; Tang et al.,
2012). However, the empirical evidence on this assumption is ambiguous, as
 Does CSR Put Reputation at Risk? 47

there are also studies that do not find evidence of reputational or financial harm
(Karpoff et al., 2005; Schons and Steinmeier, 2016).1 A possible reason is that
the relationship between the CSR and reputational damage is more complex
and moderated by the intensity of CSR monitoring. If activists start monitoring
the CSR of a company, it is more likely that they notice the controversial effects
of the company’s operations, which provides them with a weapon to criticize
the firm and to organize actions against the firm. The likelihood that monitor-
ing leads to identification of such controversial issues depends negatively on the
CSR of the company. Hence, societal criticism on a company’s CSR depends on
the combination of low CSR and high intensity of monitoring. If a company is
intensively monitored by external parties while its CSR is of high quality, there
will be no cause for NGOs to blame the company and it is unlikely that its CSR
will be criticized. But the same holds for companies with a low CSR that are
not monitored, because then external stakeholders lack the information to make
complaints about the company’s CSR. As Reuber and Fischer (2010) argued
(without testing this hypothesis), the relationship between low CSR and reputa-
tional loss is positively moderated by media coverage of the discreditable CSR.
Hence, only if a low performing company is monitored by external parties, will
its CSR invoke external criticism. Therefore, we expect that:

Hypothesis 5.3 The intensity of CSR monitoring moderates the influence of CSR on
the exposure to criticism on the company’s CSR.

5.3 Methodology
The data were taken from the surveys conducted in 2011 and in 2014. The survey
results in 2011 were used for measuring the independent, mediating, and control
variables and the survey results in 2014 for measuring the dependent variables.
Table 5.1 reports the descriptive statistics of the dependent and independent
variables and the results of exploratory factor analysis. The dependent variable –
the extent that a company’s CSR is criticized – was measured by a seven-point
Likert scale from 1 (not at all) to 7 (very much). The mean value of the responses
shows that, on average, SMEs do not often face criticism on their CSR.
Regarding the moderating variables, the intensity of CSR monitoring was
measured by a seven-point Likert scale from 1 (not at all) to 7 (very much).
Table 5.1 shows that the average intensity of monitoring is higher than the extent
that an SME’s CSR is criticized, but it is still rather low. Company size has been
measured by the number of FTEs in 2011.
The independent variable, CSR, has been measured by six concrete manage-
ment instruments that firms can use to improve their CSR impacts: public code
of conduct (Kaptein and Wempe, 1998); ISO 14001 certification; participation in
CSR networks in the supply chain (Battaglia et al., 2010); partnerships with pro-
fessional training institutes (Bos-Brouwers, 2010); dialogue with NGOs on CSR
48 Impacts of Corporate Social Responsibility

TABLE 5.1 Descriptive statistics and factor analysisa

Measurement Descriptive statistics Year Loadings

Variable Description Mean SDd

CSR criticism To what extent did 0.77 1.18 2014

your enterprise face
complaints about your
enterprise’s social and/or
environmental aspects? (40)
CSR To what extent do NGOs 1.23 1.43 2014
monitoring and/or media monitor your
enterprise’s CSR? (42)
CSR Public code (44) 0.20 0.40 2011 0.61
ISO 14001 certification (57) 0.17 0.36 2011 0.52
Active dialogue with NGOs 0.18 0.39 2011 0.64
(45)
CSR cooperation supply 0.41 0.49 2011 0.73
chain (46)
Partnerships with training 0.36 0.48 2011 0.68
institutes (47)
Participation in local CSR 0.44 0.50 2011 0.74
initiatives (48)
Eigen value 2.59
Cronbach alpha 0.74
a The numbers in brackets refer to the number of the survey question reported in Appendix 1.

(Hall et al., 2015); and participation in local CSR initiatives (Barth and Wolff,
2009). These indicators were each measured by a binary scale (0: no; 1: yes). As
shown in Table 5.1, all instruments load on one factor. Also the Cronbach’s alpha
indicates internal consistency of the CSR instruments, as it meets the accepted
threshold of 0.60 (Kline, 2000). In the regression analysis, we therefore used the
factor for CSR as estimated by the exploratory factor analysis as independent
variable.
As social licence provides an incentive to firms to engage in CSR, CSR
monitoring and CSR criticism may also reversely affect the use of CSR policies
(McDonnell et al., 2015). In order to prevent simultaneity bias in the estima-
tion results, we therefore used the 2SLS estimation technique. In the first stage,
CSR was regressed on all control variables and two instrumental variables, the
innovation motive to CSR and the motive to satisfy employees. Research has
shown that CSR stimulates innovation (Flammer and Kacperczyk, 2016). Man-
agers may therefore be interested in CSR to increase innovation. Furthermore,
CSR may also provide personal satisfaction to the current workforce, leading to
stronger commitment from employees and a more positive attitude to work and
good conduct (Greening and Turban, 2000). In contrast to the reputation motive
 Does CSR Put Reputation at Risk? 49

(CSR as a means to prevent reputational damage), the innovation and employee

motives for CSR are internal rather than external drivers of CSR. There is no
theoretical reason that they directly affect the intensity of CSR monitoring and
complaints on a company’s CSR. The innovation motive was measured in the
2011 survey by survey question 22 and the employee motive by survey question
26 (see Appendix 1). In the second stage, we used the estimated predicted value
of CSR to construct the interaction terms and used them, together with the pre-
dicted value of CSR, as explanatory variables in the regression analysis of CSR
monitoring and CSR criticism.

5.4 Results
Table 5.2 presents the outcomes of the multivariate regression. First, we tested
the impact of our instrumental variables on CSR, while controlling for all con-
trol variables. The estimation results in column 1 show that the innovation and
employee motives are both highly significant (T-values of 7.84 and 6.30 for the
innovation motive and employee satisfaction motive, respectively) and therefore
qualify as strong instruments. Furthermore, the estimation results show that CSR
is positively related to company size, market leadership and position in the supply
chain (B2C) and is relatively low for SMEs from Continental and Mediterranean
Europe.
Based on these results, we proceeded with the second-stage regression analysis
of the intensity of CSR monitoring. The Hausman–Wu test confirms that CSR
is endogenous (p < 0.00). The Sargan test shows that the instrumental variables
pass the exogeneity requirement (p > 0.05). The estimation results show that a

TABLE 5.2 Results of multivariate regression analysisa

CSR CSR monitoring CSR criticism

1 2 3 4

Innovation motive 0.20***

Employee motive 0.16***
CSR 0.30*** 0.00
CSR * ln size (centered) 0.07**
CSR monitoring * (CSRmax-CSR) 0.16* 0.18***
CSR monitoring 0.03
Estimation method OLS 2SLS 2SLS 2SLS
R2 0.20 0.09 0.15 0.15
Hausman–Wu test (p-value) 0.00*** 0.25 0.23
Sargan test (p-value) 0.29 0.30 0.18
a Standardized coefficients; * p < 0.05; ** p < 0.01; and *** p < 0.001. The estimation results are
controlled for company size, market position, position in the chain, intensity of price competition,
region, sector, and Inverse Mill’s ratio.
50 Impacts of Corporate Social Responsibility

firm with a higher CSR in 2011 faces a higher intensity of CSR monitoring by
NGOs and media in 2014. Hence, our results support Hypothesis 5.1. In addi-
tion, the interaction term of CSR and (the natural logarithm of    ) firm size has a
significant positive effect, which supports Hypothesis 5.2 that the strength of the
reputation liability effect increases with firm size.
Third, we estimated the equation for CSR criticism. We define the inter-
action term as the intensity of CSR monitoring multiplied by the difference
between the maximum CSR score in the sample and the actual CSR score of the
company. In column 3, we find a significant positive influence of the interaction
term, whereas the linear specifications of CSR and intensity of monitoring are
both insignificant. These results imply that low CSR only elicits criticism insofar
a company’s CSR is monitored. In the last column, we drop the linear specifica-
tions of CSR and CSR monitoring, which further enhances the significance of
the moderating effect.

5.5 Conclusion
For firms, reputation is very important in attracting and keeping customers. One
of the ways a firm can build up its reputation is by engaging in CSR activi-
ties. Most academic literature regarding CSR looked at ways in which CSR
could benefit a firm by improving its reputation (Gardberg and Fombrun, 2006;
Heikkurinen, 2010; Babiak and Trendafilova, 2011). Lin et al. (2016) found that
the reputation damage of information on environmental irresponsibility is lower
for companies with CSR activities than for companies without CSR activi-
ties. Schons and Steinmeier (2016) found that symbolic actions directed at low-
proximity stakeholders increase profitability as long as the gap with substantive
CSR is not too large, which suggests that symbolic actions improve reputation,
even if substantial CSR lags behind.
This chapter explores a potential negative effect of engaging in CSR, namely
that it invites more CSR monitoring by NGOs and media and therefore puts
reputation at risk by increasing complaints. Earlier research based on experi-
ments with students showed that a company’s communication of investments in
environmental measures may increase the perception of corporate greenwash-
ing if people suspect strategic behaviour (Vries et al., 2015). But, as far as we
know, there are only two studies that tested the so-called reputational liability
effect among activist movements (King and McDonnell, 2012; McDonnell et al.,
2015). These studies have been done by analysing boycotts against large, public
firms. There has been no research yet that looked at the relevance of this reputa-
tional liability effect for SMEs and how it affects their reputation by inviting criti-
cism. Furthermore, whereas previous literature focused on the US, our analysis
pertains to a sample of SMEs from 12 European countries.
Our results confirm that the reputational liability effects identified for large
companies by King and McDonnell (2012) and McDonnell et al. (2015), also
 Does CSR Put Reputation at Risk? 51

hold for SMEs. We find that there is a significant positive effect of CSR on the
intensity of CSR monitoring in later periods. This effect is moderated by com-
pany size, meaning that medium-sized companies are more influenced by the
reputational liability effect than micro or small companies. Furthermore, we find
that the intensity of monitoring moderates the effect of low CSR on complaints
about the company’s CSR.
Whereas earlier findings of Gardberg and Fombrun (2006), Melo and Garrido-
Morgado (2012), and Lin et al. (2016) showed that CSR improves reputation and
that this reputational advantage motivates managers to pursue CSR (Brønn and
Vidaver-Cohen, 2009; Babiak and Trendafilova, 2011), our results imply that if
an SME starts CSR activities, it creates more exposure to external criticism on its
CSR. The message of Godfrey et al. (2009) that CSR has insurance-like proper-
ties is therefore, at least partly, misleading. This is significant because many SMEs
may not realize that by engaging in CSR activities, they are setting themselves
up to be monitored more intensely. The higher intensity of CSR monitoring
increases the probability that NGOs find reasons to criticize an SME’s CSR.
Moreover, these negative publications by NGOs and media will have more severe
consequences for an SME if it has fuelled the expectations of society.
This creates what we could like to call a ‘social licence trap’ for SMEs. Once
a firm starts engaging itself with CSR, it may be forced to subsequently dedicate
even more resources to CSR because of the higher public attention. A vicious
circle follows, wherein more CSR practices are necessary to prevent reputational
damage, which again causes the firm being a target of CSR monitoring. Firms
that do not pay attention to CSR can sit back as they receive considerably less
attention from NGOs or media. As long as they are ignored, they have a negative
incentive to engage in CSR to prevent entering the ‘social licence trap’ and are
probably able to get away with their low CSR. The strategic implication is that
SMEs that want to move away from this poor CSR profile must be prepared to
go all the way and transform themselves into companies that command respect
because of their high CSR.
These effects are illustrated by a fictitious case in Table 5.3 that we can derive
from the estimation results in Table 5.2. Suppose that in an initial situation, an
SME does not pay attention to CSR at all and is not monitored by external
parties (period 1 in Table 5.3). Because the company’s CSR is not externally
observed, it receives no criticism in the media. Suppose now that in period 2
this company initiates some CSR initiatives causing its CSR to increase to 25%
of the maximum CSR score. This raises the external visibility of the company
and hence the likelihood that the attention to its CSR from external parties is
growing. Based on the estimation results in Table 5.2, we can calculate that the
intensity of CSR monitoring and criticism increases. The criticism makes the
SME aware that its CSR is being monitored by external parties and this creates
a further incentive to improve its CSR to 50% (period 3). Then the reputational
consequences are again negative, because the increased CSR invites an even more
52 Impacts of Corporate Social Responsibility

TABLE 5.3 Effects of CSR on monitoring and criticisma

Period CSRb CSR monitoring CSR criticism

1 0 0 0
2 25 0.75 0.22
3 50 1.50 0.29
4 75 2.25 0.21
5 100 3.00 0
a based on a fictitious SME with no CSR that is not monitored and criticized in period 1. The
increase in CSR monitoring and CSR criticism in periods 2–5 due to the increase in CSR are
calculated by use of the estimation results reported in Table 5.2.
b as % of maximum CSR in the sample.

intensive CSR monitoring. And since the CSR of the company is still lacking
behind that of SMEs at the frontier of CSR, there is still room for criticism. Sup-
pose the company responds again by improving its CSR. In this way, it gradually
closes the gap between the company’s CSR and that of the frontrunners with a
100% score, which diminishes criticism. In period 5, when the company belongs
to the top CSR performers, there is no reason for external parties to criticize
the SME’s CSR. But in terms of CSR criticism, the company is not better off in
period 5 in comparison to period 1 where the SME did not engage at all in CSR.

Notes
* An extended text of this chapter has been published as an open access article under
the terms of the Creative Commons Attribution License in: Graafland, J. (2018). Does
corporate social responsibility put reputation at risk by inviting activist targeting? An
empirical test among European SMEs. Corporate Social Responsibility and Environmental
Management, 25: 1–13.
1 Schons and Steinmeier (2016) found that a gap between symbolic and substantial CSR
has a positive effect (although decreasing with the size of the gap) on financial perfor-
mance if CSR is directed to low-proximity stakeholders. Cho et al. (2012) even found
that reputation is negatively related to environmental performance, because reputation is
largely driven by the disclosure level of companies and it is particularly low-performing
companies that pay attention to disclosure.
PART II

Internal Drivers of
Corporate Social
Responsibility
6
INTRINSIC VERSUS EXTRINSIC
MOTIVATIONS AND
COMPANY SIZE

6.1 Introduction
Motivation (i.e. the reason upon which one acts) is an important antecedent
to behaviour (Treviño et al., 2006).1 Companies may have different motives
for actively pursuing CSR. Literature often distinguishes extrinsic motives that
encourages CSR because of its strategic benefits (market demand and reputa-
tion) from intrinsic motives that perceive CSR as an end in itself (Scopelliti et al.,
2018; Coppa and Sriramesh, 2013; Muller and Kolk, 2010; Paulra, 2009; Agu-
ilera et al., 2007; Child and Tsai, 2005; Lindenberg, 2001; Weaver et al., 1999;
Swanson, 1999). Often, it is assumed that executives are motivated by extrinsic
motives because CSR has been shown to improve a corporation’s profitability
(Orlitzky et al., 2003). However, non-strategic (intrinsic) motives may also drive
CSR. Executives may derive personal satisfaction from CSR or may perceive
CSR as a moral duty to be observed.
Previous research on the motives around CSR has produced mixed results.
Several researchers have found that extrinsic motives, such as company reputa-
tion or financial performance, are more important than intrinsic motives. For
example, Lougee and Wallace (2008) found that companies use CSR mainly
as a form of ‘risk management’. Brønn and Vidaver-Cohen (2009) found that
a company’s long-term interest and image feature among the most frequently
mentioned reasons for CSR. In contrast, Graafland and Van de Ven (2006) found
a significant relationship between CSR and intrinsic motives but no significant
relationship between CSR and the strategic motive of financial benefit. Graaf-
land and Mazereeuw-Van der Duijn Schouten (2012) found evidence of a paral-
lel existence of strategic, ethical, and altruistic motives, but estimate that overall

DOI: 10.4324/9781003216483-8
This chapter has been made available under a CC-BY-NC 4.0 license.
56 Internal Drivers of CSR

CSR is more driven by intrinsic motives (ethical and altruistic) than by extrinsic
motives (strategic).
One of the reasons for the variance in these results is a difference in the sample
used. Whereas Graafland and Van de Ven (2006) and Graafland and Mazereeuw-
Van der Duijn Schouten (2012) used a sample of both SMEs and large companies
from the Netherlands, Brønn and Vidaver-Cohen (2009) researched 1,644 Nor-
wegian companies with more than 50 employees and Lougee and Wallace (2008)
researched only large companies rated by the S&P 500 and Domini 400. The size
of the company may affect the type of motivation for CSR. SMEs are more often
privately owned and managed by their owners than large companies (Lepoutre
and Heene, 2006). The policies of these family businesses tend to reflect the
values of the managers. Because these businesses are closer to home and to the
personal lives of their managers, the CSR of SMEs is more likely to reflect
the ethical concerns of the individuals involved than strategic motivations.
This chapter therefore aims to investigate two sets of research questions: 1.
To what extent do intrinsic and extrinsic motives stimulate CSR? 2. How are
both types of motives related to company size? In the following sections, we first
introduce the hypotheses. Then we describe the methodology of the research. In
section 6.4, we present the outcomes of the empirical analysis. In section 6.5, we
summarize the main findings.

6.2 Conceptual Framework
In this section, we first describe the extrinsic and intrinsic motives of CSR.
Next, we consider how company size may influence intrinsic and extrinsic CSR
motives. The overall conceptual framework is depicted in Figure 6.1.

Extrinsic Motives
The extrinsic motive encourages CSR because it has an instrumental value for
strategic benefits. It refers to the ‘business case’ argument (Berger et al., 2007).
For companies driven by the business case for CSR, the challenge is to find the
nexus of business opportunity and social responsibility and then to develop CSR
initiatives that provide financial return.

FIGURE 6.1 Conceptual framework

 Intrinsic Motivations and Company Size 57

The strategic benefits that firms may attain from CSR derive from various
sources. As theorized by the resource-based view (Branco and Rodrigues, 2006)
and by stakeholder theory (Surroca et al., 2010), one of the most important stra-
tegic benefits is that CSR may enhance the company’s reputation (Kurucz et al.,
2008). In their study of corporate motives for CSR, Brønn and Vidaver-Cohen
(2009) found that improving the company’s image ranks first among 16 motives.
Orlitzky (2008) noted that from theoretical and practical perspectives, organiza-
tional reputation ranks as one of the most important mediating variables linking
CSR to CFP. Firms that are most vulnerable to unfavourable publicity are those
with high brand recognition (Laudal, 2011) and a strong CSR programme can
help limit reputational damage if accidents happen (Lougee and Wallace, 2008).
For this reason, the financial market may put pressure on companies to pursue an
active CSR policy.
As discussed in Chapter 4, CSR also has strategic value because it may con-
tribute to innovation (Porter and Kramer, 2006; Clausen and Loew, 2009; Wag-
ner, 2009, 2010; Halme and Laurila, 2009). Introducing new EMSs involves the
development of strategic resources and this can have a positive impact on innova-
tion capabilities in general (Wagner, 2007b; Frondel et al., 2007). A high level
of CSR may enable firms to recruit more innovative employees, which may
positively affect firm-level innovation (Turban and Greening, 1997). With envi-
ronmental innovations in place and competition among firms more focused on
environmental benefit, there will be greater urgency for firms to respond to social
demand and try environmentally friendly alternatives (Lee et al., 2006). Managers
may therefore now express interest in those approaches to CSR that are linked to
innovation as a way of delivering competitive advantage.
Third, companies may be motivated to CSR because it can reduce costs and
improve the (long-term) financial performance of the company. Several empiri-
cal studies found a positive relationship between CSR and profitability (Orlitzky
et al., 2003; Waddock and Graves, 1997) or shareholder value (Tudway and Pas-
cal, 2006). There are several ways in which CSR can affect profitability. First,
firms investing in pollution prevention for reasons of CSR, may reduce the costs
of energy, waste management, packaging and transportation, as well as the risk of
accidents. Second, CSR can improve the company’s output market (Brown and
Dacin, 1997) and help companies to differentiate themselves from their competi-
tors with the aim of increasing sales and market share. Goods with a high social
value that serve the interest of society at large may both generate a quantity
premium as well as an additional price premium (Auger et al., 2003). Consumer
boycotts in reaction to a poor social reputation can operate as a social control
mechanism. In the case of SMEs operating in B2B relationships, large customers
may demand CSR. Third, CSR may also be rewarding by making it easier to
attract qualified employees (Albinger and Freeman, 2000). This especially holds
for companies that target highly educated workers. Besides the reputation effect
on potential employees, good CSR will also have a direct favourable influence on
58 Internal Drivers of CSR

the performance of the company by stimulating the commitment of the workers

to the company. A good work climate may lead to more trust in the company,
stronger commitment from employees, lower absenteeism and turnover rates,
higher profitability and productivity, and a more positive attitude to work and
good conduct (Sims and Keon, 1997; Turban and Greening, 1997). More sat-
isfaction of the workforce, in turn, will increase the readiness of employees to
invest in relation-specific assets.
A final strategic motive for CSR is that organizations that have high CSR may
be more successful in avoiding regulatory intervention and in meeting existing
regulations (Berman et al., 1999). If a company is environmentally proactive, it
can lower the costs of complying with present and future environmental regula-
tions as well as improve company efficiencies and drive down operating costs,
resulting from net cost savings through enhanced resource use (Shrivastava, 1995;
Porter and Kramer, 2011). For example, when attempting to enter new markets,
companies with good CSR reputations rarely face the same level of resistance as
companies with poor CSR reputations (Lougee and Wallace, 2008).

Intrinsic Motives
Besides strategic reasons, companies may also have intrinsic, non-strategic
motives to pursue CSR (Kuckertz and Wagner, 2010; Muller and Kolk, 2010;
Aguilera et al., 2007; Child and Tsai, 2005; Lindenberg, 2001; Weaver et al.,
1999; Swanson, 1999). These can relate to the individual values and beliefs of
managers. Managers’ personal values can be an important motivating factor for
CSR, particularly for owners of SMEs, but also for larger companies. While
empirical evidence supports the view that it is CEOs that tend to establish the
ethical norms for corporations, middle managers can also play an important
role in acting as socially responsible agents for change and are able to display
their personal values, whilst exercising managerial discretion (Hemingway and
Maclagan, 2004).
Intrinsic motives perceive CSR as an end in itself, independent from financial
benefits. We distinguish two types of intrinsic motives (Meijer, 2007): CSR as a
responsibility towards society (i.e. a sense of felt obligation to act) and CSR as a
source of personal satisfaction. The moral duty to be socially responsible can be
justified by several ethical theories, for example, Kantian ethics (Evan and Free-
man, 1988) and virtue ethics (Solomon, 1992). Evan and Freeman (1988) argued
that according to the second formulation of Kant’s categorical imperative, each
stakeholder group has a moral right not to be just treated as a means to some
end (maximization of the shareholder value) but as an end in itself. Management
is accountable not only to shareholders but also to other stakeholders. Its task is
therefore to balance the conflicting claims of a multitude of stakeholders. For
our purposes, it is immaterial which moral philosophy one chooses to defend
this claim. A positive moral view on CSR implies that CSR-related efforts are
 Intrinsic Motivations and Company Size 59

regarded as a moral duty towards society. That means that one is obliged to do
something because it is right, not because it is enjoyable (Etzioni, 1988).
The other intrinsic motive is personal satisfaction. Executives and employees
may contribute to CSR because they enjoy helping others and contributing to
the common good. This is also called impure altruism (Ribar and Wilhelm, 2002)
and is contrasted with so-called pure altruism where an executive values CSR
solely because of its positive societal consequences (Rabin, 1998). Pure altruism
therefore belongs to the former class of intrinsic motives where one supports
CSR because it is right. In the case of impure altruism, executives also derive
personal enjoyment from the act of performing CSR.

The Influence of Company Size on Extrinsic

and Intrinsic Motivation
The type of CSR motivations a company has is not given, but will depend on
the company size.
First, it is likely that extrinsic CSR motivation is positively related to company
size. Institutional theory stresses that the monitoring of corporate performance
by stakeholders is an important factor that increases the likelihood that companies
will pursue CSR (Campbell, 2007). The strength of the reputation mechanism
depends on the availability of the information about the past performance of the
company. The more information is available, the more transparent is the com-
pany’s performance and the easier it is for its stakeholders to punish and reward
the company. An important informal institution that enforces the transparency on
CSR is the presence of NGOs or media that actively monitor the CSR of a com-
pany and keep the public and government officials informed. It is likely that this
reputation mechanism is stronger for large companies than for small companies
because it is more rewarding for NGOs and the media to focus attention on large
companies as this will attract more public attention. In particular, multinationals
are targets of the NGOs; in particular, those that are brand-based and most vul-
nerable to consumer boycotts. NGOs will have few incentives to scrutinize small
companies because it is not possible for them to examine each small company.
Large firms are more visible than small firms and therefore such influences are
likely to affect large firms more than small firms (Udayasankar, 2008). For this
reason, Lynch-Wood and Williamson (2007) argue that the social licence motive
will not be sufficient to induce SMEs to go beyond compliance with the law.
A second reason that extrinsic motives are positively related to company size
is that in the short-term CSR often requires expending significant resources on
such things as installing equipment (Hart, 1995). Because of their small scale,
SMEs find the introduction of CSR relatively costly. The systems of large firms
with well-defined management structures and decision processes to deal with
external issues may be better developed and better positioned to efficiently organ-
ize CSR. Some forms of CSR may require implementation on a large scale to
60 Internal Drivers of CSR

be effective. This will deter small firms from participating in these initiatives
(Udayasankar, 2008). Many studies suppose that formal measures are generaliza-
tions which do not fit the nature of SMEs (Perrini, 2006; Russo and Tencati,
2009; Spence et al., 2003; Tilley, 2000; Welford and Frost, 2006; Welsh and
White, 1981). Because of their small size, SMEs are more often organized on an
informal basis and therefore less in need of formal CSR instruments than large
companies. Graafland et al. (2003) indeed found that large Dutch companies
make more use of instruments that foster the transparency of companies, like a
code of conduct, ISO certification, and social reporting. Due to a lack of sources
and experience, SMEs are less able to explicitly recognize CSR issues and are
less familiar with important CSR standards (Lepoutre and Heene, 2006). Time,
finances, and a lack of skills and knowledge are commonly identified as con-
straints to CSR by SMEs (European Commission, 2002; Studer et al., 2006). Due
to their small size, it is very difficult to recruit CSR specialists. In contrast, a large
firm can spread the costs of CSR over a substantial larger turnover. Because of
this lack of CSR competences, SMEs seem to favour external forms of regulation
rather than self-regulation, because this generates a ‘level playing field’ that allows
them to concentrate on the economic aspects and leave social and environmental
aspects to the government (Williamson et al., 2006). In line with this, Studer
et al. (2006) found that legislation remains the key driver for SMEs to engage in
environmental change. According to Williamson et al. (2006), this implies that
the use and development of existing regulatory structures, providing minimum
standards for many activities covered by CSR, remains the most effective means
to influence behaviour of SMEs. On the other hand, a study by Petts et al. (1999)
showed that managers of SMEs believe that regulation on its own will not be
sufficient because of the inadequacies of the regulatory regimes. They estimated
the pressure of the reputation mechanism to be at least as effective as the threat
of prosecution.
Whereas it is likely that extrinsic motives are positively related to company
size, we expect a negative relationship for intrinsic motives. Intrinsic motives
may be relatively more important for SMEs because most of them are privately
owned and managed by their owners (Spence, 1999; Jenkins, 2009). Family busi-
nesses have been characterized by long-term commitment, superior employee
care and loyalty, long tenure of leadership, and exhibiting a strong religious/phil-
anthropic approach to CSR (Laudal, 2011). The policies of family business tend
to reflect the values of the managers (Lepoutre and Heene, 2006). One would
therefore expect that family companies will be more directly concerned about
CSR because of a closer relationship between the business and the personal life
of the managers. Besides, director-owners will also have more freedom to weigh
up financial and non-financial goals than managers in a larger company because
they are free to decide how to spend their own money, whereas the manager
is accountable to the owners (or shareholders) of the company. Furthermore,
because of their small size, SMEs are often more oriented towards the local
 Intrinsic Motivations and Company Size 61

market and have a more intimate relationship with the community in which
they operate. The personal contacts between the director-owner and various
stakeholders help to build trustful partnerships in a natural way. Therefore, many
scholars use the social capital approach as a tool for understanding CSR for
SMEs, as informal relationships, trust, and solidarity are important aspects for
SMEs (Granovetter, 2000; Murillo and Lozano, 2006; Avram and Kühne, 2008).
As a result, SMEs are more sensitive to signals from local customers and suppli-
ers and this will foster an attitude of responsibility towards the community and
enforce the intrinsic motivation to CSR.

Set of Hypotheses
Based on these arguments, we hypothesize that:

Hypothesis 6.1 Extrinsic motives stimulate CSR.

Hypothesis 6.2 Intrinsic motives stimulate CSR.
Hypothesis 6.3 Extrinsic motivation is positively related to company size.
Hypothesis 6.4 Intrinsic motivation is negatively related to company size.

6.3 Methodology
In this section, we present the methodology we use to empirically test the hypoth-
eses. The data were taken from the survey conducted in 2011. The distribution of
the size of the companies is reported in Table 6.1. It shows that a relatively small
share of the sample concerns large companies with more than 250 employees.
CSR was measured by 76 indicators, which can be grouped into three sub-
indicators on instruments, the social dimension of CSR and an environmental
dimension of CSR (see Table 6.2). The first scale refers to the general organiza-
tional management instruments to integrate CSR into the company’s organiza-
tion (Ulrich et al., 1998). Examples are training managers and other employees in
CSR, CSR-related remuneration, or management and reporting systems. Man-
agement systems can be divided into those that concern environmental issues (e.g.
ISO 14001, EMAS, or Greenhouse Gas Protocol) or social issues (e.g. SA8000).
The ISO 14001 standard deals with EMSs. The Greenhouse Gas Protocol (GHG
Protocol) is an international accounting tool to understand, quantify, and manage
greenhouse gas emissions. Besides the use of management systems, companies can
create relationships with external stakeholders. Examples are an active dialogue

TABLE 6.1 Company size and sample distribution

Size (in FTE) 0–10 11–50 50–100 100–250 >250

% 27 37 18 8 9
62 Internal Drivers of CSR

TABLE 6.2 Measurement of CSR indicesa

Index Sub indices mean SD

Instruments Average score on: internal code, external code, 27 20

dialogue with NGOs, cooperation in supply
chain, partnerships, participation in local
initiatives, director is answerable to CSR,
CSR-related remuneration, confidential
person, ethics committee, CSR training of
employees, reference guide, membership
global initiatives, ISO 9001, ISO 14001,
SA8000, and other certifications (42–59)
Social aspects Average score for measurement, targeting, 43 11
reporting, efforts to improve CSR, and
change in outcomes in CSR during 2007–
2010 on the following aspects: women in the
board, recruitment of disadvantaged workers,
work–life balance, employee training, work
accidents, and working conditions suppliers
(60–66, 74–87)
Environmental aspects Average score for measurement, targeting, 12 15
reporting, efforts to improve CSR, and
change in outcomes in CSR during
2007–2010 on the following aspects:
CO2 emission, energy consumption,
water consumption, waste disposal, and
environmental conditions suppliers (90–106)
Overall Average of sub indicators 27 12
a All sub-indices are scaled to the range from 0 (lowest value) to 100 (highest value). The numbers in
brackets refer to the numbers of the survey questions reported in Appendix 1.

with NGOs, cooperation with other companies in the supply chain, partnerships
with professional training institutes, and participation in the local initiatives of
governments or social organizations in order to achieve CSR objectives.
The second and third scales measure six social and five environmental aspects
of CSR, respectively. While environmental aspects are considered as prevail-
ing in the CSR debate, the social dimension is perceived to be comparatively
underexposed. In our research, we therefore also include various quality-of-job
dimensions, namely gender equality, diversity and non-discrimination, work
organization and work–life balance, skills and life-long learning, health and
working conditions, and respect for human rights in the supply chain. For each
environmental and social aspect, we included questions on three procedural
instruments that facilitate the organization of CSR accountability in the company
(which is an important aspect of AA 1000), a question on efforts to improve per-
formance on the specific issue and a question on improvements in the outcomes
 Intrinsic Motivations and Company Size 63

of each social and environmental aspect during the period 2007–2010. The three
procedural measures that we examined are a measurement of the actual outcomes,
the use of targets for improving outcomes in the future, and whether the com-
pany reports the achievement of these targets (RARE, 2006). The question on
efforts does not refer to formal procedures or instruments but rather measures
the informal efforts that companies put into CSR. We included this measure in
our survey because our pilot interviews indicated that SMEs may actually proac-
tively foster their CSR without using the formal procedures or programmes that
are more often used by large companies. Merely measuring the use of formal
instruments to implement CSR may therefore bias the measurement of the actual
implementation of CSR by SMEs.
The respondent’s view on the CSR motivation of the company was measured
by eight questions. Six of them refer to extrinsic motivations and two refer to
intrinsic motivations. Table 6.3 shows that, on average, the two intrinsic motiva-
tions (responsibility and personal satisfaction) are the most important motives.
The expected long-term effect on profitability turns out to be the least important
motive. We performed an exploratory factor analysis using principal component
analysis with an Oblimin rotation to test whether the various types of motivations
can be clustered.
The outcomes of Table 6.3 show that the eight motives can be grouped into
two factors. The first factor comprises the six extrinsic motives; the second factor

TABLE 6.3 Motives of CSRa

Your company engages in CSR activities because: Mean SD Factor loadings

It serves the long-term financial interests of 3.78 1.84 0.65

shareholders and/or director owner (20)
It helps to meet (future) government 4.14 1.68 0.57
regulations (21)
It leads to innovation (22) 4.69 1.60 0.79
It reduces operational costs (23) 4.30 1.70 0.66
It limits reputational risks (24) 4.57 1.59 0.81
Large customers ask for it (27) 3.95 1.88 0.61
Your enterprise feels responsible for the 5.23 1.48 0.88
planet and society (25)
It creates personal satisfaction for the people 5.10 1.42 0.85
in your enterprise (26)
Initial Eigen value 3.60 1.14
Proportion of total variance 45.1 14.2
Cronbach’s alpha reliability 0.80 0.73
a Mean response to the seven-point scale ranging from ‘not at all’ (1) to ‘very much’ (7). The numbers
in brackets refer to the numbers of the survey questions reported in Appendix 1. Factor analysis:
Extraction Method: Principal Component Analysis; Rotation Method: Oblimin with Kaiser Nor-
malization; Pattern Matrix.
64 Internal Drivers of CSR

the two intrinsic motives. The loadings of the items are all significant (Hair et al.,
1998). Bartlett’s test of sphericity (Chi-square = 21675; df = 28; p = 0.000) and
the Kaiser–Meyer–Olkin (KMO) measure of sampling adequacy (0.843) show
that there are sufficient numbers of significant correlations among the items that
justify to undertake a factor analysis (Pett et al., 2003). Based on these results, we
construct two motive variables, extrinsic motive as an average of the reputation,
innovation, profit, cost reduction, regulation, and customer motives and intrinsic
motives as an average of the responsibility and personal satisfaction motive.

6.4 Results
Table 6.4 reports the estimation results of the multivariate regression analysis.
The results in the first column show that extrinsic motivation is positively
related to company size, which supports Hypothesis 6.3. The estimation results
in the second column of Table 6.4 rejects Hypothesis 6.4 that intrinsic motiva-
tion is negatively related to company size. The third column reports the estima-
tion results for CSR. The estimation results show that both the extrinsic motive
and intrinsic motive have a significant influence on CSR. Intrinsic motivation
has a significant higher influence on CSR than extrinsic motivation. We also
find significant direct effects for company size. Large companies show signifi-
cantly higher CSR than very small companies (which is used as the reference
dummy).

6.5 Conclusion
In this chapter, we researched the relationships between intrinsic and extrinsic
motivations, company size, and CSR. We found that both intrinsic and extrinsic
motivations significantly increase CSR and that intrinsic motivations have a (sig-
nificantly) larger influence than extrinsic motivations.

TABLE 6.4 Results of regression analysisa

Extrinsic motivation Intrinsic motivation CSR

1 2 3
Extrinsic motive 0.18***
Intrinsic motive 0.29***
Size: 11–50 0.05** 0.01 0.12***
Size: 50–100 0.08*** 0.03* 0.18***
Size: 100–250 0.06*** 0.02 0.17***
Size >250 0.11*** 0.05** 0.29***
R2 0.040 0.015 0.302
a standardized coefficients; * p < 0.05; ** p < 0.01; and *** p < 0.001. Very small companies are used
as reference. Controlled for sectors and countries.
 Intrinsic Motivations and Company Size 65

Extrinsic CSR motivation is positively related to company size. Opposite to

our expectations, intrinsic motivation also tends to increase with company size.
This is in line with Jamali et al. (2008) who found that SMEs and large compa-
nies rate their stakeholders in a similar way. One of the explanations may be that
regulation is relatively more important for SMEs and that extensive government
regulations may crowd out intrinsic motivations. Managers of a company who
intrinsically care for the health and welfare of their employees will take precau-
tionary measures to protect them. But external health regulations imposed by the
law may well discourage that proactive attitude and reduce intrinsic motivation
(Frey, 1998).

Note
1 In the four component analysis of Rest et al. (1999), moral motivation is the element
that immediately informs behaviour and mediates the influence of moral awareness and
moral judgment on ethical behaviour.
7
FAMILY BUSINESS OWNERSHIP,
FAMILY MANAGEMENT, AND
COMPANY SIZE*

7.1 Introduction
Family business ownership (FBO) has been proposed to stimulate cleaner pro-
duction (Berrone et al., 2010). In the literature, the motives that encourage fam-
ily businesses to adopt CSR practices have often been linked to the concept of
socioemotional wealth (SEW). Socioemotional wealth refers to the nonfinancial
aspects of the firm that meet the family’s affective needs (Zellweger et al., 2011)
such as the family’s image, binding social ties, and emotional attachment to the
firm (Berrone et al., 2012). Socioemotional wealth may provide an extra motive
for family businesses to improve their CSR. For example, if better EP increases
the family’s image, this creates an incentive for family companies to engage in
environmental practices. However, recent theoretical research has argued that
SEW is ambiguous in nature and that, because of concern about SEW, family
owners might adopt a selective and instrumental approach to CSR as a means of
obtaining various self-interested gains (Le Breton-Miller and Miller, 2016).
In this study, we focus on the environmental dimension of CSR. Empiri-
cal studies on the link between FBO and EP are still scarce and have produced
contradictory findings. Among the 27 studies discussed in an overview article on
social issues in family enterprise by Van Gils et al. (2014), only a few researched
the relationship between FBO and EP. Dyer and Whetten (2006) and Berrone
et al. (2010) found that family firms have significantly better EP than non-family
firms, whereas Cruz et al. (2014) did not find a significant relationship between
FBO and EP. Craig and Dibrell (2006) found, on one hand, that non-family
companies have a more positive attitude towards the natural environment than
family companies, but, on the other hand, that family firms are better able to lev-
erage capabilities associated with the natural environment into greater innovation
DOI: 10.4324/9781003216483-9
This chapter has been made available under a CC-BY-NC 4.0 license.
 Family Business Ownership 67

or financial performance. This lack of consistent empirical findings may be due

to the different samples and different measures of key constructs. But, given the
ambiguity in the predictions of SEW theory, these disparate findings may also
suggest several contextual factors that create contingencies in the FBO–EP rela-
tionship (López-González et al., 2019).
In order to increase the insight into these factors, we set out to research two
conditions that moderate the FBO–EP relationship. First, it is likely that it is
contingent on the representation of family members in the management of the
company. In contrast to López-González et al. (2019), who researched the mod-
erating effect of family involvement in management (FIM) on the relationship
between FBO and CSR (which includes, among others, EP), we expect that this
moderation effect is non-linear. Although the SEW theory suggests that FIM
strengthens the FBO–EP relationship, firms that are fully managed by family
members may also pursue narrow-minded policies that benefit the family rather
than other stakeholders’ interests. Non-family members in the management team
who participate in a wider variety of stakeholder-oriented activities may then
stimulate EP (Yong Oh et al., 2011). Secondly, this chapter contributes to previ-
ous scientific literature by studying company size as a moderating variable. If fam-
ily firms grow larger, the relationships between family members and the various
types of stakeholders become more distant (Le Breton-Miller and Miller, 2016).
This weakens the relationship between FBO and EP.
This chapter contributes to the literature by researching the previously untested
hypotheses that the relationship between FBO and EP is moderated by company
size and (non-linearly) by the FIM. The core research question is therefore: How
does FBO affect EP and how do family involvement in management and firm
size moderate this relationship? The hypotheses are tested on a sample of 3,816
companies that includes both family and non-family companies and companies
of different sizes, as well as companies displaying different degrees of managerial
involvement by family members. The next sections present the conceptual frame-
work, methodology, results, followed by the conclusion.

7.2 Conceptual Framework
In this section, a conceptual model is developed that specifies how FBO affects
EP (see Figure 7.1). FBO is defined as the share of equity owned by the family
(Anderson and Reeb, 2003). FIM is the share of family members in the manage-
ment of the company. Both FBO and FIM are dimensions of family involvement
in the definition offered by O’Boyle et al. (2010: 311): ‘family involvement in a
company represents a substantial family presence in ownership, governance, man-
agement, succession, and/or employment’.
In the following section, first the SEW theory and its predictions regarding the
relationship between FBO and EP are described. Next, the moderation by FIM
(Hypothesis 7.1) and company size (Hypothesis 7.2) are discussed.
68 Internal Drivers of CSR

FIGURE 7.1 Conceptual framework

SEW Theory on Family Business Ownership

and Environmental Performance
One of the lenses used to explain the FBO-EP relationship is SEW theory. Main-
taining SEW has an intrinsic value to family members whose identity is inextri-
cably tied to the organization (Sharma and Sharma, 2011; Brigham et al., 2014).
Berrone et al. (2012) proposed five dimensions (labelled as FIBER): family con-
trol and influence; identification of family members with the firm; binding social
ties; emotional attachment to the firm; and renewal of family bonds to the firm
through dynastic succession.
As SEW is unique to family companies, family-owned companies will be
more inclined to pursue environmental policies than non-family companies if it
can be shown that SEW stimulates corporate environmental responsibility. The
literature has given several arguments for this proposition (Berrone et al., 2010).
First, the identification with the firm of family members makes them sensitive
about the image of the firm (Campopiano et al., 2019). This creates incentives
to improve EP because EP might contribute to the corporate reputation, and
hence, as family and the business are conceptualized by the stakeholders as one
and the same, to the family’s image (Sánchez-Medina and Díaz-Pichardo, 2017).
Secondly, binding social ties promote collective social capital, relational trust, and
feelings of closeness and interpersonal solidarity (Marques et al., 2014). These
reciprocal bonds are not limited to family members but are likely to extend to a
wider range of stakeholders (Berrone et al., 2012). Given these reciprocal bonds
in family businesses, these firms are more inclined to pursue the welfare of those
who surround them. Thirdly, because of the emotional attachments of family
managers to their business, family managers might exhibit marked levels of stew-
ardship over the continuity of the family business (Miller et al., 2008). Together
with the ability and willingness to pass the business on to the next generation
(transgenerational succession), this will give family businesses an incentive to pur-
sue environmental strategies, as they will contribute to the stability of the firm’s
 Family Business Ownership 69

prospects (Le Breton-Miller and Miller, 2006; Delmas and Gergaud, 2014). Since
the family business supports multiple family members belonging to the present
and perhaps future generations and wants to ensure them a better future, SEW
considerations will instil a long time-horizon vis-à-vis the business. As attend-
ing to the environmental demands of society requires long-term vision, family
companies are more likely to engage in environmental policies than non-family-
owned companies (Berrone et al., 2010).
However, recent literature has argued that family companies may also have a
dark side and that particular SEW elements can be positively as well as negatively
valenced (Zientara, 2017). For example, Miller and Le Breton-Miller (2014)
argued that the family members’ desire for control over a business and guaranteed
security for later generations may induce dysfunctional conservatism. This con-
servatism may give rise to resistance over revitalising the firm (Le Breton-Miller
and Miller, 2016) and weaken the incentive to undertake risky investments in
environmental improvements.
Based on these arguments, we conclude that the predictions of the SEW the-
ory regarding the relationship between FBO and EP are ambiguous.

The (Non-linear) Moderating Role of Family Involvement

in Management
The ambiguity in the relationship between FBO and EP might suggest that
this relationship is contingent. Following López-González et al. (2019), we
propose that family involvement in management (FIM) might moderate this
relationship. But in contrast to López-González et al. (2019), we argue that
the moderating influence of FIM is non-linear instead of linear. On one hand,
and as argued by López-González et al. (2019), family involvement in manage-
ment might strengthen the positive relationship between FBO and EP. If family
owners are involved in the management of the company, their identification
with the firm and the importance of the firm’s reputation will be stronger than
if they are not involved in the management. This will enforce the incentives
to improve EP, as EP is likely to enhance the firm’s image in the communities
and networks in which it participates (Zellweger et al., 2011; Marques et al.,
2014). Second, if family owners are more involved in the management of the
company, they more frequently personally interact with stakeholders, and this
strengthens social binding ties between a family and its stakeholders and com-
munity. This will make them more inclined to contribute to the wider societal
interests by improving EP. Bingham et al. (2011) found that firms with higher
FIM have greater concern for the broader collective’s welfare and therefore
adopt a more collectivist than individualistic stakeholder orientation. Thirdly,
FIM will increase the emotional commitment to the firm. Lamb and Butler
(2018) argued that owners who are also managers of the company are more
likely to behave like stewards. In combination with the long tenure of family
70 Internal Drivers of CSR

managers, this stewardship mentality will make them more inclined to improve
EP than non-family managers.
On the other hand, beyond a certain level, more FIM may signal a fam-
ily’s preference for excessive family control over the firm. Some scholars have
argued that family control over the firm (one of the five SEW dimensions
proposed by Berrone et al. (2012)) has a negative influence on EP (Miller and
Le Breton-Miller, 2014). If the family is heavily involved in management,
these members might experience greater pressure to perform well financially,
in order to justify their position to other family members (Block and Wagner,
2014) or to adopt policies that benefit the family rather than other stake-
holders (Chang, 2003; Yong Oh et al., 2011). If managers own a significant
share of equity, they are more likely to make decisions maximizing share-
holders’ value (Denis et al., 1997). Small business literature has shown that
business performance is the overarching driver of environmental actions by
SMEs (Williamson et al., 2006). The level-playing field on which most SMEs
(the majority of which consists of family-owned companies) operate means
that they face severe competition and this puts attention to EP under pres-
sure (Ates and Bititci, 2011; Graafland, 2016). As Stoian and Gilman (2017)
showed that environmental responsibility reduces economic growth of SMEs,
a strong profit orientation of fully family-owned companies will discourage
EP. Worries about family security may give rise to risk aversion, conservative
policies, and a myopia that precludes moving beyond narrow market bounda-
ries (Miller and Le Breton-Miller, 2014). Research has shown that if family
power goes unchecked and is not balanced by independent directors, oppor-
tunistic behaviour by the family may increase (Anderson and Reeb, 2004).
Furthermore, Le Breton-Miller and Miller (2016) argued that if management
is fully in the hands of family members, there is a danger of narrow-minded-
ness, because there are no influential outsiders to introduce new and broader
perspectives. This may blind the family members to emerging environmental
trends and make them less likely to invest in EP. Non-family members in the
management team, having more varied experience and views, may then help
prevent narrow-minded family concerns dominating the company strategy.
They can assist an organization in dealing with its business environment by
participation in a wider variety of stakeholder-oriented activities (Yong Oh
et al., 2011). Creating more diversity by employing outside managers will
then foster EP.
Consequently, we surmise a non-linear moderation effect, the relationship
between FBO and EP becoming more positive when FIM is increasing, but only
up to some level of FIM. Beyond this level, the relationship between FBO and
EP becomes more negative. This leads to the first hypothesis:

Hypothesis 7.1 The influence of FBO on EP is non-linearly moderated by the FIM.

 Family Business Ownership 71

The Moderating Role of Company Size

Le Breton-Miller and Miller (2016) argued that family firms will engage less in
sustainable behaviour when they become larger, because, as firms grow large,
they become more impersonal. SEW dimensions, which distinguish family from
non-family companies, may therefore be less important for large companies than
for small companies. Hence, the difference in EP between family and non-family
companies is likely to decline with company size.
First, it is expected that the personal identification of family members with
the firm will decline with company size. Le Breton-Miller and Miller (2016)
acknowledged, however, that this may not always occur. If, for example, the fam-
ily name is on the firm, the identity of family members is still strongly related
to the business. As argued by Deephouse and Jaskiewicz (2013), the presence of
the family’s name in the firm’s name raises the family members’ awareness of the
membership of the family business and make them more conscious of their posi-
tion in the community. However, the correspondence between the name of the
family company and the name of an individual family member is also likely to
diminish over time if, for example, daughters of family members take their hus-
bands’ names after marriage. Company size is likely to be related to company age
and hence to family size. The overlap in the identity of the family member and
that of the firm will thus become smaller if the company grows larger. Less iden-
tification with the family firm diminishes the importance of pursuing a favourable
corporate reputation that enables family members to ‘feel good about who they
are and what they do’ (Deephouse and Jaskiewicz, 2013).
Other SEW concerns, such as binding social ties, emotional commitment,
and renewal of family bonds to the firm through dynastic succession, will also be
weaker in large family companies than in small family companies (Berrone et al.,
2012). Less-frequent personal interaction between family members and stake-
holders makes the emotional connection between a family and its stakeholders
and community more remote. Since SEW dimensions distinguish family com-
panies from non-family companies and encourage EP, the weakening of SEW
dimensions due to a rise in company size will decrease the positive difference in
EP between family and non-family firms. Hence, it is expected that the relation-
ship between FBO and EP is negatively moderated by company size.
Based on these arguments, we propose:

Hypothesis 7.2 Company size negatively moderates the influence of family business
ownership on EP.

7.3 Methodology
Family business involvement was measured using two survey questions on FBO
and FIM in the 2014 survey. Respondents were asked whether the company is
72 Internal Drivers of CSR

fully, partly, or not owned by a family and whether the business was fully, partly,
or not managed by family members. Fifty four per cent of the companies were
fully and 13% were partly family-owned companies and 33% was not family
owned. 45% were fully managed by family members, 18% by a combination of
family and non-family members, and 36 % were not managed by family mem-
bers (see Table 7.1). Based on the responses, measures for FBO and FIM were
constructed, ranging from 1 for fully family owned, 0.5 for partly family owned,
and 0.0 for non-family-owned companies, respectively, 1 for fully family man-
aged, 0.5 for partly family managed, and 0.0 for non-family managed. For small
enterprises, the number of owners or managers in the company is not very large
and this three-part division seems sufficient. In the literature, authors have often
used binary measurements for larger companies (Martínez-Ferrero et al., 2016)
and found no difference if more continuous measurements were used (Chrisman
and Patel, 2012).
Company size was measured by the (natural logarithm of the) number of
employees (in full time equivalent (FTE)). Many small firms participated in the
survey: 35% were micro companies (FTE ≤ 10), 36% were small companies (10 <
FTE ≤ 50), 22% were medium-sized companies (50 < FTE ≤ 250), and 7% large
companies (>250 FTE).
Environmental performance (EP) was measured by the use of two environ-
mental procedures – setting targets to improve environmental outcomes and
reporting the realization of these targets – for energy consumption, water con-
sumption, waste disposal, and environmental conditions of suppliers. Target set-
ting is a proven management tool to reduce energy consumption, waste disposal,
and water consumption (see Chapter 2). Wakabayashi and Arimura (2016) also
employ self-reported data on the use of targets to measure EP. Reporting pro-
vides an instrument for analysing to what extent the outcomes, once realized,
meet the targets (Mitchell and Hill, 2009). Reporting requires the collection of
data and an analysis of these data. Based on these reports, companies can plan for
improvement and redefine targets (Hummels and Karssing, 2007). The advantage
of these data on EP is that the questions are simple, concise, and inquire into

TABLE 7.1 Sample characteristics (in %)a

Family Business Family involvement in management Company size (114)

ownership (3) (4–5)

Full Partial Not Total

Full 41 11 2 54 Micro:≤10 FTE 35

Partial 4 7 1 13 Small:10–50 FTE 36
Not 0 0 33 33 Medium:51–250 FTE 22
Total 45 18 37 100 Large (>250 FTE) 7
a The numbers in brackets refer to the number of the survey question reported in Appendix 1.
 Family Business Ownership 73

very specific activities. By asking simple yes/no questions to measure the imple-
mentation of very concrete practices, one reduces ambiguity in the response to
the survey question (Podsakoff et al., 2003). Moreover, social desirability bias is
reduced because false answers would boil down to conscious lying. This is sup-
ported by the low scores for the share of companies adopting these procedural
measures, ranging from 19% for waste to 16% for energy, 14% for water, and 9%
for environmental conditions of suppliers (confirming that involving suppliers is
a more ambiguous form of EP). These low scores indicate that the responses to
these survey questions are not biased by social desirability bias and thus provide
reasonable reliable indicators. Based on the responses, four measures for energy
consumption, water consumption, waste disposal, and environmental conditions
of suppliers were constructed with three options per measure: 0 if the company
did not report or use targets; 0.5 if only one of these procedures was used; and
1 if both were employed. We performed confirmatory factor analysis to research
the validity of the constructs of EP. The measurement model was estimated by
SEM in STATA (for the estimation results, see Table 7.2). The composite reli-
ability equals 0.84 and the average variance extracted 0.57, which both meet the
condition for convergent validity.
When testing for moderation, one should control for the linear influence of
the moderating variables. Therefore, we controlled for FIM and company size.

TABLE 7.2 Estimation results of environmental performancea

1 2 3

FBO 0.20* 0.08 0.22*

FIM 0.05 −0.03 0.04
FBO * FIM −0.02 −0.04
FBO * FIM2 −0.23* −0.24*
Ln company size 0.20*** 0.19*** 0.19***
FBO * ln company size −0.07* −0.08**
Measurement model of environmental performance
Energy consumption 0.80*** 0.80*** 0.77***
Water consumption 0.80*** 0.80*** 0.80***
Waste disposal 0.81*** 0.81*** 0.81***
Environmental conditions of 0.61*** 0.61*** 0.61***
suppliers
Global fit indices
RMSEA 0.022 0.923 0.021
CFI 0.977 0.976 0.977
TLI 0.968 0.966 0.967
a Standardized coefficients. * p < 0.05, ** p < 0.01, and *** p < 0.001. Robust standard errors.
Controlled for the age of the firm, presence of the family’s name in the firm’s name, skill level,
age structure, type of respondent, organizational culture, sector, region, position in the chain, and
intensity of price competition. Details of the measurement and statistics of the control variables are
reported in Appendices 1 and 2.
74 Internal Drivers of CSR

7.4 Results
Table 7.2 reports the estimation results. Structural equation modelling (SEM) in
STATA with maximum likelihood with missing values was used. Non-linearity
is tested by using the interaction between FBO and FIM as well as between FBO
and squared FIM.
The estimation results in the first column show that FBO has a positive effect
on EP and that the influence of FBO is negatively moderated by squared (stand-
ardized) FIM. These findings support Hypothesis 7.1 and imply that the influ-
ence of FBO on EP is maximal if FIM is equal to the sample average, which
indicates a hump-shaped relationship.
The estimation results in the second column of Table 7.2 show that the inter-
action term of FBO and company size has a significant negative effect on EP,
which provides support for Hypothesis 7.2.
These results are robust if we test the interaction effects simultaneously (see
column 3). In this integrated model, both hypotheses are confirmed.
Besides the interaction terms, we find a significant positive direct effect of
firm size on EP. This is in line with other research that found a positive relation-
ship between company size and CSR and can be explained by the increase in
visibility (Lynch-Wood and Williamson, 2007). Large companies attract more
attention of NGOs and media (Graafland and Smid, 2017) than small firms and
face more pressure from customers and other stakeholders. These stakeholders are
inclined to ascribe more environmental responsibility to large firms than small
firms because a large firm has more means and is more powerful than a small firm.
This size effect is not only unique for family-owned businesses but also applies
to non-family-owned companies and therefore does not moderate the effect of
FBO on EP. Interestingly, this positive stakeholder-driven effect of company size
on EP is opposite to its (negative) moderation effect. The latter effect reflects
that an increase in company size weakens the emotional connection of family
members with the stakeholders of the firm (e.g. employees, customers, suppliers,
and representatives of local NGOs or local community). Overall, the estimation
results in Table 7.2 show that the positive direct effect of company size on EP
dominates the negative moderation effect for the whole range of companies.1

7.5 Conclusion
Recent theoretical and empirical research has found that the influence of FBO
on CSR is ambivalent (Cruz et al., 2014; Zientara, 2017). This has stimulated
research into moderating factors in the relationship between FBO and CSR,
both theoretically (Le Breton-Miller and Miller, 2016) and empirically (López-
González et al., 2019).
This chapter contributes to the scientific literature by analysing the moder-
ating effects of company size and family involvement in management on the
 Family Business Ownership 75

relationship between FBO and EP. This study is the first to show empirically that
company size negatively moderates the influence of FBO on EP. The positive
relationship between FBO and EP for small companies is reversed into a negative
relationship for large companies. Previous empirical studies into the relationship
between FBO and EP by Dyer and Whetten (2006), Berrone et al. (2010), and
Craig and Dibrell (2006) did not investigate the moderating role of company size.
Since family businesses are, on average, relatively small in comparison with non-
family companies, family ownership and company size are highly related. Iden-
tifying the moderating effect of company size on the FBO-EP relationship thus
requires a large sample of companies that vary in size and ownership. A major
strength of this research is the use of a unique database that comprises data of EP,
family ownership, and management for 3,816 enterprises including family and
non-family companies of micro, small, medium and large size, which enables an
accurate analysis of differences in the relationship between FBO and EP that are
due to variation in company size.
Second, whereas previous literature theorized that family involvement in
management might explain contingencies in the FBO-EP relationship (López-
González et al., 2019), it did not conceive possible non-linearities in this moder-
ating relationship. In this study we delve into the ‘how’ of the interaction between
FBO and family management involvement by theorizing that the moderation
effect is non-linear. More specifically, we argue that the relationship between
FBO and EP is more positive for family owned businesses that are jointly man-
aged by family and non-family members than for family companies that are either
fully family managed or not managed by family members at all. We also provide
empirical evidence of non-linearity in the moderating influence of FIM. We show
that these results can explain the ambiguity in the relationship between FBO and
EP. By theorizing and empirically testing this contingency, this study clarifies the
boundaries in the generalizability of a positive FBO-EP relationship and alters
scientific understanding of the role of family involvement in management in this
relationship. These findings divert from most other studies that have found that
EP or CSR rises with FIM (Niehm et al., 2008; O’Boyle et al., 2010; Bingham
et al., 2011; Marques et al., 2014), but did not test for moderation of the FBO-
EP relationship. The findings of this study also differ from López-González et al.
(2019) who did test for moderation and found that FIM positively moderates the
relationship between FBO and CSR. However, in their study López-González
et al. (2019) analysed dimensions of CSR relating to internal stakeholders (mostly
aspects of employee relations) and external stakeholders (including human rights,
customer and supplier relations, general stakeholder issues, and charity) rather
than EP. Furthermore, they did not test for a non-linear moderating influence
of FIM on the relationship between FBO and CSR. The non-linear moderat-
ing influence of FIM illustrates a dark side of family companies and suggests that
SEW considerations may not always foster EP. When the firm is fully managed
by family members, narrow minded policies that benefit the family may receive
76 Internal Drivers of CSR

more priority than policies that contribute to other stakeholders’ interests, pre-
venting investments in environmental improvements.
Another contribution is that this study explains contingencies in the FBO–EP
relationship by SEW theory. We do not only reaffirm the relevance of SEW
theory but also improve it by showing the ambiguity of its predictions under dif-
ferent conditions. The study suggests a more nuanced look at how SEW shapes
the decision-making within family firms and offers an explanation of the variance
in the relationship between FBO and EP by considering two contextual factors
that arbitrate under which conditions family firms are more apt to perform envi-
ronmentally well than non-family firms.

Notes
* An extended text of this chapter has been published in: Graafland, J.J. (2020). Family
business ownership and cleaner production: Moderation by company size and family
management. Journal of Cleaner Production, 255: article 120120.
1 Summing up both effects gives: 0.19 * ln company size * (1 – (0.08 / 0.19) * FBOn).
FBOn denotes normalized FBO. The effect of company size on EP is positive if FBOn
< 0.19/0.08, which holds for the whole sample of companies.
8
WOMEN IN MANAGEMENT AND
RELATIONAL ENVIRONMENTAL
MANAGEMENT INSTRUMENTS*

8.1 Introduction
Research into the relationship between gender diversity – defined in this study as
the share of women in management positions – and EP has produced mixed find-
ings (Rao and Tilt, 2016). Whereas some studies found no relationship between
gender diversity in management and EP (Schaper, 2002; Galbreath, 2011;
Deschênes et al., 2015; Cucari et al., 2018), other studies found that the two are
positively associated (Post et al., 2011; Ciocirlan and Pettersson, 2012; Kassinis
et al., 2016; Birindelli et al., 2019). Earlier research used samples of large publicly
traded companies but there are to date no studies available that have analysed the
gender–EP link for SMEs. SMEs are central to the efforts to achieve sustainable
development because they cause approximately 64% of the industrial pollution in
Europe (Prieto-Sandoval et al., 2019). Moreover, carrying out tests on a sample
of SMEs might help to better identify the relationship between gender diver-
sity and EP, as our findings are unfiltered by the bureaucratic processes of larger
corporations and avoid environmental findings driven more by legislation (from
which small business are often excused) than by voluntary practice.
Another gap in the literature is that previous studies did not analyse mediat-
ing mechanisms that explain the positive relationship between gender diversity in
management and EP. SMEs have profiles that are notably distinct from those of
their larger counterparts (Wickert et al., 2016). These are of theoretical interest
when researching why women managers have an effect on the EP of businesses.
The close community connections familiar in small firms allow for higher levels
of social capital, reciprocity, and trust from stakeholders (Lähdesmäki et al., 2019).
Rather than emphasizing hierarchical and bureaucratic control, relational man-
agement approaches are more productive and effective (Spence, 2016). As women
are thought to pay more attention to informal relationships (Williams and Polman,
DOI: 10.4324/9781003216483-10
This chapter has been made available under a CC-BY-NC 4.0 license.
78 Internal Drivers of CSR

2015), it is expected that a higher representation of women in management will

stimulate the firm to use relational management instruments that produce more
substantial environmental impacts in SMEs than standardized instruments.
To fill both gaps, this chapter addresses the following research question: How does
the gender composition of management affect the EP of SMEs and what is the role
of relational management instruments in this relationship? The chapter contributes
in two ways to the literature. First, this study is the first that researches the influence
of gender structures of management on the EP of SMEs rather than large businesses.
Second, this study not only analyses the relationship between gender diversity in
management and EP but also generates insight into the ‘how’ of this relationship by
researching the mediating role of relational management instruments.

8.2 Conceptual Framework

Gender and Relational Environmental Management

Instruments
A widespread, though not uncontested, belief is that men differ in relational
orientation from women (Held, 2006). According to gender socialization theory
(Gilligan, 1982; Setó-Pamies, 2015), men and women may respond differently to
the same set of conditions due to differences in their early social development,
and these differences will persist even if they take on similar positions in the
workspace environment. Playing activities teach girls collaboration and connec-
tion from a young age and it is a natural progression that the scope of relationships
widens when growing older. Women are therefore more concerned about the
commitments that arise out of relationships (Williams and Polman, 2015). For
men, moral interactions are more likely to take place primarily at the political and
legal level, in the realm of abstract laws and social contracts (Held, 2006).
Furthermore, the social role theory predicts that the social context puts pres-
sure on men and women to fulfil certain societal expectations. Violating these
expectations can result in social disapproval (Heilman et al., 2004). Men are usu-
ally socialized into agentic values involving self-expansion, self-assertion, and
mastery and are positively evaluated if they show self-reliance, competitiveness,
aggressiveness, and success. They are task-oriented and their self-schema (i.e. the
way individuals think about themselves in their social interactions) has been char-
acterized as instrumental and self-confident (Belansky and Boggiano, 1994). In
contrast, women are more socialized into communal values reflecting a concern
for others (Williams and Polman, 2015). They are positively valued if they express
attributes that are relationship-oriented and socially sensitive (Eagly, 1987). Their
self-schema can be characterized as reflective or interpersonal oriented (Spence
and Helmreich, 1980) and their leadership styles have been shown to be more
participative, democratic, and communal (Setó-Pamies, 2015). The ability to
connect to others and to operate in a social context stimulates women managers
 Women Management and Relational Instruments 79

to take into account a broader range of stakeholders. Women have wide networks
of contacts from previous work experiences (Galbreath, 2011).
Women managers are therefore more likely than their male counterparts to
bring in diverse stakeholder perspectives and pursue long-term strategies that
can be helpful in addressing EP (Birindelli et al., 2019). Building and maintain-
ing relationships with stakeholders is an acknowledged core element of CSR
(Hawn and Ioannou, 2016). Stakeholder relations are, according to Dahlsrud
(2008), one of the five qualifying dimensions of CSR (besides the economic,
social, environmental, and voluntariness dimensions). CSR requires that while
economic shareholders need to be understood and attended to, the interests of a
much larger group of stakeholders (including employees, suppliers, communities,
and governments) should also be taken into account. It is important to connect
productively to these other stakeholders if the company wants to find common
ground between the business and stakeholder interests. CSR therefore fits well
with a relational orientation in the ethics of women managers.
Based on the gender socialization theory and social role theory, we conjecture
that, because of their relational orientation, women managers are more inclined
to make more use of relational environmental management instruments (abbrevi-
ated by REMIs) than male managers. SMEs can use various types of management
instruments to improve their EP. REMIs are non-standardized, company specific,
and tailor-made tools by which businesses strive to improve their EP in coopera-
tion with various stakeholders. These relationships, collaborations, and networks
provide SMEs with valuable input that can be used to improve EP. It therefore
follows that the higher the share of women in management, the more the organi-
zation will employ REMIs to improve its EP.
However, as described by the critical mass theory (Kanter, 1977), women
managers may only have a marginal influence on corporate decision-making if
their share in management is very small. The number of women in manage-
ment must reach a certain threshold to enabling them to influence major strate-
gic decisions (Fernández-Feijoo et al., 2014). This suggests that the influence of
women managers on a firm’s environmental policies is non-linear and progres-
sively increases with the share of women in management. Based on these argu-
ments and findings, we postulate that the effect of more women in management
on the use of REMIs is positive and non-linear:

Hypothesis 8.1 Having more women in management has a positive, non-linear, effect
on an SME’s use of relational environmental management instruments.

Relational Management Instruments and Environmental

Performance of SMEs
Relational management instruments are closely related to the concept of envi-
ronmental collaborations introduced by Wassmer et al. (2014) (e.g. arrangements
80 Internal Drivers of CSR

between a firm and one or more other organizations with the goal of reducing
negative or generating positive environmental impact in domains such as energy,
resource efficiency, and natural resource depletion). A growing literature and
awareness has emerged on the importance of relational approaches to environ-
mental responsibility (Perz et al., 2010).
REMIs are particularly appropriate for small businesses in improving envi-
ronmental impacts because they are often part of a larger enterprise’s network
of suppliers or of a local network of SMEs (Battaglia et al., 2010). As small
firms have limited expertise and financial resources to invest in environmen-
tally responsible practices (Prieto-Sandoval et al., 2019), REMIs are helpful in
bringing EP expertise to the small business. Collaboration with suppliers and
customers in the supply chain, or with knowledge institutions or networks for
co-development of new products or processes, compensates for a lack of tech-
nical capacity and business skills in small businesses (Wohlfarth et al., 2017).
Supply chain management and practices implemented along the supply chain
are an important driver of EP in SMEs (Bos-Brouwers, 2010). This leads to our
second hypothesis:

Hypothesis 8.2 The use of relational environmental management instruments improves

the EP of SMEs.

Mediation
The overall conceptual model is depicted in Figure 8.1.
Based on the combination of hypotheses 8.1 and 8.2, it is expected that the
effect from gender on a firm’s EP is mediated by the type of management instru-
ments. Mediation models give insight into how an independent variable affects
the dependent variable by influencing an intermediate variable, the so-called
mediator (Preacher et al., 2007). As women are more relationally oriented in
their management of EP, companies with a higher share of women in manage-
ment will be inclined to make more use of REMIs. Given that REMIs are rela-
tively effective in improving EP of SMEs, it is expected that gender diversity
affects their EP positively.

Hypothesis 8.3 The use of relational environmental management instruments mediates

the relationship between women in management and an SME’s EP.

FIGURE 8.1 Conceptual framework

 Women Management and Relational Instruments 81

8.3 Methodology
The data were taken from the survey in 2011. The use of REMIs is measured by
four indicators. First, companies can participate in networks in the supply chain
that identify best practice on how to integrate EP into the small business and
provide guidance as to the most salient issue to focus on (Wohlfarth et al., 2017).
Second, small businesses can participate in the local initiatives of governments,
NGOs, or benefit corporations as an expression of the company’s commitment to
the community in which it operates (Graafland, 2018a). Third, we include part-
nerships with professional training institutes in order to anticipate the technologi-
cal evolution of products or services (Bos-Brouwers, 2010). Finally, in order to
obtain legitimacy, companies often respond to social licence pressure by involving
societal organizations and local communities through stakeholder dialogue (Hall
et al., 2015). Three options per instrument are distinguished: ‘no’ (0), ‘yes’ (1),
and ‘unfamiliar with this measure’. The third option is recoded into ‘no’.
Environmental performance is measured by the use of two relatively simple
tools: setting targets to reduce energy consumption, water consumption, and
waste disposal and reporting the realization of these targets (see also Chapters 2
and 7).
Prior studies have measured the representation of women in management by
means of a variety of different constructs, such as the number of women (Tor-
chia et al., 2011), a dummy variable indicating a critical mass of women (three
or more women, Fernández-Feijoo et al., 2014), and the ratio of women on the
board (Birindelli et al., 2019). In this study, respondents were asked through an
open-ended question to indicate the share of women in the management of their
respective enterprises (survey question 67). The mean share of women in man-
agement was 23%.
In order to research the validity of the constructs of the use of REMIs and EP,
we performed factor analysis. Table 8.1 supports the construction of two factors.
The factor loadings for all individual variables exceed 0.50, and this can be con-
sidered very significant (Hair et al., 1998). The Cronbach’s alphas confirm that
both factors are internally reliable.
A potential bias in the regression analysis is reverse causality. This may result
if firms using REMIs attract relatively more women managers (sorting effect). In
order to prevent simultaneity bias, we included the sector in which the firm oper-
ates as a control variable to control for the possibility that women managers are
more attracted to sectors with more sustainable companies. Moreover, we used an
instrumental variable approach to test for reverse causation. For REMIs, the inten-
sity with which the firm’s EP was monitored by NGOs and the media was used.
Regression analysis showed that this instrumental variable has a positive and very
significant effect on REMIs (the T-value was 13.12). Next, IV regression analysis
showed that the effect of instrumented REMIs on women in management was
82 Internal Drivers of CSR

TABLE 8.1 Exploratory factor analysisa

Variables Mean SD Factor loadings

Relational Environmental
environmental performance
management
instruments
Cooperation supply chain (46) 0.37 0.48 0.67
Partnerships with training institutes (47) 0.36 0.48 0.65
Participation in local initiatives (48) 0.42 0.49 0.72
Active dialogue with NGOs (45) 0.17 0.38 0.64
Targets and reporting energy 0.11 0.23 0.88
consumption (96)
Targets and reporting water 0.12 0.24 0.88
consumption (97)
Targets and reporting waste disposal 0.09 0.21 0.88
(98)
Eigenvalue 1.66 2.70
% of variance explained 20.7 33.8
Cronbach alpha 0.63 0.88
a Extraction method: Principal component analysis. Structure matrix. Rotation method: Oblimin.
KMO measure = 0.762; P value Bartlett’s Test of Sphericity = 0.000. The numbers in brackets refer
to the number of the survey question reported in Appendix 1.

insignificant (unstandardized coefficients of 0.013 with p-value = 0.50). Based on

these results, we conclude that the estimated effects from women in management
on REMIs are not biased by reverse causality.

8.4 Results
The model was estimated by structural equation modelling (SEM) in STATA
(Version 14) with maximum likelihood as the estimation technique. The struc-
tural paths were estimated simultaneously with the measurement model. The
model is confirmed by the global fit indices. The Comparative Fit Index (CFI),
the Tucker–Lewis Index (TLI) and RMSEA measure are all acceptable (Byrne,
2010). The test results are reported in Table 8.2.
The share of women in management has a significant positive effect on the
use of REMIs. The negative coefficient of the quadratic term means, however,
that the relationship is degressive rather than progressive as predicted by the
critical mass theory. This result only partly supports Hypothesis 8.1. It can be
calculated that the optimal share of women managers that maximizes the use
of REMIs equals 54%.1 Beyond a share of 54%, having more women in man-
agement decreases EP. A possible explanation for the degressive relationship
 Women Management and Relational Instruments 83

TABLE 8.2 Estimation results of the structural equation modela

1 2

Relational environmental management Environmental performance

instruments

Structural paths
Share of women in 0.35*** 0.07
management
Idem, quadratic −0.27*** −0.05
Relational instruments 0.24***
R2 0.23 0.14
Measurement model
Relational instruments CSR cooperation supply chain 0.50***
Partnerships with training institutes 0.49***
Participation in local CSR 0.61***
initiatives
Active dialogue with NGOs 0.45***
Sustainability Energy consumption 0.80***
Water consumption 0.80***
Waste disposal 0.76***
a Standardized coefficients. * p < 0.05; ** p < 0.01; and *** p < 0.001. Controlled for company size,
time horizon, skill level, age structure, type of respondent, organizational culture, ISO 14001 certi-
fication, sector, region, position in the chain, and intensity of price competition. Santorra–Bentler
global fit indices: RMSEA = 0.024; CFI = 0.933; TLI = 0.906; SRMS = 0.012; and R2 = 0.291,
N = 3663.

is given by Birindelli et al. (2019) who also found no support for the critical
mass theory, and instead identified an inverted U‐shaped relationship between
women in management and a firm’s EP. Birindelli et al. (2019) explain this
finding by a ‘dual critical mass perspective’, which theorizes that it is the com-
bination of male and female managers that leads to greater attention to EP
and more effective implementation of environmental policies. Furthermore,
the estimation results show that REMIs have a significant positive effect on EP
which supports Hypothesis 8.2.2
To test Hypothesis 8.3, the SEM estimates for indirect effects can be used.
The indirect effect of women in management on EP equals a * b, where a is the
unstandardized coefficient of the share of women management in the equation of
REMIs and b is the unstandardized coefficient of REMIs in the equation of EP.
The test results in Table 8.3 show that the use of REMIs significantly mediates
the relationship between the (linear and quadratic) share of women in manage-
ment and EP, supporting Hypothesis 8.3. The total effects of gender diversity on
EP are equal to the sums of the direct effects of gender diversity on EP and the
indirect effects mediated through REMIs.
84 Internal Drivers of CSR

TABLE 8.3 
Indirect effects of the share of women in management on environmental
performancea

Direct effect Indirect effect Total effect

Linear 0.061 0.071*** 0.132***

Quadratic −0.054 −0.069*** −0.123**
a Unstandardized coefficients. * p < 0.05; ** p < 0.01; *** p < 0.001.

8.5 Conclusion
This chapter shows that women in management positions improves the CSR of
SMEs by encouraging the use of relational management instruments. The effect
is non-linear and CSR reaches its maximum when the proportion of women
managers is 54%.
The study makes two major contributions to the scientific literature. Scientific
literature on the relationship between gender diversity in management and EP of
large companies has reflected mixed results. As women’s presence in management
is higher in small businesses than in large companies (Bertrand and Hallock, 2001),
a focus on small business might help to better identify the effect of gender on envi-
ronmental responsibility. This study is the first to analyse the relationship between
women managers and EP for SMEs. By using data on managers in small businesses,
we were able to observe findings which are unfiltered by the inevitable structures,
processes, and bureaucracies of larger corporations (Grinyer and Yasai-Ardekani,
1981). A small business focus also allows us to avoid environmental findings which
are driven more by legislation than voluntary practice, as small businesses are often
excused the full regulatory requirements of environmental legislation. Instead, this
research takes advantage of the short reporting lines, low hierarchies, and volun-
tariness in small business to study the effects of women managers.
Second, in the gender–EP literature, almost no attention has been given to
mediating mechanisms. Although some studies do consider relational perspectives
in arguing women’s ability to maintain positive stakeholder relations (Galbreath,
2011), these mechanisms were not tested. Only research by Post et al. (2015)
on publicly traded oil and gas companies headquartered in the US had shown
that EP-themed alliances mediate the relationship between the representation of
women in a firm’s board or in executive positions and corporate EP. Our study
postulated the type of management instrument as a mediation mechanism. This
chain of relationships implies that EP improves with the share of women in man-
agement. The findings support a renewed focus on both gender and relational
theories of environmental responsibility.

Notes
* An extended text of this chapter has been published as an open access article under
the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License
 Women Management and Relational Instruments 85

(permission granted by Wiley) in: Graafland, J. (2020). Women in management and sus-
tainable development of SMEs: Do relational environmental management instruments
matter? Corporate Social Responsibility and Environmental Management, 27: 2320–2328.
1 The last column of Table 4 implies that the maximum effect is obtained if 0.132–2 *
0.123 * X = 0 ◊ X=0.54, where X is the share of women in management.
2 In addition to REMIs, ISO 14001 certification, which was used as a control variable,
also significantly improves environmental performance, but the effect is not as large as
that of REMIs. If we include ISO 14001 certification as a dependent variable in the
SEM model, we find that the share of women in management has a small negative effect
of −0.03 (p value = 0.04). This further confirms that women managers encourage
the use of relational management instruments, rather than bureaucratic, standardized
instruments.
9
BUSINESS CULTURE AND
CORPORATE SOCIAL
RESPONSIBILITY

9.1 Introduction
Companies are increasingly scrutinized by governments as well as the general
public and interest and advocacy groups (Helmig et al., 2016) and firms encoun-
ter coercive, mimetic, and normative pressures to conduct policies that are socially
responsible (Matten and Moon, 2008). However, CSR is a requirement that
needs to be balanced with other corporate exigencies, like profitability, growth,
or more generally building and maintaining competitiveness. The literature on
CSR suggests that if CSR is made an integral part of a firm’s strategy, CSR can
increase the competitiveness of the firm (Porter and Kramer, 2006).
CSR activities are often fragmented and disconnected from the firm’s strategy
(Porter and Kramer, 2006). Research has shown that the way in which an issue
is interpreted (e.g. as a threat or as an opportunity) leads to divergent strate-
gies (Sharma, 2000). Likewise, we may assume that pressures to behave socially
responsible may be interpreted by firms in divergent ways, making some firms
more inclined to integrate CSR in their strategy in order to meet CSR expecta-
tions, and other firms less or not at all.
This begs the question of what factors make some firms interpret pressures for
CSR as a strategic issue, and others not. Interpretation of strategic issues within
firms is influenced by the characteristics of individuals, such as schemas to cat-
egorize information (Dutton and Jackson, 1987), as well as factors in the macro
environment of an organization, like the culture of the country in which the
organization is located (Peng et al., 2014). A third relevant level where influences
on the way in which strategic issues are interpreted, is that of the firm itself. Firms
differ in their structures, processes, and strategies, and these are likely to impact
on their strategic responses (e.g. Thomas and McDaniel, 1990).
DOI: 10.4324/9781003216483-11
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 Business Culture and CSR 87

In a review of the factors influencing organizational innovation, Crossan and

Apaydin (2010) distinguished various ‘managerial levers’ at the organizational
level. Some of these are explicit and can deliberately be manipulated by top man-
agement, for example, the firm’s mission and goals, structure and systems, and
resource allocation. Other factors, and most strongly the organizational culture
of the firm, are less open to deliberate manipulation. This makes organizational
culture a relatively stable factor distinguishing between firms, and presumably a
factor that will influence how a firm deals with CSR. Organizational culture,
strongly linked to the identity of a firm (Hatch and Schultz, 2002), is a key char-
acteristic that influences multiple aspects of how organizations behave (see, e.g.,
Ashkanasy et al., 2000), including how they perceive and respond to strategic
issues (    Julian and Ofori-Dankwa, 2008; Thomas and McDaniel, 1990; White
et al., 2003). For a firm to be effective in CSR, it is imperative that the relevant
policies are framed in such a way that they fit the firm’s organizational culture
(Howard-Grenville and Hoffman, 2003). Studies employing the so-called com-
peting values framework of organizational culture have indicated that a flexibility
orientation and an external focus are positively related to CSR (Berger et al.,
2007; Linnenluecke and Griffiths, 2010). However, robust empirical evidence is
still lacking. Whereas Berger et al. (2007) tested their theory on a limited number
of interviews, Linnenluecke and Griffiths (2010) did not test their hypotheses by
empirical research.
The central research question in this chapter therefore is: How does business
culture, as conceptualized in the competing value framework, affect CSR? In line
with Berger et al. (2007) and Linnenluecke and Griffiths (2010), our findings
confirm that an open systems business culture combining external focus and a
flexibility orientation stimulates various dimensions of CSR. Our study contrib-
utes to the literature on business culture and CSR by demonstrating that theo-
retical notions and explorative research are confirmed by a more representative
study. A second contribution is that, because our sample contains many SMEs, we
redress the dominant focus on large, often multinational firms in studies of both
CSR and organizational culture (Baumann-Pauly et al., 2013).
In the next section, we will discuss our conceptual framework linking organi-
zational culture to CSR and formulate hypotheses pertaining to the relationships
between these concepts. After that, we discuss the operationalization of variables.
Next, we present our empirical findings, followed by a conclusion.

9.2 Conceptual Framework
Although the concept of CSR has been around for a long time (Carroll, 2008),
there is little doubt that the pressure on firms to comply with CSR demands has
increased dramatically in the past few decades (Babiak and Trendafilova, 2011)
and that CSR has become ‘mainstream’ (Helmig et al., 2016). In linking CSR to
strategy, companies need to take stock of where in their value chain of activities
88 Internal Drivers of CSR

there are opportunities to minimize societal damage or create shared social value
in such a way that it enhances their competitiveness (Porter and Kramer, 2006).

Open Systems Business Culture

Strategic issue interpretation is influenced in general by factors at the level of
the individual manager (e.g. Julian and Ofori-Dankwa, 2008), the organization
(Delmas and Toffel, 2008), and the environment (Barr and Glynn, 2004). In this
chapter, we are particularly interested in factors at the organizational level that
can explain why one firm in a particular industry and country interprets CSR
issues different from another firm in the same industry and country. We propose
that the cultural orientation of a firm influences the likelihood it will engage in
CSR. Organizational culture is strongly linked to the identity of a firm (Hatch
and Schultz, 2002) and is a key characteristic that influences multiple aspects of
how organizations behave (see, e.g. Ashkanasy et al., 2000), including how they
perceive and respond to strategic issues (White et al., 2003).
Linnenluecke et al. (2009) specifically focus on external focus and flexibility
orientation as dimensions of organizational (sub)culture that influence percep-
tions of strategic CSR issues. Internal versus external focus and control versus
flexibility orientations are the two basic dimensions distinguished in the Com-
peting Values Framework (CVF) (Cameron and Quinn, 1999).1 The CVF aligns
with well-known and widely accepted categorical schemes that outline how peo-
ple think, how they organize their values and ideologies, and how they process
information. The first dimension pertains to the degree to which the organization
is oriented toward its own internal environment versus the external environment
and relationships with outside entities, such as regulators, suppliers, competitors,
and customers. The second dimension juxtaposes emphasis on centralization and
control over organizational processes with decentralization and flexibility (Deni-
son and Spreitzer, 1991). Companies that manage by control use all kinds of for-
mal mechanisms, such as rules, directives, and direct supervision, to direct the
organization towards the organizational goals. In contrast, companies that have a
management style characterized by flexibility rely on participation, intrinsic com-
mitment, and autonomy to realize the company goals.
Combining these two dimensions leads to four ideal types of organizational
cultures: the internal process model (internal focus plus control orientation), the
rational goal model (external focus plus control orientation), the human relations
model (internal focus plus flexibility orientation), and the open systems model
(external focus and flexibility orientation). These four ideal types differ not only
in the ends that are typically pursued but also in the means employed to reach
those ends. For instance, for the internal process model ends are related to the
stability of the organization and control, and typical means are formal rules and
procedures. The open systems model, in contrast, strives for growth and exter-
nal support and employs more informal coordination. The CVF because of its
 Business Culture and CSR 89

general nature can be seen as a metatheory of organizational culture (Denison and

Spreitzer, 1991), or ‘an elegant way to summarize the wide range of issues that
have been studied under the cultural rubric’ (Schneider et al., 2012: 377). The
framework has been used and validated extensively in empirical research (Cam-
eron et al., 2006; Howard, 1998; Zammuto et al., 2000).

Open Systems Business Culture and CSR

In literature, CVF dimensions have been typically related to innovation. Vari-
ous studies found that a flexibility orientation and an external focus positively
affect innovation outcomes (Fey and Denison, 2003; Naranjo-Valencia et al.,
2011; Büschgens et al., 2013). There is much less literature linking CVP dimen-
sions to CSR but some conjectures can be made. Following the categorization
of CSR by Dahlsrud (2008), who distinguished five qualifying dimensions of
CSR (economic performance, stakeholder relations, EP, social performance,
and voluntariness dimensions), we focus on three different domains of CSR.
Leaving economic performance out, we distinguish (voluntary) instruments that
help building stakeholder relations, informal efforts to improve EP, and informal
efforts that foster social performance.
First, we postulate that an open systems business culture fosters the use of
instruments that help building good relationships with stakeholders. An external
focus implies that a firm is more open to external audiences and stakeholders
(Russo and Perrini, 2010), whereas a flexibility orientation improves the partici-
pation of employees in decision-making. This has been argued to be an important
condition for CSR. Basu and Palazzo (2008: 129) maintain that ‘an open posture
is oriented toward learning that is based on the organization’s willingness to listen
and respond to alternative perspectives offered by others. An open posture allows
the organization to be ready to share not simply solutions but also its perception
of the issue with others and to debate and discuss the nature of the transforma-
tion, both internal and external, that might be necessary to bring about real
change’. This argumentation undergirds the assumption that an open systems
business culture is conducive to the use of instruments that strengthen stakeholder
relations.

Hypothesis 9.1 Firms with an open systems business culture are more likely to engage
in stakeholder relations.

Second, we postulate that an open systems business culture increases efforts

to improve EP. Linnenluecke and Griffiths (2010) argued that organizations with
an internally focused culture will place greater emphasis on economic perfor-
mance, growth, and long-term profitability in their pursuit of corporate sustain-
ability. Because of the strong focus on achieving economic outcomes, they easily
miss out on sustainability innovations, as such innovations require flexibility,
90 Internal Drivers of CSR

learning, and change. An external focus enables a firm to better anticipate chang-
ing market conditions (Naranjo-Valencia et al., 2011) and stimulates a firm to
engage in a process of knowledge exploration (Zhang et al., 2006). An externally
oriented firm will therefore be more able to respond to society’s demand for
more sustainable production patterns. In addition, the flexibility orientation of
the open systems business culture may be assumed to contribute to engagement
in environmental CSR. Kitazawa and Sarkis (2000), on the basis of three case
studies claimed that employee empowerment, willingness to make suggestions,
and participation in decision-making are critical elements in the capability of
a firm to pursue continuous reduction of impacts on the natural environment.
Škerlavaj et al. (2007) argued that flexibility orientation is conducive to organiza-
tional learning because employees of firms with such a culture will be more open
to cognitive change. Companies with a flexible management style will therefore
more proactively apply corporate sustainability practices and are most likely to
innovate for achieving ecological sustainability. This is in line with explorative
work by Berger et al. (2007), who, based on 100 interviews, concluded that
companies with comparatively flat hierarchies more often pursue CSR policies in
a broad range of areas. Companies that display a high degree of uncertainty avoid-
ance by using norms, rules, or procedures (characteristic for a control orientation)
are less involved with CSR than companies that do not adhere to established
routines and extensive planning procedures. As both external focus and flexibility
orientation are conducive to EP, we propose:

Hypothesis 9.2 Firms with an open systems business culture are more likely to put
effort into improving EP.

Third, we propose that an open systems business culture will also foster social
dimensions of CSR, like the quality of labour within the firm and respect of
human rights in the chain. As argued by Linnenluecke and Griffiths (2010), com-
panies with a flexibility orientation will more likely adopt a clear position on
social aspects of CSR, such as the creation of a humane working environment.
This suggests that a flexibility orientation will foster responsibility for providing
training and education to employees, securing health and safety and promoting
workplace diversity and work–life balance. In companies with high power dis-
tance, there is greater acceptance, both by the leaders of the organization and the
followers, that the leaders are entitled to privileges. In companies where power
distance is low, participation by internal stakeholders is important (Berger et al.,
2007). Whereas the flexibility orientation particularly stimulates the social dimen-
sion of CSR within the firm, the external focus will enforce social aspects of
CSR outside the firm, like respect of human rights in relationships with suppliers.
Companies with an external focus will recognize the relevance of CSR in the
wider social and economic environment as well as social pressures from activists
 Business Culture and CSR 91

to respect human rights. Society expects that companies take wider responsibil-
ity towards various stakeholder groups and that includes labour conditions in
the chain. We therefore surmise that a company with an open systems business
culture that combines flexibility orientation with external focus will be more
conducive to social aspects of CSR than other companies.

Hypothesis 9.3 Firms with an open systems business culture are more likely to put
effort into improving social performance.

9.3 Methodology
The data are taken from the surveys in 2011 (independent variables) and 2014
(dependent variables). An overview of the dependent and independent variables
in our study is given in Table 9.1. Given the strong validation that measures of

TABLE 9.1 Descriptive and exploratory factor analysisa

Factor loadings

Mean SD Stakeholder Environmental Social

relations effort effort

External focus (15) 4.57 1.43

Flexibility orientation (16) 5.06 1.39
Internal code (43) 0.39 0.49 0.50
CSR training (53) 0.23 0.42 0.55
ISO 14001 (57) 0.13 0.32
Dialogue with NGOs (45) 0.14 0.34 0.63
CSR cooperation supply chain (46) 0.31 0.46 0.65
Partnerships with training 0.28 0.45 0.63
institutes (47)
Participation in local CSR 0.33 0.47 0.70
initiatives (48)
Effort energy consumption (91) 0.69 0.36 0.79
Effort water consumption (92) 0.61 0.39 0.80
Effort waste disposal (93) 0.79 0.33 0.78
Effort environmental performance 0.63 0.40 0.65
suppliers (94)
Effort employee training (63) 0.75 0.30 0.72
Effort employee health (65) 0.80 0.32 0.80
Effort labour conditions suppliers (66) 0.59 0.41 0.65
Eigenvalue 3.97 1.61 1.14
Cronbach alpha 0.71 0.76 0.61
a
 xtraction method: Principal component analysis. Structure matrix. Rotation method: Oblimin.
E
Factor loadings <0.50 are not reported. The numbers in brackets refer to the numbers of the survey
questions reported in Appendix 1.
92 Internal Drivers of CSR

the CVF have received in earlier studies (Howard, 1998; Kwan and Walker, 2004;
Lavine, 2014; Quinn and Spreitzer, 1991) and the length of our questionnaire,
we have operationalized the two dimensions with two questions. We measured
external focus by the response to the statements ‘In your enterprise you focus
on optimizing the internal organizational efficiency’ and ‘In your enterprise you
focus on adapting to the demands of the external environment’. The respondent
could fill in seven options ranging from (1) (sole focus on optimizing the internal
organizational efficiency) to (7) (sole focus on adapting to the demands of the
external environment). We asked the respondents to select the answers on the
seven-point scale and informed them that (4) indicates an intermediate position.
The flexibility orientation was measured by the response to the statements: ‘In
your enterprise you focus on managing employees by supervision and strict com-
pliance mechanisms’ and ‘In your enterprise you focus on employees autonomy
and participative decision making’. The respondent could chose among seven
options to identify if the company can be characterized by a flexibility orientation.
For measuring stakeholder relations we used seven indicators (Graafland et al.,
2003; Ulrich et al., 1998), including two instruments that foster relations with
internal stakeholders (internal code and employee training) and four instruments
that help building relations with external stakeholders (stakeholder dialogue,
cooperation in the chain, partnerships with professional training institutes, and
participation in local initiatives of governments and social organizations) (Bos-
Brouwers, 2010; Pirsch et al., 2006; European Commission, 2007; Barth and
Wolff, 2009). We also included ISO 14001 certification, which may affect both
internal stakeholder relations (by increasing employees’ focus on environmental
improvements) as well as external stakeholder relations (by providing evidence of
the company’s efforts to improve EP through certification).
For EP, we used four indicators inquiring whether the company has taken
concrete actions to reduce energy consumption, water consumption and waste
production, and improve EP of suppliers, respectively. For social performance,
we measured the efforts of the company to improve the training of employees,
prevent accidents at the work floor, and foster the respect of human rights in
the production chain. Environmental and social efforts were measured by three
options, distinguishing between ‘no effort’ (0), ‘incidental effort’ (0.5) and ‘con-
tinuous effort’ (1).
To assess the construct validity of CSR, we performed an exploratory factor
analysis and used the results to evaluate the reliability of the composite variables
based on various statistical criteria (Hair et al., 1998). Table 9.1 shows three fac-
tors expressing eigenvalues larger than 1.00. In the regression analysis, we used
the estimated factors from the exploratory factor analysis.

9.4 Results
Table 9.2 presents the estimation results of the multiple regression analysis for CSR.
 Business Culture and CSR 93

TABLE 9.2 Results of multivariate regression analysis of CSRa,b

Stakeholder relations Environmental efforts Social efforts

External focus 0.05* 0.07* 0.00

Flexibility orientation 0.06* 0.10*** 0.11***
R2 0.25 0.12 0.13
a
OLS. N = 1,485. Standardized coefficients; * p < 0.05; ** p < 0.01; and *** p < 0.001. Controlled
for time horizon, skill level of employees, age structure, company size, sector, region, position in the
chain, intensity of price competition, and inverse Mill’s ratio (see Appendices 1 and 2 for details).

The results show that an external focus and flexibility orientation foster the
use of instruments that strengthen stakeholder relations and environmental efforts,
providing support for hypotheses 9.1 and 9.2. Social efforts are only positively
related to flexibility orientation, providing partly support for Hypothesis 9.3.

9.5 Conclusion
In this study we theorized that the cultural orientation of a company influences
CSR. Specifically, we hypothesized that an open systems business culture stimu-
lates the use of voluntary instruments that help build stakeholder relations and
efforts to improve environmental and social performance. Our findings point in
the direction of strong interconnections between the aspects of organizational
culture and engagement of companies in CSR.
Whereas our findings generally confirmed our hypotheses, we also see that the
two dimensions characterizing the open systems organizational culture differen-
tially impact the various dimensions of CSR. External focus has a positive effect
on organizational measures, which makes sense as four of them are externally
oriented, and on environmental efforts. Flexibility orientation affects all CSR
dimensions and particularly social efforts. Based on these effects, we find that
a flexibility orientation provides a more general and overall stronger impulse to
CSR than an external focus orientation.

Note
1 Different versions of the CVF have been developed, and the terms used to describe the
dimensions and types of cultures vary slightly; we use the terminology of Zammuto
et al. (2000).
PART III

Impacts of Competition
on Corporate Social
Responsibility
10
PRICE COMPETITION, SHORT-
TERMISM, AND CORPORATE
SOCIAL RESPONSIBILITY*

10.1 Introduction
Globalization and economic growth have put pressure on the environment
because of negative external effects of production and consumption patterns.
This challenge has generated a strong interest in the CSR of companies. Indeed,
CSR is often seen as ‘corporate externality recognition’ (Crouch, 2006). In 2011,
the European Commission defined CSR as the responsibility of enterprises for
their social and environmental impacts on society (European Commission, 2011:
6). An important policy question is how companies can be incentivized to adopt
this responsibility and improve their corporate EP. Whereas much is known of
the micro-barriers to CSR (Hemel and Cramer, 2002; Shi et al., 2008; Mathi-
yazhagan et al., 2013; Trianni et al., 2013), recently research has become more
focused on the institutional roots of CSR (Brammer, Jackson et al., 2012; Camp-
bell, 2007; Gjølberg, 2009). One of the hypotheses that Campbell (2007) devel-
ops is that the odds of companies acting in socially responsible ways depend on
the intensity of competition they face. If price competition is very intense, profit
margins will be low and companies will have a strong incentive to save costs,
and this may cause them to act in socially irresponsible ways. As Van de Ven and
Jeurissen (2005) and Dubbink and Van der Putten (2008) argued, in a perfect
market, individual companies will have hardly any room to pursue a proactive
policy on CSR because any cost disadvantage will harm their market share.
Building on institutional literature on CSR, other theoretical studies have
conceptualized CSR as resulting from a combination of institutional factors and
factors internal to the company (Delmas and Toffel, 2004; Aguilera et al., 2007;
Brown et al., 2010). As yet underexposed in the literature, one of the internal
factors through which price competition may affect CSR is the time horizon

DOI: 10.4324/9781003216483-13
This chapter has been made available under a CC-BY-NC 4.0 license.
98 Impacts of Competition on CSR

that the company employs in its strategic decision-making. If companies are less
profitable, they will have fewer resources; consequently, that makes it harder to
make investments that are likely only to pay off in the long term, and the result-
ing ‘short-termism’ may discourage CSR.1 As Yong Oh et al. (2011) argue, CSR
investments are most likely to pay off in the long run. The longer the time
horizon of the company, the more the company is concerned about corporate
reputation and the quality of stakeholder management (Rehbein et al., 2013).
Companies with a long-term orientation will therefore use CSR as an instru-
ment to achieve long-term success. Based on this literature, we hypothesize that
price competition reduces CSR by shortening the time horizon of the company.
One would expect that the links between competition, time horizon, and
CSR described earlier are particularly relevant for SMEs. The SME manager
tends to focus on survival (Burt and Van der Heijden, 2003) and is therefore
less likely to carry out strategic planning (Laverty, 2004; Ates and Bititci, 2011).
Because of their small size, most SMEs operate on markets with severe competi-
tion, and this puts their profitability under pressure. Time, finances, and a lack
of skills and knowledge are commonly identified by SMEs as constraints to CSR
(Studer et al., 2006). The long-term strategic benefits from CSR in terms of
reputation, cost reduction, increased consumer demand, and reduction in risks
therefore often remain beyond the strategic horizon of SMEs. This implies that,
as Lynch-Wood and Williamson (2007) argued, the social licence motive will not
be sufficient to induce SMEs to go beyond compliance to the law.
Currently, there is no empirical research that provides evidence of the media-
tion of the influence of price competition on CSR by time horizon. There are
some studies that show that time horizon and CSR are related (Berger et al.,
2007; Mallin et al., 2013; Neubaum and Zahra, 2006; Slawinski and Bansal,
2009; Yong Oh et al., 2011) and that competition is mildly antithetical to CSR
(Cottrill, 1990). But the links between time horizon and the intensity of price
competition, and how price competition affects CSR through time horizon,
have not yet been researched. In this chapter, we aim to fill this gap by using a
large sample of 3,152 companies from 12 European countries that largely consist
of SMEs to analyse the relationship between price competition and CSR and the
role of time horizon as mediator.
Given the present state of research, this chapter makes three contributions.
First, we develop a conceptual framework that links price competition to CSR by
postulating a mediating role of time horizon. Second, we test the model empiri-
cally, thus providing insight into the quantitative effects of price competition on
time horizon and CSR, and the role of time horizon as a mediation path between
price competition and CSR. The third contribution is that we test the model
with a unique dataset that contains 3,152 observations, of which more than 90%
concern SMEs. The focus on SMEs in the sample is motivated by the expectation
that the hypothesized relationships between price competition, time horizon, and
CSR might be particularly relevant for SMEs, as discussed earlier.
 Price Competition, Short-termism, and CSR 99

In what follows, we first present the hypotheses, then describe the methodol-
ogy and report the results of the empirical analysis, and finally summarize the
main findings in the concluding section.

10.2 Conceptual Framework
Following recent theoretical studies (Delmas and Toffel, 2004; Aguilera et al.,
2007; Brown et al., 2010), we conceptualize CSR as resulting from a combina-
tion of external factors and internal factors (see Figure 10.1). More specifically,
we assume that the implementation of CSR is related to the company’s time
horizon (internal condition) and that the company’s time horizon depends on the
intensity of price competition (external condition). Here, we first argue that price
competition is expected to decrease the time horizon of a company. Then we
explain that the implementation of CSR instruments will increase with the time
horizon that the company applies in its strategic decisions. Finally, we describe
the relationship between implementation of CSR instruments and CSR impacts.

Price Competition and Time Horizon

Neoclassical economic theory conceptualizes a well-organized market as a ‘perfect
market’ (Baumol and Batey Blackman, 1991). In the neoclassical paradigm, the
basis of economic growth is a well-functioning price mechanism that coordinates
the decisions of economic subjects. Consequently, it is important that the gov-
ernment secures a high level of price competition, for example through antitrust
policies. While stimulating economic growth, price competition may, however,
also have negative effects on social welfare if it increases negative externalities.
In this chapter we focus on one particular mechanism, namely that intense price
competition may reduce initiatives to improve EP by shortening the time horizon
of companies. Short-termism refers to an excessive focus on short-term results at
the expense of long-term interests. There are several reasons why intense price
competition may induce short-termism.
First, fierce price competition puts a negative pressure on profitability and
increases the risk of bankruptcy. This will induce low-cost strategies and reduce

FIGURE 10.1 Conceptual framework

100 Impacts of Competition on CSR

a long-term orientation (Mittra et al., 1995). As argued by Campbell (2007), if

the continuity of the company is at risk because of low profit margins, there is
a strong incentive to cut corners and save money where possible to survive in
the short run and refrain from investments that pay off in the long run, even if
that causes the company to compromise on product quality or employees’ safety.
Segelod (2000) found that the scope for long-term investments decreases when
profit is low because companies need to have a sufficient cash flow to be able
to develop their long-term projects and make them profitable. Companies that
focus on survival exhibit short-termism and are less able to deal with strategic
long-term developments (Burt and Van der Heijden, 2003; Laverty, 2004; Ates
and Bititci, 2011).
Second, low profitability leads to more dependence on external financers. If
companies have fewer resources available for long-term investments, they become
more dependent on credit from external financers such as banks. This may lead to
loan monitoring that is more bottom-line oriented and further increases the focus
on short-term performance (Rappaport, 2005). External financers may under-
value investments that will pay off only in the long run (Laverty, 1996). Hence,
external financial intermediaries will put pressure on the management to be prag-
matic and reap benefits as soon as possible (Porter and Kramer, 2011).
Therefore, the following hypothesis is proposed:

Hypothesis 10.1 A higher intensity of price competition shortens the time horizon of
the company.

Time Horizon and Implementation of CSR

Literature has argued that a long time horizon will foster the implementation of
CSR of companies (Berger et al., 2007; Slawinski and Bansal, 2009; Porter and
Kramer, 2006). The reason is that investments in CSR in the short-term cost
money (Wang, 2013; Hart, 1995; Brammer and Millington, 2008; Shi et al.,
2008), whereas the benefits from engaging in CSR mainly pay off in the long
run (Mallin et al., 2013; Neubaum and Zahra, 2006; Rehbein et al., 2013; Yong
Oh et al., 2011). A company with an excessive focus on short-term results will
reckon with a lower net discounted value from investments in CSR than a com-
pany that takes account of long-term results and therefore will be less inclined to
implement CSR.
CSR can produce several types of benefits. As theorized by the resource-based
view (Branco and Rodrigues, 2006) and by the stakeholder theory (Surroca et al.,
2010), one of the most important strategic benefits is that CSR may enhance
the company’s reputation. These reputational advantages typically pay off in the
long run because it takes time to build up a good reputation. Moreover, as CSR
often effectively carry with them a kind of insurance-type protection – in the
sense of reducing business and corporate risks (Godfrey et al., 2009) – and since
 Price Competition, Short-termism, and CSR 101

such unexpected events generally occur only now and then, the benefits of these
investments appear only in the long run. The longer the time horizon of the
enterprise, the more it will take account of the long-term benefits and the more
priority CSR will have.
Furthermore, companies with a good CSR reputation are able to attract bet-
ter employees and improve commitment of existing workers (Reinhardt, 1999).
It may lead to stronger commitment from employees, lower absenteeism and
turnover rates, higher productivity, and a more positive attitude to work and
good conduct (Turban and Greening, 1997). These effects of CSR generate a
permanent reduction in labour costs, and so the pay-off typically increases over
time.
CSR also has long-term strategic value because it may contribute to process
or product innovation (Hemel and Cramer, 2002; Demirel and Kesidou, 2011).
But developing business opportunities to meet consumers’ increasing demand
for environmentally friendly products often takes a long time (Dijk et al., 2013).
Hence, the benefits from such investments in lowering production costs and aug-
menting the environmental quality of products also mainly exist in the long run.
A final strategic motive for CSR is that organizations that integrate CSR in
their policies may be more successful in avoiding excessive regulatory interven-
tion and meeting existing regulations (Shrivastava, 1995; Hart, 1995). But, again,
the pay-off of such insurance-type benefits is only significant if the company has
a long-term orientation.
Whereas the various types of benefits of CSR often take substantial time to
materialize, the costs associated with CSR are mostly immediate (Wang, 2013).
The implementation of CSR often requires putting in significant financial and
other resources in the short run, for example for installing equipment (Hart,
1995; Brammer and Millington, 2008) or for developing management skills to
apply EMSs and obtaining certifications, which may undermine the competitive
position in the market place (Shi et al., 2008). If funds for environmental projects
are lacking, the consideration that the return on investment period after imple-
menting green management is very long hampers investment (Mathiyazhagan
et al., 2013). A cost-benefit analysis of such investments will only yield a positive
result if the company focuses on the benefits after the short run.
For implementation of CSR, we distinguish two types of measures: formal
organizational procedures to integrate CSR in the company’s operations and
(informal) efforts (concrete actions) to improve environmental impacts. Since
both types of measures are costly in the short run, whereas their benefits accrue in
the long run, we posit that a company’s implementation of both types of instru-
ments will increase as the time horizon of the company increases:

Hypothesis 10.2a CSR efforts are positively related to the time horizon of a company.
Hypothesis 10.2b CSR procedures are positively related to the time horizon of a
company.
102 Impacts of Competition on CSR

CSR Implementation and CSR Impacts

The final piece of the conceptual framework is that the implementation of CSR
will improve CSR impacts, such as a reduction in energy consumption or waste
(see also Chapter 2). Although there is evidence that firms’ motive to implement
CSR instruments is to improve CSR impacts (    Johnstone and Labonne, 2009),
literature on decoupling has shown that implementation does not always lead to
better outcomes (Bromley and Powell, 2012). Nash and Ehrenfeld (2001) showed,
for example, that two organizations that implement identical environmental man-
agement systems (EMSs) can realize very different results. Furthermore, due to
the informal and diversified nature of SMEs, many studies argued that formal
environmental management tools do not fit them (Spence et al., 2003; Studer
et al., 2006; Welford and Frost, 2006; Battaglia et al., 2010). The general opin-
ion in literature, therefore, is that SMEs should not implement CSR by using
procedural tools but stick to practical measures to improve CSR. However, as
discussed in Chapter 2, using formal instruments may also benefit SMEs, for
example by raising the quality of internal management and stimulating organiza-
tional learning and innovativeness. Furthermore, owner-directors can be erratic
in their environmental management and therefore not realize its full potential. It
is also frequently claimed that a gap exists between what SME owner-managers
say about the importance of environmental issues and their actual efforts to
improve environmental impacts. Using formal management instruments can help
diminish this so-called value-action gap and make EP less dependent upon the
erratic actions of the SME’s director. Also empirical research showed that formal
procedures may improve environmental outcomes. For example, Friedman and
Miles (2001) and Ammenberg and Hjelm (2003) found that the establishment of
an EMS by SMEs in Britain and Sweden, respectively, resulted in environmental
improvements.
Our framework thus posits the following two final hypotheses:

Hypothesis 10.3a The more effort a company undertakes to take concrete actions to
improve CSR, the better its CSR impacts.
Hypothesis 10.3b The use of formal procedures to integrate CSR in the company’s
operations reinforces the impacts of CSR.

10.3 Methodology
For formal procedures we used two, relatively simple, tools: setting targets to
improve environmental outcomes and reporting on the realization of these out-
comes (see also Chapters 2, 7, and 8).2 Formal procedures were measured on a
three-point scale ranging from 1 (no target, no reporting), 2 (targets or report-
ing), to 3 (targets and reporting). Efforts refer to concrete actions to improve
performance in the future and were measured on a three-point scale ranging
 Price Competition, Short-termism, and CSR 103

TABLE 10.1 Descriptive statisticsa

Variable Mean SD

Effort to reduce energy consumption (91) 2.51 0.68

Effort to reduce water consumption (92) 2.34 0.76
Effort to reduce waste (93) 2.67 0.59
Procedural steps to reduce energy consumption (96) 1.56 0.64
Procedural steps to reduce water consumption (97) 1.45 0.58
Procedural steps to reduce waste (98) 1.60 0.60
Reduction in energy consumption during 2007–2010 (102) 0.57 1.50
Reduction in water consumption during 2007–2010 (104) 0.41 1.18
Reduction in waste during 2007–2010 (105) 0.45 1.31
Time horizon for financial targets (17) 2.73 1.32
Time horizon for CSR investments (29) 2.74 1.38
Intensity of price competition (121) 5.02 1.89
a N = 3,152. The numbers in brackets refer to the numbers of the survey questions reported in
Appendix 1.

from 1 (no), 2 (on an ad hoc basis), to 3 (continuously). The reason we added this
measure to the survey is that our pilot interviews indicated that SMEs may actu-
ally be proactively fostering EP without using formal procedures. Merely meas-
uring the use of formal procedures may therefore bias the measurement of the
actual implementation of environmental practices. The survey outcomes reported
in Table 10.1 show that the average effort to reduce energy consumption, waste,
and water consumption is substantially higher than the use of process steps, which
confirms that the implementation of environmental measures is mostly informal.
For environmental impacts, we use three questions about energy consumption,
water consumption, and waste, measured by a seven-point scale for the change
in the respective variable between 2007 and 2010 (see Chapter 3). The internal
reliability of the environmental measures has been assessed by Cronbach alpha,
and all meet the accepted threshold of 0.60 (Hair et al., 1998).
For time horizon, we used two questions measuring the time horizon
employed in the strategic financial decisions of the company and the time hori-
zon for investments in CSR. On average, the time horizon is about 2.5 years.
We measured the intensity of price competition by the company’s perception
of the intensity of price competition in the market for its main product or service.
The question was administered on a Likert scale ranging from not at all (1) to
very much (7).3

10.4 Results
We estimate the model with structural equation modelling using maximum like-
lihood as the estimation technique. The measurement model and the structural
104 Impacts of Competition on CSR

model are estimated simultaneously. The estimation results are reported in

Table 10.2.
The estimation results show that the intensity of price competition signifi-
cantly reduces time horizon, which confirms Hypothesis 10.1. Hypotheses
10.2a and 10.2b that time horizon will increase informal efforts to improve CSR
impacts and foster the use of formal CSR procedures are also supported. Finally,
the estimation results confirm Hypotheses 10.3a and 10.3b: both efforts and pro-
cedural measures improve environmental impacts.
The SEM technique can also be used to calculate the extent and significance
of the indirect effects of the intensity of price competition on environmental
outcomes, as mediated by the time horizon, efforts, and procedures. Table 10.3
shows that the indirect effects of the intensity of price competition on environ-
mental outcomes are significant but very small in absolute terms.

TABLE 10.2 Estimation resultsa

Time horizon Environmental Environmental Environmental

efforts procedures impacts

Structural paths
Intensity of price −0.10***
competition
Time horizon 0.13*** 0.07***
Environmental efforts 0.24***
Environmental 0.07***
procedures
Measurement model
Time horizon Financial 0.65***
CSR 0.74***
Environmental efforts Energy 0.62***
Water 0.71***
Waste 0.62***
Environmental Energy 0.80***
procedures
Water 0.74***
Waste 0.75***
Environmental Energy 0.79***
impacts
Water 0.85***
Waste 0.75***
a Standardized coefficients. * p < 0.05; ** p < 0.01; *** p < 0.001. Controlled for size of the
company, sector, country, company’s age structure, and average tenure of employees. For details of
the control variables, see Appendices 1 and 2. Global fit indices: RMSEA = 0.028; CFI = 0.965;
TLI = 0.954; SRMR = 0.026; R2 = 0.195; N = 3,152.
 Price Competition, Short-termism, and CSR 105

TABLE 10.3 Indirect effects of price competition on environmental impactsa

Reduction in:

Energy consumption Waste Water consumption

Intensity of price competition −0.003** −0.002** −0.003**
a Standardized coefficients; * p < 0.05; ** p < 0.01; *** p < 0.001.

10.5 Conclusion
In this chapter we studied the relationships between the intensity of price com-
petition, time horizon, and environmental impacts. Based on a sample of 3,152
companies from 12 European countries, we find that (1) price competition has a
significant negative influence on the time horizon that a company applies in its
financial and CSR decisions; (2) time horizon exerts a significant positive effect
on the company’s implementation of environmental actions and procedures to
improve EP; (3) the implementation of concrete actions and formal procedures
significantly improves environmental outcomes as measured by a reduction in
energy consumption, waste, and water consumption. This chapter therefore, for
the first time, shows that the theoretical argument, that price competition signifi-
cantly worsens EP by stimulating short-termism, is valid. However, the estima-
tion results also show that the magnitude of this effect (although significant) is
very small.
Interestingly, if we extend the final model of Table 10.2 by adding direct rela-
tionships between price competition and environmental efforts, procedures, or
outcomes, we find no significant effects (p-values vary between 0.35 and 0.67).
In our model the only reason that more intense price competition reduces EP is
that it shortens the time horizon of strategic decisions by the company. This has
theoretical implications for slack resource theory, which states that the availability
of slack (financial and other) resources provides a company with more opportu-
nity to invest in CSR (Waddock and Graves, 1997). Firms that are in financial
trouble may lack the resources to invest in CSR-related activities. A better finan-
cial performance increases the availability of slack and would therefore lead to
better CSR. Several empirical studies confirmed the relevance of this mechanism
(Orlitzky et al., 2003). Taking CSR as the dependent variable and using lagged
financial performance as the independent variable (controlling for debt, size,
and industry), Waddock and Graves found strong support for the slack resource
hypothesis. Since improved CSR performance in turn results in better finan-
cial performance, this creates an interesting virtuous circle whereby responsibility
and economic success go hand in hand. As slack resources are obtained through
profitability and profitability depends negatively on the intensity of price com-
petition, our empirical results indicate that the reason that lack of slack resources
106 Impacts of Competition on CSR

might negatively affect CSR is because it induces short-termism. This result can
be used to develop a new hypothesis in slack resource theory, namely that time
horizon mediates the influence of profitability on CSR.

Notes
* An extended text of this chapter has been published in: Graafland, J.J. (2016). Price
competition, short-termism and environmental performance. Journal of Cleaner Produc-
tion, 116: 125–134.
1 CSR may, however, also be low in a monopolistic market with weak competition,
because stakeholders have then fewer possibilities to punish the company. Hence, com-
panies will be less likely to pursue a CSR strategy if there is either too much or too little
competition (Campbell, 2007).
2 Also major ESG rating agencies, like Sustainalytics and ASSET4, include parameters for
the use of programs and targets to reduce water consumption and for outcomes in terms
of water intensity/efficiency/use as part of their measurement of the E(nvironmental)
performance of companies. This illustrates that water consumption is commonly con-
sidered an environmental impact measure. Lambooy (2011) argued that sustainable
water use can be considered part of CSR, because water stress is increasingly viewed as
a potential constraint to economic growth, and as a threat to preserving healthy ecosys-
tems and to promoting social justice, particular in regions where governance of water is
weak and water supply is limited.
3 In order to check the reliability of this measure, we performed regression analysis
relating the intensity of price competition to the market structure of the company,
controlling for company size, region, sector, age structure and tenure. In the structure-
conduct-performance paradigm used in industrial economics, market structure is one
of the key factors driving competition intensity (Greer, 1992). In literature, four typical
market structures are distinguished: monopoly, oligopoly, monopolistic competition
and perfect competition (Samuelson, 1980; Greer, 1992). We measure market structure
by questions for each of these types of market structure (see survey question 119 in
Appendix 1). Using monopolies as reference, the estimation results showed that price
competition is strongest for companies operating in perfect markets (0.44, p<0.001),
whereas companies operating in monopolistic markets face significantly more intense
price competition (0.31, p<0.001) than oligopolies (0.23, p<0.001), and oligopo-
lies significantly more than monopolies. These results are in line with the structure-
conduct-performance paradigm that price competition decreases with concentration.
This provides confidence in the reliability of our measurement of the intensity of price
competition.
11
TECHNOLOGICAL COMPETITION,
INNOVATION MOTIVE,
AND CORPORATE SOCIAL
RESPONSIBILITY*

11.1 Introduction
In light of the salience of social and environmental challenges in society, over the
last quarter century several studies have explored motives for CSR (Muller and
Kolk, 2010; Aguilera et al., 2007; Bansal and Roth, 2000). Whereas most studies
explored engagement among large companies, other studies focused specifically
on CSR motives of SMEs. For example, using a sample of 102 SMEs from a vari-
ety of industrial sectors in the UK, Brammer, Hoejmose, and Marchant (2012)
distinguished six strategic motives: long-term financial benefits, short-term
financial benefits, legislative compliance, customer pressure, supplier initiative,
and market position and market share. These authors found that managers of both
small and medium-sized enterprises rate legislative compliance highest, but also
agree that long-term financial benefits and customer pressures drive their CSR.
However, previous research into the motives of CSR has paid no attention
to another likely motive to act in socially responsible ways: innovation. There is
evidence that CSR may be of strategic value for companies because it can stimu-
late innovation (Wagner, 2007b; Hull and Rothenberg, 2008; MacGregor and
Fontrodana, 2008; Padgett and Galan, 2009; Ziegler and Nogareda, 2009; Boc-
quet et al., 2011; Jamali et al., 2011; Lioui and Sharma, 2012; Luo and Du, 2015;
Flammer and Kacperczyk, 2016). However, while the aforementioned studies
establish a statistical link between CSR and innovation, this does not mean that
managers of firms engage in CSR because of the expected positive impact on the
innovativeness of their company.
In this study we explore whether managers invest in CSR because they expect
this to have a positive impact on innovation. We base our reasoning on expec-
tancy theory (Vroom, 1964), which posits that the motivation for an action is

DOI: 10.4324/9781003216483-14
This chapter has been made available under a CC-BY-NC 4.0 license.
108 Impacts of Competition on CSR

the product of the belief that the action will lead to a certain outcome and the
value of that outcome to the decision-maker. Building on this, we theorize that
managers (next to other motives) choose to invest in CSR because they believe
that this leads to innovation, and they see innovation as important to their firm.
We focus on top managers of SMEs because while top managers generally have
an important influence on strategic decisions (Hambrick and Mason, 1984), this
is particularly the case in SMEs (Laufs et al., 2016). SMEs are more flexible and
adaptable and can therefore more rapidly take advantage of new niche markets
that incorporate social and environmental benefits. SMEs may also be more crea-
tive and innovative, and innovation is therefore a viable source of competitive-
ness for SMEs (    Jenkins, 2009). Of the studies cited earlier, only MacGregor and
Fontrodana (2008) looked at the link between CSR and innovation for SMEs,
but their explorative research is limited to 60 firms and does not allow them to
test hypotheses.
Business strategies and top managers’ motivations, however, do not develop
in a vacuum but are influenced by the external environment of companies. The
role of technological competition in driving CSR has remained underexposed in
the literature. Building on institutional literature (Aguilera et al., 2007; Camp-
bell, 2007; Brown et al., 2010), we conjecture that top managers’ motivation
to engage in CSR depends on the market environment in which the company
operates. Top managers of companies operating in a market with strong techno-
logical competition will attach a higher value to innovation. As the value of the
outcome of an action increases the motivation for this action, expectancy theory
predicts that technological competition increases the innovation motive of CSR.
If the innovation motive drives CSR, the strength of the innovation motive for
CSR of top managers will mediate the positive effect of technological competi-
tion on CSR.
Our study makes three major contributions to the literature. First, this chap-
ter theorizes the importance of innovation as a motive for CSR of SMEs.
Second, we develop a conceptual framework linking the innovation motive
to the competitive environment of the company and postulate a mediating
role of the innovation motivation of top managers in the relationship between
technological competition and CSR. By focusing on top managers, we tap into
the knowledge of the group of managers that are most well informed about the
CSR motives of the SME. Top managers are constantly shaping the strategic
direction of the company (Weaver et al., 1999) and are often directly involved
in decisions on CSR (Waldman et al., 2006). Therefore, they have first-hand
knowledge of the motives that drive the company’s CSR policies. Third, we
empirically test predictions based on this model using a unique dataset con-
taining more than 2,000 observations of top managers of large companies and
SMEs. In this way, we can test whether the links between competitive environ-
ment, top managers’ innovation motive, and CSR hold for large as well as for
small companies.
 Competition, Innovation Motive, and CSR 109

In what follows, we first discuss our conceptual framework and hypotheses.

Next, we describe data and methods. Subsequently, we present our empirical
findings. We conclude with a summary of our results.

11.2 Conceptual Framework
Following other studies (Weaver et al., 1999; Aguilera et al., 2007; Brown et al.,
2010), we assume that engagement in CSR depends on a combination of exter-
nal pressures and factors internal to the company. More specifically, we postulate
that motivations of top managers towards CSR mediate the influence of pressure
from technological competition on the implementation of CSR at the company
level (see Figure 11.1). Here we will first argue that innovation motivation of top
managers stimulates a company’s engagement in CSR (Hypothesis 11.1). Next,
we postulate that innovation motivation is more likely to arise if a company
faces intensive technological competition on its output market (Hypothesis 11.2).
Third, we present the mediation hypothesis (Hypothesis 11.3).

Innovation Motivation of Top Managers and CSR

In the CSR literature different motives for CSR have been distinguished. One
of the most important strategic benefits of CSR is that it may enhance the com-
pany’s reputation (Surroca et al., 2010) and help to receive or maintain a licence
to operate from society. In their study of corporate motives for CSR, Brønn and
Vidaver-Cohen (2009) found that improving the company’s image ranks first
among 16 motives. Managers may also be motivated for CSR because they see it
as being able to help them differentiate their company from competitors and in
this way to strengthen their competitive position. Furthermore, CSR can be seen
as increasing the commitment of employees and helping firms to attract talented
new employees (    Jones et al., 2014; Albinger and Freeman, 2000). Finally, a stra-
tegic motive for CSR can be that it helps firms in avoiding regulatory interven-
tion, meeting existing regulations, and preventing costly lawsuits started against
firms, which apply inadequate standards for their suppliers and vendors (Carroll
and Shabana, 2010).
However, so far no research has focused on innovation as a motive for CSR.
This is surprising, as CSR has been claimed to stimulate innovation, for sev-
eral reasons, as has been argued in Chapter 4. Given these positive effects of
CSR on innovation, we expect that top managers might be aware that CSR
stimulates innovation. In the view of the theory of reasoned actions (Ajzen,

FIGURE 11.1 Conceptual framework

110 Impacts of Competition on CSR

1991), this belief provides the cognitive foundation of their CSR motiva-
tion. Moreover, according to expectancy theory the motivation to engage in
a particular action is the product of the belief that the action will lead to a
certain outcome and the value of that outcome to the decision-maker (Vroom,
1964). Predictions of this theory have generally received support in manage-
ment research (Yang et al., 2018). As the motivation of the top manager is
an antecedent to his/her behaviour (Treviño et al., 2006), it is reasonable to
expect that the top manager’s innovation motive towards CSR will translate
into a stronger engagement of the company in CSR. Hence, we propose the
following hypothesis:

Hypothesis 11.1 The stronger the top manager’s innovation motivation towards CSR,
the more the firm will engage in CSR.

Technological Competition and the Innovation Motive

Business strategies and motivations are not developed in a vacuum but are influ-
enced by the environment of companies. Building on institutional literature, sev-
eral studies have conceptualized CSR as resulting from a combination of external
factors and factors internal to the company (Aguilera et al., 2007; Brown et al.,
2010). Recent literature has started to explore the relationship between the level
of competition and CSR. Fernández-Kranz and Santaló (2010) found that more
competition in the marketplace leads to better CSR outcomes, and they con-
clude that CSR is used strategically by profit-maximizing firms. Empirical find-
ings by Flammer (2015) also point into the direction of a positive relationship
between the level of competition and CSR.
Firms can compete in many different dimensions, like price, distribution chan-
nels, supplier inputs, and technology (Vickers, 1995; Shapiro, 1989). We focus
here on technological competition as previous research by Graafland and Smid
(2015) showed that this type of competition stimulates CSR. In this chapter, we
argue that the intensity of technological competition has a positive but indirect
influence on CSR through the innovation motivation of top managers to engage
in CSR. In markets where technological competition plays an important role,
achieving sustainable competitive advantage depends on the innovativeness of a
company (Humphreys et al., 2005). Consequently, senior managers will particu-
larly pay attention to business strategies that encourage the innovativeness of their
company (Cottam et al., 2001).
The influence of the competitive environment on business strategies works
through the perceptions of top managers, in general (Tang, 2006) and also for
SMEs (De Jong, 2011). Top managers of companies that operate in a highly
innovative business environment will particularly value strategies that strengthen
the innovative capability of their firm because these are crucial for the firm’s
profitability and continuity. In terms of expectancy theory this means that, at a
 Competition, Innovation Motive, and CSR 111

given level of the perception or belief that CSR leads to innovation, operating in
an environment with more intense technological competition will increase the
value attributed to innovation, and hence the motivation to engage in CSR will
be stronger. We therefore propose the following hypothesis:

Hypothesis 11.2 The intensity of technological competition increases a top manager’s

motivation to engage in CSR because of its innovation enhancing effects.

Mediation
The argumentation and hypotheses developed here imply that we theorize the
relationship between technological competition and firms’ engagement in CSR
to be mediated by the innovation motivation of top managers. Mediation analysis
permits examination of processes and gives insight into how an independent vari-
able exerts an effect on the dependent variable. Most explanations of behaviour
rely, whether implicitly or explicitly, on some attribution of motive to actors
(    Jones et al., 2014). In our framework, we have argued that technological com-
petition increases the innovation motive of top managers towards CSR. Since the
innovation motive of top managers is an important driver of CSR, this motiva-
tion is likely to mediate the relationship between technological competition and
CSR of firms. This leads to our third hypothesis:

Hypothesis 11.3 A top manager’s innovation motive to engage in CSR mediates the
effect of the intensity of technological competition on CSR.

11.3 Methodology
The data were taken from the survey in 2011. Following Graafland and Smid
(2015), we measured technological competition by a question on the intensity
of technological competition in the market for the company’s main product or
service. The response was administered on a Likert scale ranging from ‘not at all’
(1) to ‘very much’ (7). The average mean is 5.24 (SD = 1.64). In order to check
the reliability of the measurement of technological competition, we used data for
innovation in 19 sectors, measured by aggregating the outcomes of two survey
questions on process and product innovation for all companies per sector (survey
question 123 and 124 in Appendix 1). At the sectoral level, the bivariate correla-
tion coefficient between the average of process and product innovation and the
intensity of technological competition is 0.78 (p < 0.001), which is in line with
our expectation and provides confidence in our measurement. Multiple regres-
sion analysis (controlling for control variables) showed that the intensity of tech-
nological competition at the firm level is also significantly related to the average
innovation in the sector in which the company operates (estimated coefficient is
0.081; p < 0.001).
112 Impacts of Competition on CSR

Motivation refers to the internal state of the manager, and self-reporting is an

appropriate way to tap into this internal state (O’Mahoney, 2012). We measured
the top manager’s innovation motivation by two survey questions. The first ques-
tion gauges the respondents’ beliefs regarding the effect of CSR on innovation by
their agreement with the statement ‘CSR improves innovative capacity’, as beliefs
are an important antecedent of motivation. The second survey question measured
innovation motivation more directly by asking the respondent’s agreement with
the statement ‘CSR leads to innovation’ in response to the question ‘How impor-
tant are the following motives for your enterprise to engage in CSR?’ The response
was administered on a Likert scale ranging from ‘not at all’ (1) to ‘very much’ (7).
CSR was operationalized by eight process measures indicating the efforts of
companies to improve social performance and EP (see Table 11.1). Environmen-
tal efforts were measured by four survey questions measuring concrete actions
to reduce energy consumption, water consumption, and waste disposal, and to
improve EP of suppliers. Social efforts were measured by four survey questions
measuring efforts to improve the work–life balance of employees, employee train-
ing, labour conditions of suppliers and respect of human rights, and employee
health by reducing workplace accidents and worker’s absence rate. For each issue,
we used a three-point scale ranging from 0 (no effort), 0.5 (incidental effort), to 1
(continuous effort). In order to ascertain the validity of the construct of CSR, we
used Principal Component Analysis (with Oblimin rotation). We found two dif-
ferent factors reflecting environmental and social CSR. In the regression analysis,
we will use these two factors as measures of CSR.

TABLE 11.1 Factor analysis of CSRa

Variables Mean SD Loadings

Environmental Social
CSR CSR

Effort energy consumption (91) 0.66 0.37 0.77

Effort water consumption (92) 0.59 0.40 0.80
Effort waste disposal (93) 0.77 0.34 0.79
Effort environmental performance suppliers (94) 0.49 0.42 0.68
Effort work–life balance (62) 0.60 0.37 0.65
Effort employee training (63) 0.74 0.30 0.74
Effort health employees (65) 0.79 0.32 0.73
Effort social performance suppliers (66) 0.58 0.42 0.61
Eigenvalue 2.96 1.32
Cronbach alpha (α) 0.76 0.62
a Extraction Method: Principal Component Analysis; Rotation Method: Oblimin with Kaiser Nor-
malization. The Kaiser–Meyer–Olkin (KMO) indicator equals 0.788 and the p-value of Bartlett’s
Test of Sphericity is 0.000. The numbers in brackets refer to the numbers of the survey questions
reported in Appendix 1.
 Competition, Innovation Motive, and CSR 113

In the regression analysis, we included four other types of motivations for

CSR: to increase personal satisfaction of employees, to meet customers’ demands,
to limit reputational risks, and to meet (future) government regulation (Surroca
et al., 2010; Brammer, Hoejmose, and Marchant, 2012). These motivations were
measured in the same way as the innovation motive for CSR.
Table 11.2 reports Cronbach alphas for the five CSR motivations (innova-
tion, reputation, customer, employee satisfaction, regulation). All except that for
customer motivation meet the accepted threshold of 0.60 (Hair et al., 1998). The
inter-item correlation for customer motivation is, however, equal to 0.395 (p <
0.001), which fits the optimal range for internal reliability of 0.20–0.40 (Briggs
and Cheek, 1986), indicating that the customer motivation measure is also inter-
nally reliable. In the regression analysis, we measure motivations by averaging the
response to the two survey questions per type of motive.

11.4 Results
Before estimating the model, we standardized technological competition, the five
CSR motivations, and the two CSR factors.
The estimation results reported in Table 11.3 show that the innovation motive
of the top manager stimulates the company’s engagement in both environmental
and social CSR. These results provide support for Hypothesis 11.1. For environ-
mental CSR, the innovation motive appears to be the strongest driver of CSR,
compared to other motives. For social CSR, the innovation motive is the second
most important motive, after the employee satisfaction motive.
Furthermore, we find that technological competition strengthens the top man-
ager’s motivation to engage in CSR because CSR improves the firm’s innovative

TABLE 11.2 Internal reliability of CSR motivesa

Motives Measures Mean SD

Innovation CSR improves innovative capacity (37) 4.19 1.71

(α = 0.79) CSR leads to innovation (22) 4.68 1.60
Reputation CSR limits reputational risks (39) 4.34 1.70
(α = 0.78) CSR limits reputational risks (24) 4.50 1.63
Customer CSR increases turnover (35) 3.13 1.66
(α = 0.56) Large customers ask for it (27) 3.77 1.89
Employees CSR motivates the employees (33) 4.31 1.68
(α = 0.74) CSR creates personal satisfaction for the people 5.15 1.41
in our enterprise (26)
Regulation CSR helps meeting (future) government 3.94 1.69
(α = 0.78) regulation (36)
CSR helps to meet (future) government 4.01 1.70
regulation (21)
a The numbers in brackets refer to the number of the survey question reported in Appendix 1.
114 Impacts of Competition on CSR

TABLE 11.3 Estimation resultsa

Environmental CSR Social CSR

Effects from motivations on CSR

Innovation motive 0.148*** 0.091***
Reputation motive 0.010 0.020
Customer motive 0.044 –0.019
Employee motive 0.101*** 0.206***
Regulation motive 0.047* 0.030
Effects from technological competition on motivations
Innovation motive 0.086***
Reputation motive 0.028
Customer motive 0.041*
Employee motive 0.059**
Regulation motive 0.038
a N = 2,579. * p < 0.05; ** p < 0.01; *** p < 0.001. Controlled for sector, country, position in
the production chain, market position, intensity of price competition, company size (measured by
number of employees in FTEs), skill structure, age structure, and age respondent.

capacity, which supports Hypothesis 11.2. Besides innovation motivation, tech-

nological competition is also found to affect the customer and employee satisfac-
tion motivations, but not as strong as the innovation motivation.
Table 11.4 reports the outcomes for the indirect and total effects of techno-
logical competition on environmental and social CSR through motivations. The
indirect effect is equivalent to the multiplication of path a and path b in Fig-
ure 11.1. Table 11.4 shows that the indirect effects of technological competition
on environmental and social CSR mediated through innovation motivation and
employee motivation are all significant, as well as the total indirect effects of all
five CSR motivations together on environmental and social CSR. These results
support Hypothesis 11.3 that innovation motivation mediates the influence of
technological competition on CSR. Also the total effects (i.e. the sum of direct
and indirect effects) are significant for both environmental and social CSR.

11.5 Conclusion
Our study makes several contributions. First, using a large sample of 2,579 top
managers of companies from 12 European countries, of which the majority
are SMEs, we find that the innovation motivation of the top manager is an
important determinant of firms’ CSR. For environmental CSR the innovation
motive is more important than any other CSR motive; for social CSR it is the
second most important driver of CSR, after the employee satisfaction motive.
In previous research into the motives of CSR of SMEs (Brammer, Hoejmose,
and Marchant, 2012), no attention has been paid to the innovation motive as a
driver of CSR of SMEs.
 Competition, Innovation Motive, and CSR 115

TABLE 11.4 Estimation results of indirect and total effectsa

Environmental CSR Social CSR

Indirect effect from technological competition on

CSR through motivations
Innovation motivation 0.013** 0.008**
Reputation motivation 0.000 0.001
Customer motivation 0.002 −0.001
Employee motivation 0.006* 0.012**
Regulation motivation 0.002 0.001
Total effects from technological competition on CSR
Direct effect on CSR 0.025 0.036
Total indirect effect, mediated through motives 0.023*** 0.021***
Total effect on CSR 0.047* 0.057**
a * p < 0.05; ** p < 0.01; *** p < 0.001. Regression using macro for SPSS of Preacher and Hayes
(2008) with 1,000 bootstrap samples.

A second major contribution of our study is that we show that the innova-
tion motivation to engage in CSR is influenced by the intensity of technological
competition. Earlier studies have shown that technological competition stimu-
lates CSR (Graafland and Smid, 2015). In this study we deepen these studies
by considering mediation mechanisms that can explain the positive relationship
between technological competition and CSR. We find that technological com-
petition enhances top managers’ innovation motivation to engage in CSR, which
in turn increases CSR. Besides, we found that technological competition instils
CSR motivation of top managers because CSR raises the satisfaction of the firm’s
employees. This mechanism can be explained by the argument that creating a
good working environment for employees is an important condition for realizing
the innovative potential of the company (Mandl and Dorr, 2007).

Note
* An extended text of this chapter has been published as an open access article under
the terms of the Creative Commons Attribution 4.0 International License (http://
creativecommons.org/licenses/by/4.0/) in: Graafland, J.J., and Noorderhaven, N.
(2020). Technological competition, innovation motive and corporate social responsibil-
ity: Evidence from top managers of European SMEs. De Economist, 168: 1–22. Niels
Noorderhaven is affiliated to the department of Management at Tilburg University in
the Netherlands.
12
COMPETITION IN INNOVATION,
INTRINSIC MOTIVATION, AND
ENVIRONMENTAL POLICY*

12.1 Introduction
As discussed in Chapter 6, managers may have different motives for actively
pursuing CSR. Literature often distinguishes extrinsic motives driven by mar-
ket incentives from intrinsic motives driven by morality or personal satisfaction
(Weaver et al., 1999; Lindenberg, 2001; Aguilera et al., 2007; Muller and Kolk,
2010). When managers are extrinsically motivated, they are driven not by the
activity itself but by the consequences associated with performing the activity,
such as financial benefits. Intrinsically motivated actions are actions for which
there is no reward but the behaviour itself.
Previous research did, however, not consider the possibility that intrinsic CSR
motives may also depend on market incentives. Motivation crowding theory has
recognized that financial rewarding of a desired behaviour may crowd in intrinsic
motivation towards this type of behaviour if the financial reward is perceived as
supporting the agent in performing the action (Eisenberger et al., 1999). Since
CSR has been shown to stimulate innovation (Wagner, 2007b; Surroca et al.,
2010; Luo and Du, 2015; Flammer and Kacperczyk, 2016; Briones Peñalver
et al., 2018; Marin et al., 2017; Jiménez-Parra et al., 2018; Guerrero-Villegas
et al., 2018; see also Chapter 4), a market environment that competes on technol-
ogy and rewards CSR because of its innovation-enhancing effects will support
managers to shape the company’s strategic direction towards a higher CSR pro-
file. This support will enlarge the moral motivation to improve EP by environ-
mental policy practices. However, market incentives may also crowd out intrinsic
motivation if the manager feels that these incentives are coercive, reducing the
freedom to act otherwise (Lindenberg, 2001; Frey and Jegen, 2001; Treviño et al.,
2006; Patzelt and Shepherd, 2011; Bowles and Polania-Reyes, 2012). In order to
DOI: 10.4324/9781003216483-15
This chapter has been made available under a CC-BY-NC 4.0 license.
 Competition, Intrinsic Motivation, and CSR 117

understand how market incentives stimulate environmental policy practices, we

therefore need more empirical insight into how intrinsic motives are related to
market incentives. The core research question that this chapter addresses is there-
fore: How do market incentives affect intrinsic motivation of managers, and how
do these crowding effects impact environmental policy practices?
We test the model on a sample of 650 owner-managers of SMEs from 12
European countries. Compared with their larger counterparts, the behaviour of
small firms is disproportionately driven by the values and motives of the manag-
ers (Revell et al., 2010). Therefore, crowding effects are more likely to occur for
SMEs than for large companies. By concentrating on owner-managers, we focus
on the motives of the individuals who exert a crucial influence on their com-
pany’s environmental policies (Kim et al., 2017).
This chapter makes three major contributions to literature. First, it theorizes
how competitive pressures affect moral CSR motivation of owner-directors. In
previous literature on CSR motives (Graafland and Van de Ven, 2006; Paulrai,
2009; Muller and Kolk, 2010; Ditlev-Simonsen and Midttun, 2011), external
pressures and intrinsic motivations have always been conceptualized as independ-
ent from each other. But if intrinsic motivations are dependent on external pres-
sures, this would lead to an underestimation of the relevance of these pressures
for CSR. Second, whereas recent literature explored the relationship between
competition and CSR (Fernández-Kranz and Santaló, 2010; Flammer, 2015;
Graafland and Smid, 2015), no research has yet investigated the type of motiva-
tional forces that explain this relationship or contingencies in this relationship.
This study will do both by researching the impact of technological competi-
tion on environmental policy practices by considering its effect on intrinsic CSR
motivation and the moderating role of perceptions of owner-managers regarding
the impact of CSR on the innovative capability of their firm. A third contribu-
tion of this chapter is that it applies motivation crowding theory to CSR motives
of owner-managers. Literature on motivation crowding theory has, until now,
focused on behaviour of households (Frey and Jegen, 2001), employees (Hossain
and Li, 2014; Gubler et al., 2016), and executives (Pepper and Gore, 2015). But
how intrinsic motivations of owner-managers are affected by market incentives
has not been theorized or empirically researched.
In what follows, we first present the theoretical framework and the hypotheses,
then describe the methodology and report the estimation results, and finally sum-
marize the findings in the conclusion.

12.2 Conceptual Framework

Motivation Crowding Theory

Motivation (i.e. the reason upon which one acts) is an important antecedent
to behaviour (Treviño et al., 2006). The literature distinguishes extrinsic from
118 Impacts of Competition on CSR

intrinsic motives. An extrinsic motive encourages behaviour because it has instru-

mental value for other goals, such as financial benefits. Intrinsically motivated
actions are actions for which there is no reward but the behaviour itself (Muller
and Kolk, 2010).
As argued by Lindenberg (2001), one type of intrinsic motivation concerns
feelings of moral obligations (Frey and Jegen, 2001). If one is morally motivated,
one acts out of a sense of obligation, responsibility, or concern with the social
good rather than out of self-interest. The goal is to act appropriately. This type of
intrinsic motivation is particularly relevant for CSR because responsibility belongs
to the core of the Corporate Social Responsibility concept. Owner-managers
may care about CSR intrinsically because they feel that they are responsible for
the prevention of negative impacts of their companies on society and the natural
environment.
Motivation crowding theory has recognized that financial rewards of a desired
behaviour may crowd in or crowd out intrinsic motivations to perform the behav-
iour (Lindenberg, 2001; Bowles and Polania-Reyes, 2012). The effect of a given
reward in terms of intrinsic motivation is contingent on how it affects an indi-
vidual’s perceived autonomy because freedom of choice is a precondition for the
possibility of taking responsibility (Velasquez, 2011). According to motivation
crowding theory, intrinsic motivation is activated when conditions are conducive
to its expression (Eisenberger et al., 1999). Hence, crowding in of intrinsic moti-
vation is observed if external rewards are enlarging the freedom to act (Frey and
Jegen, 2001; Lindenberg, 2001; Bowles and Polania-Reyes, 2012). In contrast,
crowding out is observed if external incentives are perceived as an external, con-
trolling intervention that removes the locus of control from the person affected
(Deci et al., 1999).

Technological Competition, Innovation, and Intrinsic

CSR Motivation
In this section we consider the relationship between intrinsic motivation
of owner-managers towards CSR and competitive environment. Firms can
compete in many different dimensions, such as price, distribution chan-
nels, supplier inputs, and technology (Vickers, 1995; Shapiro, 1989). In this
chapter, we focus on technological competition because earlier research by
Graafland and Smid (2015) showed that technological competition rather
than price competition drives CSR. Literature has given several arguments
and empirical support for a positive effect of CSR on innovation (Wagner,
2007b; Surroca et al., 2010; Luo and Du, 2015; Flammer and Kacperczyk,
2016; Briones Peñalver et al., 2018; Marin et al., 2017; Jiménez-Parra et al.,
2018; Guerrero-Villegas et al., 2018). For example, CSR attracts more intel-
ligent, motivated, experienced, visionary, creative, and committed employees
who foster the innovative capability of the firm (Guerrero-Villegas et al.,
 Competition, Intrinsic Motivation, and CSR 119

2018). Furthermore, CSR is likely to relieve customers and employees from

short-termism, stimulate customers to be more loyal to the firm and tolerate
failures from new products, and encourage employees to invest more effort in
risky innovation (Flammer and Kacperczyk, 2016). Given these innovation-
enhancing effects of CSR, an environment where companies compete on
innovation will make CSR a more valuable strategic option. On the basis of
the tenets of motivation crowding theory, we therefore conjecture that the
intensity of technological competition may increase the moral motivation of
owner-managers towards CSR.
However, this crowding-in effect is conditional on the owner-managers’ per-
ception that CSR increases the innovative capability of their company because
only then the owner-manager will perceive that such a market context will be
supportive for CSR and convey freedom to the owner-manager to shape the
company’s strategic direction towards a higher CSR profile, increasing intrin-
sic motivation. If the owner-manager does not believe that CSR enforces the
firm’s innovation, it is expected that a market environment with more intense
competition on technology decreases the owner-manager’s intrinsic motivation
towards making costly investments into CSR. Experiencing autonomy requires
that owner-managers have a set of options available (Patzelt and Shepherd, 2011).
The more intense technological competition, the more the owner-manager will
feel pressure to spend the available company’s resources on investments that he/
she believes will improve the firm’s innovation and the less options there are to
invest in CSR-related actions if they do not foster the firm’s innovation. In a
market context in which CSR would harm the company’s competitiveness and
put the continuity of the company at risk, the owner-manager has less freedom
to pursue a CSR policy and will be more inclined to deny a moral duty to CSR
because taking responsibility assumes freedom (Velasquez, 2011). If it is impos-
sible to pursue CSR without endangering the future of the company, this will
lessen the owner-manager’s responsibility to CSR because owner-managers also
have a moral duty towards their own company, such as providing job security for
the employees.
In other words, we surmise that the relationship between intensity of techno-
logical competition and intrinsically motivation of CSR is likely to be positively
moderated by the perceived effect of CSR on the innovative capability of their
company. Moderation means that the influence of an independent variable on a
dependent variable is conditional on a third variable (the moderator) (Preacher
et al., 2007). The reward of CSR that results from the interaction between tech-
nological competition and perceived effect of CSR on innovation creates the
freedom to engage in CSR that crowds in intrinsic motivation. But if CSR is not
conducive to the innovative capability of the firm, owner-managers of companies
that are operating in a highly technological competitive environment feel pres-
sure to invest the financial resources in other ways that are believed to be more
innovation enhancing. This pressure reduces the freedom to pursue an active
120 Impacts of Competition on CSR

CSR policy and decreases intrinsic CSR motivation. This leads to the following
hypothesis:

Hypothesis 12.1 The owner-manager’s perception that CSR enforces the innovative
capability of the firm positively moderates the relationship between technological com-
petition and intrinsic CSR motivation.

Intrinsic Motivation and Environmental Policy Practices

We complement Hypothesis 12.1 by a second hypothesis on the effects of intrin-
sic motivation on environmental practices. Research has shown that the greater
intrinsic motivations towards CSR, the more likely it is that a firm will engage
in CSR. Muller and Kolk (2010) found that moral commitment has a strong and
significant effect on CSR. Ditlev-Simonsen and Midttun (2011) researched the
perceptions of three stakeholder groups regarding the motivations of managers
towards CSR and found that these groups estimate that intrinsic motivations,
such as morality and sustainability, affect managers’ CSR engagement, but less
than financial motives. Masurel (2007) analysed a sample of 57 SMEs and found
that moral duty is mentioned by 51 companies as a reason to invest voluntarily
in environmental measures, which is the third most important motive out of 12
motives. Paulrai (2009) found that environmental practices are more often mor-
ally motivated than motivated by legislative requirements or market competitive-
ness. Coppa and Sriramesh (2013) found that, for a sample of 105 SMEs, moral
motivation proved to be the most important reason to engage in CSR, followed
by long-term sustainability. On a sample that mainly consisted of SMEs, Graaf-
land and Van de Ven (2006) found that the use of CSR instruments, including
ISO certification, is more related to moral motivation than to financial motiva-
tion. On the basis of these researches, we expect that the intrinsic motivation of
the owner-manager of an SME will encourage the use of environmental policy
practices by the firm:

Hypothesis 12.2 Environmental policy practices are positively related to the intrinsic
CSR motivation of the owner-manager.

The full model is depicted in Figure 12.1.

12.3 Methodology
The data have been taken from the survey in 2014. Environmental practices are
operationalized by ISO 14001 certification. Following Oliveira et al. (2016), ISO
14001 certification was measured by a three-point scale, with 0 if the enterprise
is not certified for ISO 14001 at all, 0.5 if it is certified for part of the enterprise’s
operational sites, and 1 if it is certified for all operational sites of the enterprise.
 Competition, Intrinsic Motivation, and CSR 121

FIGURE 12.1 Conceptual framework

Following Graafland and Van de Ven (2006), the intrinsic (moral) motivation
of the owner-manager was measured by the response to the statement ‘It is a
moral duty of a company to engage in CSR’ in response to the survey question:
‘How important are the following motives to engage in CSR?’ The perception
of the owner-manager that CSR enforces the innovative capability of the firm
was measured by the response to the statement ‘CSR improves the innovative
capability’ in response to the survey question ‘To what extent does engagement
in CSR influence the following aspects for your enterprise?’ Following Graafland
and Smid (2015), we measured technological competition with a survey question
asking the respondent to reflect on the extent to which his or her enterprise ‘is
prone to competition on product innovation in the market for your main product
or service’. The responses to the three survey questions for moral motivation,
perceived CSR effect on innovation and intensity of technological competition
were all administered on a seven-point Likert scale ranging from ‘not at all’ (1) to
‘very much’ (7).

12.4 Results
Because of the discrete measurements of intrinsic CSR motivation and ISO
14001 certification, we used ordered logit regression analysis, which is often
used in analyses of human preferences. The (country-weighted) estimation
results are reported in Table 12.2. The interaction term between the intensity of

TABLE 12.1 Descriptivesa

Variables Mean SD

ISO 14001 certification (57) 0.10 0.28

Intrinsic CSR motivation (25) 5.1 1.5
Perceived CSR effect on innovative capability (37) 4.2 1.7
Intensity of technological competition (122) 5.1 1.7
a The numbers in brackets refer to the number of the survey question reported in Appendix 1.
122 Impacts of Competition on CSR

technological competition and the perceived effect of CSR on innovative capa-

bility of the firm has a significant positive effect on intrinsic motivation towards
CSR, supporting Hypothesis 12.1 that the perceived innovation effect of CSR
moderates the influence of technological competition on intrinsic CSR motiva-
tion. Intrinsic CSR motivation is found to encourage ISO 14001 certification,
which supports Hypothesis 12.2. Also the interaction term is seen to increase ISO
14001 certification. Since the interaction term reflects external rewards of CSR
due to the innovation-enhancing effect of CSR, this effect can be interpreted as
a direct influence of extrinsic motivation on the implementation of ISO 14001
certification.
Based on the estimation results of Table 12.2, it can be calculated that tech-
nological competition increases intrinsic motivation and ISO 14001 certification
if the perceived effect of CSR on innovative capability exceeds 3, which holds
for 64% of the owner-managers in our sample (see Table 12.3). For 20% of the
owner-managers (with perceived effect of CSR on innovative capability lower
than 3), the intensity of technological competition has a negative effect on moral
motivation and ISO 14001 certification.

TABLE 12.2 Estimation resultsa

Intrinsic CSR ISO 14001

motivation certification

Technological competition (TC) −0.27* −0.39*

Perceived CSR effect on innovative capability (PCI) −0.18 −0.44
Interaction term (TC * PCI) 0.11*** 0.10*
Intrinsic CSR motivation 0.20*
R2 (Nagelkerke) 0.28 0.28
a Ordered logit regression analysis. * p < 0.05, ** p < 0.01, *** p < 0.001. Controlled for country,
sector, position in the chain, company size (measured by the number of employees in FTEs), age
structure and skill structure of the labour force of the company, and the age of the respondent.

TABLE 12.3 Effects of technological competition on intrinsic CSR motivation and ISO

14001 certification

Perceived CSR effect on innovative capability 1 2 3 4 5 6 7

% of sample 10 10 14 22 21 17 7

Effect of intensity of technological competition on:

Intrinsic CSR motivationa −0.16 −0.05 0.06 0.17 0.28 0.39 0.50
ISO 14001 certificationb −0.06 −0.03 0.00 0.03 0.06 0.10 0.13
a Calculated as -0.27 + 0.11 * perceived CSR effect on innovative capability. The coefficients are
taken from Table 12.2.
b Calculated as 0.20 * (-0.27 + 0.11 * perceived CSR effect on innovative capability) + 0.10 * (-0.39
+ 0.10 * perceived CSR effect on innovative capability). The coefficients are taken from Table 12.2.
 Competition, Intrinsic Motivation, and CSR 123

12.5 Conclusion
In this chapter, we have tested the relevance of motivation crowding theory to
the moral motivations of owner-managers towards CSR on a sample of 650
owner-managers from 12 European countries. Our research indicates that finan-
cial rewards of CSR crowd in the intrinsic moral motivation of owner-managers
towards CSR. Previous studies by Weaver et al. (1999), Graafland and Van de Ven
(2006), Aguilera et al. (2007), Paulrai (2009), and Muller and Kolk (2010) did
not take account of the interrelationship between external pressures and intrinsic
motivation towards CSR through motivation crowding. By providing scientific
insight into motivation crowding effects, our study develops a more nuanced
understanding of the motivating power of market conditions for CSR. As mar-
ket competition that rewards CSR stimulates moral drivers, the disregard of this
relationship in literature leads to an underestimation of the relevance of market
incentives for CSR.
Our analysis also contributes to institutional theory and its application to CSR.
Previous research has shown that free market institutions (Baughn et al., 2007;
Hartmann and Uhlenbruck, 2015) and intensity of competition in the market-
place lead to better CSR outcomes (Fernández-Kranz and Santaló, 2010; Flam-
mer, 2015; Graafland and Smid, 2015). Both are connected because free market
institutions stimulate a market environment where companies compete on tech-
nology (Nyström, 2008; Herrera-Echeverri et al., 2014). But no research has yet
investigated the type of motivational forces that explain the positive effects of
market institutions and competition on CSR. Our analysis indicates that, under
certain conditions, crowding in of intrinsic motivation is one of the channels that
explain these positive influences from free market institutions and intensity of
competition on CSR. Our study also makes a start with research in contingencies
in the relationship between competitive pressures and CSR. More specifically, we
find that whether technological competition enforces moral motivation and the
implementation of EMSs depends on the perception of owner-managers regard-
ing CSR impacts on innovative capability of their firm.
Third, previous literature on motivation crowding theory has analysed vari-
ous types of consumer and household behaviour (Frey and Jegen, 2001; Bowles
and Polania-Reyes, 2012) as well as responses of employees and executives to
internal reward systems (Pepper and Gore, 2015; Hossain and Li, 2014; Gubler
et al., 2016). Our study contributes to this literature on motivation crowding
theory by applying it to strategic decision-making on CSR by owner-managers.
Whereas the majority of studies into crowding effects on behaviour of consum-
ers, households, and employees support the crowding out hypothesis, our study
indicates that crowding-in effects are relevant in the CSR behaviour of owner-
managers. A possible explanation for this difference in findings is that reward-
ing socially desirable behaviour is more likely to be perceived as supportive and
increasing self-determination in a business context than in the context of a private
124 Impacts of Competition on CSR

household. Companies that face severe competition may not be able to survive if
costly investments in CSR are not rewarded by market parties, whereas financial
rewarding of household contributions to the common good, such as blood dona-
tion, will only have a negligible effect on the continuity of their way of life.

Note
* An extended text of this chapter has been published as an open access article under
the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License
(permission granted by Wiley) in: Graafland, J. (2020). Competition in technology and
innovation, motivation crowding, and environmental policy. Corporate Social Responsibil-
ity and Environmental Management, 27: 137–145.
PART IV

Institutional Drivers
of Corporate Social
Responsibility
13
RECONSIDERING THE RELEVANCE
OF SOCIAL LICENCE PRESSURE
AND GOVERNMENT REGULATION
FOR ENVIRONMENTAL IMPACTS
OF SMEs*

13.1 Introduction
Recently, research into CSR has become more focused on its institutional roots
(Doh and Guay, 2006; Aguilera et al., 2007; Matten and Moon, 2008). An
important institutional constituent that affects CSR is the monitoring of CSR
by NGOs and media (Campbell, 2007; Bartley, 2007). Campbell (2007: 958)
hypothesized that

corporations will be more likely to act in socially responsible ways if there

are private, independent organizations, including NGOs, social movement
organizations, institutional investors, and the press, in their environment
who monitor their behavior and, when necessary, mobilize to change it.

This institutional factor is often held to be particularly relevant for large multina-
tional enterprises that have increasingly become global operators. Indeed, because
of the weak enforcement capacities of national governments to regulate multina-
tional enterprises, a growing number of non-state actors have appeared, pressur-
ing enterprises to take on greater responsibility for the social and environmental
consequences of their operations by naming and shaming irresponsible enter-
prises (Locke et al., 2006). This has led to enterprises having a greater interest in
obtaining a social licence to operate from civil society and to involve communi-
ties from a very early stage in their environmental decision-making.
Social licence has been described as an informal social contract existing between
an industry and the community in which it operates (Lacey and Lamont, 2014). It
refers to the broad and ongoing acceptance or approval of a company’s operations
by local communities and other stakeholders, who can affect the profitability of

DOI: 10.4324/9781003216483-17
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128 Institutional Drivers of CSR

those operations (Zhang et al., 2015). Whereas social licence pressures give large
multinational enterprises a strong incentive to actively engage with CSR, its rel-
evance for SMEs has been disputed (    Jeppesen, 2006). Hendry (2006) found that
the smaller the effect an enterprise has on a certain issue, such as GHG emissions,
the less likely it is to be targeted by NGOs. Indeed, the concept of social licence
to operate originated from CSR in the mining and minerals industry (Hall et al.,
2015). Actions against mining projects at a local level because of visible effects on
the environment and social impacts on the lives of the neighbouring communi-
ties, induced mining industries to increase the focus on stakeholders, and social
obligations to ensure social licence and prevent high financial costs created by
such conflicts. Lynch-Wood and Williamson (2007) argued that a small enterprise
that has little potential to cause significant environmental harm will be less visible
and of less concern to a greater range of stakeholders than a larger enterprise with
more capacity for harm. Furthermore, small enterprises mostly operate as market
followers, whereas for NGOs it is more efficient to target influential enterprises
such as market leaders in their organizational field, as this could also induce other
enterprises to change their behaviour (Hendry, 2006).
SMEs comprise the vast majority of all European firms (98%) and collec-
tively are the largest employer in the EU (67%) (European Commission, 2002).
Although small enterprises individually have a negligible influence on the macro
level, collectively they cause significant environmental damage because of the
large number of small enterprises. Hillary (2000) estimated that SMEs together
account for up to 70% of industrial pollution worldwide. Hence, it is evidently
important to stimulate CSR of SMEs. The view that, when it comes to SMEs,
social licence pressures for improving environmental impacts are weak might
imply that traditional forms of government regulation providing minimum stand-
ards for the environmental impacts of SMEs remain the most effective means to
influence the behaviour of SMEs. In their overview of the literature, Williamson
et al. (2006) showed that a number of studies have identified legislation as the
key driver of environmental initiatives of SMEs, and this result is confirmed in
their own empirical research (based on 31 interviews with manufacturing SME
owners/managers). However, other studies have been more critical. For example,
Petts et al. (1999) demonstrated that managers of SMEs believe that regulation
on its own will not be sufficient because of the inadequacies of the regulatory
regimes (Petts et al., 1999). Regulation can be excessive, unnecessary, or poorly
implemented, which may be particularly a problem for small businesses by creat-
ing costs in terms of time or money that bear more heavily on smaller than larger
business.
Also the view of Williamson et al. (2006), Lynch-Wood and Williamson
(2007), and others that social licence pressures are too weak to motivate SMEs
to improve environmental impacts (beyond compliance behaviour) can be ques-
tioned. Whereas large enterprises can more easily transfer activities to other
regions in which they operate, SMEs are much more embedded in, and therefore
 Social Licence, Government, and CSR of SMEs 129

restricted to, their local community (Doshi et al., 2013; Fuller and Tian, 2006;
Jenkins, 2009). Therefore, small enterprises may be seriously challenged if their
environment becomes hostile to the enterprise, if it becomes known that they
cause harm to their local communities by their environmental impacts, and if they
fail to adequately respond to the community’s grievances (Aragón-Correa et al.,
2008). Furthermore, as previous research has shown that SMEs are heterogeneous
in nature (Brammer, Jackson et al., 2012; Jenkins, 2004), propositions about the
significance of the social licence concept to SMEs cannot be assumed to apply to
all sizes of SMEs.
The research questions of this chapter are therefore: (1) Do social licence
pressures affect environmental impacts of different types of SMEs; how robust are
these effects for micro, small, and medium-sized enterprises? (2) How do social
licence pressures influence environmental impacts of SMEs? Do they have a direct
effect or can we also detect indirect effects in the sense that social licence pressures
mobilize market parties thereby inducing strategic market benefits that stimulate
SMEs to improve their environmental impacts? (3) How do the direct and indi-
rect effects of social licence compare to the effects of government regulation on
environmental impacts?
Currently, there are no large-scale empirical studies into the relevance of the
social licence pressures for the environmental impacts of SMEs that incorporate
the heterogeneous nature of SMEs. In this chapter, we focus on perceived social
licence pressure instead of real social licence pressure, not only because gathering
data of real social licence pressure would be very costly, but also because it is the
perceived rather than the real social licence pressure that shapes the motivation of
the SME to improve environmental impacts and hence its behaviour. The com-
pany’s perception refers to the way in which issues that arise in the company’s
environment are understood by the company, including their salience and cen-
trality to the business. If companies do not recognize increasing environmental
concerns in the local media, public opinion, or societal organizations, they will
not respond and act upon them. Reversely, if the real social licence pressure is
weak but companies perceive them as strong, they will respond stronger than can
be expected on basis of the real social licence pressure. The model is tested on a
large sample of 1,349 micro, 2,096 small, and 1,484 medium-sized enterprises in
12 European countries.
The content of this chapter is as follows. Section 13.2 presents the concep-
tual framework. Section 13.3 describes the methods. Section 13.4 presents the
empirical analysis, and Section 13.5 summarizes the main findings.

13.2 Conceptual Framework
Following Lynch-Wood and Williamson (2007), social licence pressure is defined
as a form of control mechanism that requires enterprises to meet demands
and expectations that emerge from neighbourhoods, environmental groups,
130 Institutional Drivers of CSR

community members, and other elements of the surrounding civil society (Lynch-
Wood and Williamson, 2007: 321–322). This concept is applicable to both large
and small enterprises, as it includes (among others) the demands and expectations
of international NGOs (which are more relevant for large companies) as well as
the demands and expectations of local communities or neighbourhoods (which
may particularly challenge SMEs). Since stakeholders often represent a broad
range of interests across a range of societal levels, Dare et al. (2014) conceptualize
social licence as a continuum of multiple licences. This conceptualization recog-
nizes the existence of multiple and often overlapping social licences across various
communities, such as neighbours, local residents, local governments at the local
level; NGOs and governments at the regional level; and national government and
international NGOs at the societal level.
The conceptual framework is depicted in Figure 13.1. Next, the framework is
discussed in more detail.

Social Licence and Company Size

We take our starting point in institutional theory, which considers the constraints
on organizations to conform to external expectations (DiMaggio and Powell,
1983). Companies operate in an external context regulated by institutions that
define what constitutes legitimate behaviour (Shah, 2011). Companies that do
not meet society’s expectations regarding CSR risk losing their licence to operate
from civil society and hence their institutional legitimacy. Societal organizations
often put indirect pressure on the enterprise by increasing the demand for trans-
parency on corporate practices and attracting public attention to misbehaviour
(King, 2008; Bartley and Child, 2011). In this way they can substantially affect the
institutional legitimacy of a company and mobilize various types of stakeholders
on the capital market, product market, and labour market if the companies abuse
the power society grants them.
In literature, several authors have claimed that the importance of social licence
as control mechanism is likely to depend on the size of the enterprise. Because
of their smaller size, Brammer, Hoejmose, and Marchant. (2012) argued that

FIGURE 13.1 Conceptual framework

 Social Licence, Government, and CSR of SMEs 131

SMEs are less visible to NGOs and media and cannot take advantage of the same
publicity as large enterprises. Naming and shaming strategies are therefore less
relevant for SMEs (Gunningham et al., 2004). Furthermore, large enterprises,
more often than small enterprises, tend to be market leaders that set an example
for other enterprises. Hence, it is more efficient for environmental groups and
media to target large enterprises, as in this way they can also indirectly induce
other enterprises to change their behaviour (Hendry, 2006). Hendry (2006) also
found that the larger the effect an enterprise has on a certain issue, the more likely
it is to be targeted by societal organizations. An enterprise that has the potential
to cause significant environmental harm will be more visible, and of more con-
cern to a greater range of stakeholders, than an enterprise with less capacity for
harm (Lynch-Wood and Williamson, 2007). The power of customers manifests
itself through collective market pressure, and this pressure is normally targeted at
large enterprises because it requires the mobilization of many individual custom-
ers. Furthermore, the density of the NGOs itself – that is, the number of ties
that actually exist among NGOs as compared with the number that could exist
(Hendry, 2006: 55) – is also important. If multiple organizations are monitoring
an enterprise and share information, an enterprise is more likely to be targeted
(Hendry, 2006). Finally, NGOs usually target larger enterprises because these
enterprises are more likely to respond in order to protect their reputations (Baron
and Diermeier, 2007; McDonnell and King, 2013). The enterprises most vulner-
able to negative publicity are those with high brand recognition that are targeting
young consumers (Elliot and Freeman, 2001). The overwhelming proportion
of these enterprises is large enterprises. According to Unido (2006), enterprises
producing for non-branded or extremely price-sensitive consumer markets and
with no connections to foreign markets experience low pressure to implement
CSR. As Williamson and Lynch-Wood (2001) discussed, key stakeholders of such
SMEs would have limited interest in their CSR. This leads to our first hypothesis:

Hypothesis 13.1 The social licence pressure perceived by a company depends positively
on its size.

Social Licence and CSR: Mediation by Market Benefits

The importance of institutional legitimacy for the company can be argued by
resource dependency theory, which states that the success of a company cru-
cially depends on the availability of certain resources. Underlying the resource-
based view of the firm is the premise that differences in enterprise performance
occur directly as a result of the resources that enterprises acquire (Branco and
Rodrigues, 2006). One of the most valuable resources for enterprises is a good
reputation (Galbreath, 2005; Orlitzky, 2008; Roberts and Dowling, 2002). Intan-
gibles like reputation may be mediators through which CSR improves the (long-
term) financial performance of the enterprise (Surroca et al., 2010). If it becomes
132 Institutional Drivers of CSR

known in the marketplace that an enterprise is involved in an environmental

scandal, its reputation will be harmed. This will provoke negative reactions from
various types of stakeholders on the financial markets (Hamilton, 1995), output
markets (Fombrun and Shanley, 1990; Brown and Dacin, 1997; Logsdon and
Wood, 2002; Gardberg and Fombrun, 2006), and labour markets (Turban and
Greening, 1997; Reinhardt, 1999). Enterprises that are viewed negatively by the
public may also lose the loyalty of their internal stakeholders (Barney and Hansen,
1994).
Although social licence pressure is particularly relevant for large companies,
it may be expected that small, and even micro, companies will also be sensi-
tive to potential harmful reputational effects if their CSR is monitored by local
NGOs or local media. Small enterprises rely to a much greater extent than large
enterprises on the local communities in which they operate (Marquis and Bat-
tilana, 2009). Due to their financial power and size, larger enterprises can more
easily escape the pressures from the local community to which small enterprises
are restricted (Doshi et al., 2013). As there are locational sunk costs that restrict
their geographical mobility, a good reputation has an important strategic value
for small enterprises too (Crouch, 2006). According to Fuller and Tian (2006),
the legitimacy with immediate stakeholders, employees, customers, suppliers, and
their local community is at stake in a far more direct way for small enterprises
than it is with large enterprises. Because of their intimate relationship with the
community in which they operate, SMEs also need to pursue a community-
friendly policy (    Jenkins, 2009). If a local NGO or newspaper spreads negative
news about a small company, it might directly harm its reputation at its location,
and the company would run the risk of economic loss (Kusyk and Lozano, 2007;
Russo and Tencati, 2009). Hence, also an SME will realize that negative environ-
mental impacts may have serious consequences for the enterprise’s reputation and
economic performance if it has indications that local NGOs or media observe its
CSR. This leads to the second hypothesis:

Hypothesis 13.2 The market benefits that a company perceives from its CSR depend
positively on the perceived social licence pressure.

The perception that CSR creates substantial market benefits provides an impor-
tant motivation to improve environmental impacts (Aguilera et al., 2007; Bansal
and Roth, 2000). Expectancy (or instrumentality-valence) theory argues that
motivation depends on a combination of perceived instrumentality, the probabil-
ity that a certain effort will lead to a certain benefit, and valence, the anticipated
value or the perceived motivational strength of that benefit (Porter and Lawler,
1968; Campbell et al., 1970). In the case of CSR, this theory implies that if the
managers of a company perceive that CSR has substantial instrumental value
for reputation and economic success, both of which have a high valence to the
company, the company will be more motivated towards CSR. Since motivation
 Social Licence, Government, and CSR of SMEs 133

(i.e. the reason upon which one acts) is an important antecedent to behaviour
(Treviño et al., 2006; Kuckertz and Wagner, 2010), we posit a third hypothesis:

Hypothesis 13.3 The environmental impacts of a company depend positively on the

perceived market benefits from CSR.

If both Hypothesis 13.2 and Hypothesis 13.3 are supported, the perceived market
benefits from CSR mediate the influence of social licence pressures on environ-
mental impacts.

Direct Effect of Social Licence on CSR

Besides influencing enterprises indirectly through the market response of various
types of stakeholders of the enterprise on the capital market, product market, and
labour market, societal organizations can also appeal directly to the enterprise
itself (Hendry, 2006; King, 2008). In order to obtain legitimacy, companies often
respond to social licence pressure by forming alliances with NGOs (Shah, 2011)
and involving societal organizations and local communities in their complex
environmental decision-making through stakeholder dialogue (Hall et al., 2015).
These direct contacts between the enterprise and societal organizations may make
managers more aware of the moral dimensions of being socially responsible and
thus stimulate their environmental impacts for other reasons than market ben-
efits. NGOs and media are important institutional players that have the ability to
influence social norms, values, and societal expectations on corporate behaviour
(Weaver et al., 1999). The standards that societal institutions refer to when pres-
suring companies to pursue CSR are often framed in terms of ethical values
(Suchman, 1995). In this way, NGOs and media can stimulate the awareness of
moral reasons for CSR and foster the internalization of societal values related
to CSR. Revell et al. (2010) found that awareness about environmental impacts
stimulates SMEs to get involved in it. Based on this, we hypothesize that SMEs
that perceive that they are confronted with social licence pressure of environ-
mental groups, members from the local community, or other elements of the
surrounding civil society are more likely to implement measures to improve their
environmental impacts:

Hypothesis 13.4 The environmental impacts of a company are positively associated with
the perceived social licence pressure.

Environmental Impacts and Government Regulation

Besides social licence pressure and the market benefits of CSR, enterprises may
also want to improve environmental impacts in order to comply with (future)
government regulation – the regulation motive. There is a spectrum of policies
134 Institutional Drivers of CSR

which governments may use to encourage CSR, and these vary by their ‘regula-
tory density’ in that they impose different levels of requirements and space for
discretion upon business. According to Rivera et al. (2009), compliance with
environmental public policies and their regulations is the prevalent response of
firms in the United States. Environmental legislation can affect the continued
growth of an enterprise. Stricter environmental regulation can therefore be a
major reason why an enterprise is concerned about its impact on the natural
environment (Brammer, Hoejmose, and Marchant, 2012). Literature frequently
mentions that government regulation is a major driver for companies’ environ-
mental management, as non-compliance may increase the threats of penalties
and fines (Agan et al., 2013). The regulation motive may not only induce com-
panies to comply to current environmental legislation but also stimulate them to
invest proactively in improving their environmental impacts beyond compliance
in order to lower the costs of adapting to future regulations (Masurel, 2007; Ber-
man et al., 1999). Darnall (2009) showed that proactive companies are more likely
to improve their environmental impacts when environmental regulation becomes
more stringent, while diminishing the profits of other firms.
As societal pressures particularly induce beyond compliance environmental
behaviour among large companies, Lynch-Wood and Williamson (2007) and
Williamson et al. (2006) argued that government regulation is more relevant in
the case of small companies. Also, small companies themselves might favour exter-
nal forms of regulation because this generates a ‘level playing field’ that allows
them to concentrate on the economic aspects and leave social and environmental
aspects to the government (Studer et al., 2006). Similarly, Revell and Blackburn
(2007) found in a study among 40 SMEs in the UK that they prefer regulation
for environmental problems instead of solving them voluntarily. Based on these
arguments and findings, we posit the following hypotheses:

Hypothesis 13.5 The regulation motive is more important for small companies than for
large companies.
Hypothesis 13.6 The environmental impacts of an SME depend positively on the
regulation motive.

13.3 Methodology
The data are taken from the survey in 2011. The analysis focuses on the environ-
mental dimension of CSR.
Environmental impacts are operationalized by several indicators for environ-
mental management practices and for impacts on energy consumption, waste, and
water consumption. For each issue, we use two measures for environmental man-
agement (efforts and formal procedures) and one measure for impact. For formal
procedures we use targets for environmental impacts and (internal) reporting on
the realization of these impacts, measured on a three-point scale ranging from
 Social Licence, Government, and CSR of SMEs 135

TABLE 13.1 Descriptive statistics of variablesa

Variable Measurement Mean SD

Environmental Effort to reduce energy consumption (91) 0.66 0.37

impacts Effort to reduce waste (93) 0.77 0.34
(α = 0.70)e Effort to reduce water consumption (92) 0.61 0.40
Procedural steps to reduce energy 0.27 0.24
consumption (96)
Procedural steps to reduce waste (98) 0.29 0.23
Procedural steps to reduce water 0.09 0.21
consumption (97)
Decrease in energy consumption during 0.44 1.38
2007–2010 (102)
Decrease in waste disposal during 2007–2010 0.37 1.21
(105)
Decrease in water consumption during 0.34 1.09
2007–2010 (104)
Perceived market Reputation (39) 4.54 1.59
benefits Financial market (30) 2.72 1.59
(α = 0.74) Product market (35) 3.26 1.66
Labour market (32) 4.36 1.64
Regulation motive Motive (21) 4.10 1.67
(α = 0.78) Perceived effect (36) 4.04 1.68
Perceived social Local community (13) 4.29 1.92
licence pressure Societal organizations (14) 3.70 1.94
(α = 0.70) Intensity of CSR monitoring by NGOs and/ 2.30 1.67
or media (42)
Company size Natural log of number of FTEs 3.17 1.32
a The numbers in brackets refer to the number of the survey question reported in Appendix 1.

0 (no targets and reporting), 0.5 (targets or reporting), to 1 (targets and report-
ing) (see Chapters 7 and 8). Besides formal procedures, we use a measure for the
(informal) efforts (e.g. concrete actions) to improve environmental impacts in
the future (see Chapters 2, 9, and 11), measured on a three-point scale ranging
from 0 (no effort), 0.5 (incidental effort), to 1 (continuous effort). For example,
construction enterprises can take various practical measures to substitute energy-
intensive building materials by less energy-intensive materials, such as the use of
environmentally friendly cooling systems.
For environmental impacts, we use questions measuring the actual use of
energy consumption, waste, and water consumption during the period 2007–
2010. We measure enterprise size by the (natural logarithm of the) number of
employees (in FTEs).
The perceived market benefits from CSR are measured by four questions on
reputation as a motivation for CSR and the perceived effects of CSR on the
financial, product, and labour market. The regulation motive is measured by two
136 Institutional Drivers of CSR

questions on the motivation and the perceived effects of CSR on the ability to
meet (future) government regulation.
The perceived social licence pressure is measured by three questions measuring
the perceived importance of the company’s relationship with the local commu-
nity and with societal organizations, and the perceived intensity of the monitor-
ing of the company’s CSR by NGOs and media.
The internal reliability of the dependent and independent variables has been
assessed by Cronbach’s alpha (α). Table 13.1 shows that the Cronbach’s alpha of
the estimated models varies between 0.70 and 0.78, indicating good internal
consistency (Hair et al., 1998).

13.4 Results
We used structural equation modelling to test the structure of our conceptual
model using maximum likelihood as estimation technique. The structural model
included the measurement model. The main estimation results are reported in the
first four columns of Table 13.2.
The estimation results show that the perceived social licence pressure increases
with company size, which confirms Hypothesis 13.1. Perceived social licence
pressure has a significant positive effect on perceived market benefits from CSR,
supporting Hypothesis 13.2. Environmental impacts significantly, positively,
depend on perceived market benefits from CSR, which supports Hypothesis
13.3. The perceived social licence pressure has also a significant direct effect on
environmental impacts, providing support for Hypothesis 13.4. Also, the regula-
tion motive improves environmental impacts, which supports Hypothesis 13.6,
but Hypothesis 13.5 – that the strength of the regulation motive decreases with
company size – is rejected.
Table 13.3 presents estimation results of three structural equation models that
test the four hypotheses regarding the effects of social licence pressures on market

TABLE 13.2 Estimation results of structural equation modelsa

1 2 3 4

Perceived social Regulation Perceived Environmental

licence pressure motive market benefits impacts

Perceived social licence 0.38*** 0.12***

pressure
Perceived market benefits 0.20***
Regulation motive 0.10***
Company size 0.14*** 0.12*** 0.07*** 0.11***
R2 0.04 0.05 0.18 0.20
a Standardized coefficients; * p < 0.05, ** p < 0.01, ***, p < 0.001. Controlled for sector, region, and
inverse Mill’s ratio. CFI = 0.96; TLI = 0.94; RMSEA = 0.03; SRMR = 0.02; N = 4,929
 Social Licence, Government, and CSR of SMEs 137

TABLE 13.3 Estimation results for subsamplesa

Enterprise size Micro Small Medium-sized

5 6 7 8 9 10
Perceived Environ­ Perceived Environ­ Perceived Environ­
market mental market mental market mental
benefits impacts benefits impacts benefits impacts
Perceived social 0.35*** 0.12** 0.35*** 0.13*** 0.44*** 0.10*
licence pressure
Perceived market 0.15*** 0.19*** 0.26***
benefits
Regulation 0.10** 0.10** 0.07
motive
Company size 0.04 −0.01 0.06* 0.04 0.07* 0.02
R2 0.16 0.16 0.15 0.17 0.22 0.21
Global fit indices for structural model
CFI 0.96 0.95 0.95
TLI 0.94 0.93 0.94
RMSEA 0.03 0.03 0.03
SRMR 0.03 0.03 0.03
N 1,349 2,096 1,484
a Standardized coefficients; * p < 0.05; ** p < 0.01; *** p < 0.001. Controlled for sector, region,
and inverse Mill’s ratio.

benefits and the effects of social licence pressures, market benefits, and regulation
motive for three subsamples of micro, small, and medium-sized enterprises.
The results show that all four hypotheses are also supported on these subsam-
ples. Hence, the finding that perceived social licence pressures affect environ-
mental impacts, directly as well as indirectly through perceived market benefits, is
robust for different class sizes of enterprises.
On the basis of the estimation results of the structural equation models in
Table 13.3, we can calculate the total effects of social licence pressure on envi-
ronmental impacts as the sum of the direct effect of perceived social licence
pressure on environmental impacts and the indirect effect through mediation by
perceived market benefits for the three subsamples (see Table 13.4). The first
row in Table 13.4 presents the direct effects of perceived social licence pressure
on environmental impacts as reported in Table 13.3. The second row presents
the indirect effects, which are equal to the multiplication of the coefficient of
perceived social licence pressure in the regression analysis of market benefits and
the coefficient of perceived market benefits in the regression analysis of environ-
mental impacts (Preacher et al., 2007). For all size classes of companies, both the
direct and indirect effects through mediation by perceived market benefits are sig-
nificant. The indirect effect of perceived social licence pressure mediated through
138 Institutional Drivers of CSR

TABLE 13.4 Effects of social licence pressure and regulation motive on environmental

impactsa

Micro Small Medium-sized

Perceived social licence pressure

-Direct effect 0.12** 0.13** 0.10*
-Indirect effect 0.05** 0.07*** 0.12***
-Total effect 0.18*** 0.20*** 0.22***
Regulation motive 0.10** 0.10** 0.07
a Standardized effects; * p < 0.05; ** p < 0.01; *** p < 0.001.

market benefits tends to increase with company size and so does the total effect
of perceived social licence pressure on environmental impacts. For all three size
classes, the total influence of perceived social licence pressure on environmental
impacts is higher than that of the regulation motive.

13.5 Conclusion
In this chapter, we tested a model that traces the influence of (perceived) social
licence pressure on the environmental impacts of 4,929 micro, small, and
medium-sized enterprises from 12 European countries. The study contributes in
three ways to the scientific literature. First, in contrast to previous literature that
focused on large companies, we studied the influence of perceived social licence
pressures on micro, small and medium-sized enterprises. There are no large-scale
empirical studies into the effects of social licence pressures on the environmental
impacts of SMEs that incorporate the heterogeneous nature of SMEs. Although
there are studies that use surveys to take stock of perceptions and motivations
of SMEs regarding environmental impacts (Brammer Hoejmose, and Marchant,
2012), they did not test if these attributions explain cross-company differences
in environmental impacts. A second contribution to literature is that this study
analyses the pattern of the influence of perceived social licence pressures on envi-
ronmental impacts of SMEs by distinguishing direct effects from indirect effects
mediated by perceived market benefits of CSR. Third, the estimation results give
insight into how the sum of the direct and indirect effects of perceived social
licence pressures on environmental impacts compare to the effects of the per-
ceived benefit of better compliance with government regulation.
We find empirical support that (1) perceived social licence pressure increases
environmental impacts of SMEs directly; (2) perceived social licence pressure
increases environmental impacts of SMEs indirectly through mediation by market
benefits of CSR; (3) environmental impacts are more stimulated by the perceived
social licence pressure than by the motive to meet government regulations, even
in the case of micro companies; and that (4) perceived social licence pressure
increases with company size.
 Social Licence, Government, and CSR of SMEs 139

Note
* An extended text of this chapter has been published in: Graafland, J., and Smid, H.
(2017). Reconsidering the relevance of social license pressure and government regula-
tion for environmental performance of European SMEs. Journal of Cleaner Production,
141: 967–977. Hugo Smid co-authored this article when he was PhD at Tilburg Uni-
versity. Hugo Smid published his dissertation (titled ‘Rhetoric and realities of corporate
social responsibility’) in 2014. He is currently working at De Nederlandsche Bank.
14
HOW NGO AND MEDIA
PRESSURE INFLUENCE INTRINSIC
MOTIVATION OF CORPORATE
SOCIAL RESPONSIBILITY*

14.1 Introduction
Over the last decades, much research has been conducted to identify what moti-
vates firms and their managers to engage with CSR (cf. Croson and Treich, 2014;
De Jong and Van der Meer, 2017; Muller and Kolk, 2010), in both developed
and developing countries (Ali et al., 2017; Zhang et al., 2019). Executives are
shown to have various intrinsic and extrinsic motives for actively pursuing CSR
(Hafenbrädl and Waeger, 2017; Kuckertz and Wagner, 2010). Intrinsically moti-
vated actions are those for which there is no direct reward but the behaviour itself;
extrinsically motivated actions are driven by the consequences associated with
performing the activity (Allison et al., 2015).
Previous research has shown that intrinsic motivation plays a decisive role in
fostering EP (Graafland and Bovenberg, 2020; Paulrai, 2009), raising the ques-
tion whether intrinsic motivation has its own underlying drivers. A substantial
theoretical literature suggests that financial incentives tend to crowd out, or
undermine, intrinsic motivation (Bowles, 2016). Experimental studies confirm
this; if individuals derive intrinsic benefits from behaving altruistically or from
honouring civic duties, financial incentives can discourage this type of conduct
(for extensive literature reviews, see Bowles and Polania-Reyes (2012) or Rode
et al. (2015)). The mechanism received ample attention in environmental eco-
nomics and focused on households’ and consumers’ motivations and behaviours
(cf. Agrawal et al., 2015; Chervier et al., 2019; Grillos et al., 2019; Han et al.,
2018; Marsiglio and Tolotti, 2020; Pellerano et al., 2017; Steinhorst and Klöck-
ner, 2018; Tabernero and Hernández, 2011). Yet motivation crowding is stud-
ied way less in the context of enterprises. We argue that the same mechanisms
can, and should, be examined in the setting of enterprises, but that firms may
DOI: 10.4324/9781003216483-18
This chapter has been made available under a CC-BY-NC 4.0 license.
 NGO Pressure, Intrinsic Motivation, and CSR 141

respond differently to financial incentives because of the competitive environ-

ment in which they operate. Because profitability is a necessary condition for a
firm to survive in a competitive environment, financial incentives are more likely
to enforce (crowd in) rather than curb (crowd out) intrinsic motivations in the
business context.
Several types of stakeholders (e.g. suppliers, clients) can stimulate or press enter-
prises to engage in CSR, but these stakeholders often depend on information
on the CSR performance of enterprises provided mainly by non-governmental
organizations (NGOs) and media (Doh and Guay, 2006; Graafland and Smid,
2017). We therefore analyse motivation crowding effects of external pressures
from NGOs and media, either from direct interaction with enterprises or from
indirect influences if NGOs and media target consumers and other external
stakeholders put market pressure on enterprises. The mediation mechanism is
the role played by financial incentives to engage in CSR. The research question
in this chapter is thus: How do external pressures from NGOs and media affect
intrinsic motivations of (managers of    ) enterprises, and how do the financial CSR
benefits that these pressures generate, mediate this relationship?
This chapter contributes to the literature in three ways. First, it develops a
framework that theorizes how pressures from NGOs and media affect intrinsic
motivation of (managers of    ) enterprises towards CSR. Second, it investigates
the role of perceived market benefits of CSR as a mediator in the relationship
between NGO and media pressure and intrinsic CSR motivation. Third, whereas
motivation crowding theory has been tested on several types of behaviour of
households and consumers, there is scant empirical research on crowding-in
or crowding-out effects of financial incentives on the intrinsic motivation for
CSR in enterprises. We thus contribute to practice by examining the motivation
crowding effects of financial incentives on the intrinsic motivation for CSR in
these enterprises, highlighting how NGOs and media play an important role here
and hence could be involved more in advancing CSR initiatives.
In the remainder of this chapter, first, the theoretical framework and hypoth-
eses are outlined. Then we present the methodology, followed by the results of
our empirical analysis. The chapter concludes with a summary of the findings.

14.2 Conceptual Framework
Motivation, the reason upon which one acts, is an important antecedent to
behaviour (Kuckertz and Wagner, 2010). Behaviour can be driven by intrinsic
and extrinsic motives (Lindenberg, 2001; Scopelliti et al., 2018). Within psychol-
ogy, intrinsic motivation is related to the joy and satisfaction derived from an
activity (Deci and Ryan, 1985). Intrinsic motivation does not only cover behav-
iour based on enjoyment but also a motivation to act appropriately (Lindenberg,
2001). This type of intrinsic motivation stems from the inner desire to follow a
particular norm or principle.
142 Institutional Drivers of CSR

Motivation crowding theory has argued that intrinsic motivations are not
independent from external pressures that drive extrinsic motives (Frey, 1992).
More specifically, crowding theory has recognized that external pressures may
crowd in or reinforce intrinsic motivation if the individual concerned perceives
these external pressures as supportive (Eisenberger et al., 1999). However, exter-
nal pressures may also crowd out intrinsic motivations (Han et al., 2018). This
idea stems from literature on cognitive social psychology and implies that external
rewards or pressures may reduce intrinsic motivation (Bowles, 2016).
In this chapter, we focus on the influence of external pressures generated
by NGOs and media on intrinsic CSR motivation of managers in enterprises.
Figure 14.1 presents our conceptual framework which distinguishes between a
direct (Hypothesis 14.1) and an indirect influence. The indirect effect reflects
that NGOs and media can increase market benefits of CSR by activating external
stakeholders (Hypothesis 14.2) and that these market benefits subsequently can
affect intrinsic motivation through crowding mechanisms (Hypothesis 14.3). The
framework focuses on perceived external and market pressures instead of on real
pressures because it is the perceived rather than the real pressures that shape enter-
prises’ motivation to engage in CSR. After all, managers generally shape their
environment through ‘enactment’ – by constructing interpretations and then act-
ing as if such interpretations are reality (Fassin et al., 2011).
We complement the hypotheses by two other relationships of the effects of
intrinsic motivation and market benefits on EP (A and B in Figure 14.1), assum-
ing that both intrinsic motivation and market benefits motivate a company to
improve its EP.
Hypothesis 14.1, Hypothesis 14.2, and Hypothesis 14.3 are discussed in detail
later.

NGOs and Media: Direct Effects on Intrinsic Motivation

Social movements, from grassroots organizations at the local level to more for-
malized NGOs at the regional, national, or international level, can shape CSR
activities (Den Hond and de Bakker, 2007). NGOs play a fundamental role,
monitoring enterprises and generating attention in the media about situations

FIGURE 14.1 Conceptual framework

 NGO Pressure, Intrinsic Motivation, and CSR 143

they deem undesirable, which reflect negatively on the public’s perception of the
firm (Deegan and Islam, 2014). Therefore, enterprises may be seriously chal-
lenged if they perceive that their environment becomes hostile to their business
when NGOs or media find out that they cause some harm to their community
(Aragón-Correa et al., 2008).
When local NGOs or media monitor an enterprise’s CSR, they can use their
knowledge to directly appeal to the enterprise, trying to influence the CSR activ-
ities (Den Hond and de Bakker, 2007). NGOs have specialist knowledge and can
be specific in how environmental issues should be resolved by the enterprise.
This reduces the managers’ room for manoeuvre and discretion. When NGOs
and media gain more influence, motivation crowding theory predicts that this
will reduce managers’ own intrinsic motivations because the meaning of a CSR
activity changes from one that expresses autonomy and taking responsibility into
one that expresses compliance to directives (Graafland and Bovenberg, 2020), in
this case those coming from NGOs or media.
Another mechanism predicted by motivation crowding theory is that the
effect of external pressure on intrinsic motivation depends on the display of trust
(Bowles and Polania-Reyes, 2012). When NGOs and media signal distrust in the
business leader’s motivation to perform well, they deny the enterprise’s internal
motivation and by doing so erode existing intrinsic motivation. Based on these
arguments, we expect that intrinsic CSR motivation of an enterprise is negatively
related to perceived NGO and media pressure.
However, there are also effects that predict a crowding-in effect. First,
NGOs and media have the ability to influence social norms, values, and soci-
etal expectations on corporate behaviour (Den Hond and de Bakker, 2007;
Doh and Guay, 2006). NGOs and media alter the context in which prefer-
ences are acquired and change the process of preference-updating by which
managers internalize new social norms. When new rules or norms are broadly
diffused and supported, meaning that their social validity is largely unques-
tioned, enterprises will acquiesce to these (Oliver, 1991). Second, the atten-
tion of NGOs or media to the enterprise’s CSR may lead to more contacts
between the enterprise’s managers and NGO representatives or journalists.
If these intensify, these personal relationships can become an inspiration for
managers of the enterprise. Research shows that the frequency of interac-
tion with peers in social networks influences how people respond to moral
issues (Weaver et al., 2005). That is, the intrinsic motivation that drives rep-
resentatives of NGOs spills over to the managers of the enterprise who then
gradually develop intrinsic motivation towards CSR. Third, the contacts with
NGOs or media may also induce managers to frame the decision on CSR in a
moral context (Bowles and Polania-Reyes, 2012). The moral frame related to
the goal ‘to do the right thing’ will affect the processes of information gath-
ering and the choice of the options that are relevant for considering moral
issues of the operations of the enterprise. NGOs then are willing to provide
144 Institutional Drivers of CSR

enterprises with relevant environmental, scientific and legal information on

CSR issues (Den Hond et al., 2015).
Therefore, we posit two competing hypotheses stating that NGO and media
pressure crowd in or crowd out intrinsic motivation:

Hypothesis 14.1a/b Intrinsic CSR motivation of an enterprise is negatively/positively

related to perceived NGO and media pressure.

Effects of NGOs and Media on Intrinsic Motivation Through

Market Benefits
The direct effects of NGO and media pressure on intrinsic motivation can be
positive, negative, or insignificant. But there is also an indirect effect. NGOs and
media attract public attention to corporate practices and mobilize stakeholders
to exert market pressure on an enterprise, improving profits conditional on CSR
(Den Hond and de Bakker, 2007). Neo-institutional theorists have argued that
transparency of CSR performance through monitoring by societal organizations
is essential for effective market pressure (Doh and Guay, 2006). Not only so for
large enterprises, small enterprises are also subject to reputational effects from
CSR pressure by (local) NGOs or media (Fraj-Andrés et al., 2012). Moreover,
given locational sunk costs that restrict geographical mobility, a good reputation
has an important strategic value for small enterprises too (Graafland and Smid,
2017). Hence, managers will be more aware of the market benefits of CSR if they
perceive that local NGOs or media monitor their enterprise’s CSR. This leads to
the second hypothesis:

Hypothesis 14.2 The market benefits of CSR, as perceived by the enterprise’s manag-
ers, are positively related to perceived CSR pressure from NGOs and media.

In turn, there are several reasons for (perceived) market benefits of CSR to
affect intrinsic motivation of managers. Freedom to act is a precondition for
value expression and taking responsibility. Experiencing autonomy requires that
managers have a set of options available (Patzelt and Shepherd, 2011). When
CSR generates market benefits because market parties reward CSR, then this
provides managers with more opportunities to take CSR initiatives. For example,
the development of environmentally aware consumers who are prepared to pay
a mark-up for environmentally responsible products provides managers with the
opportunity for a strategy to enter that market. The market benefits created by
CSR signal freedom of action rather than social control. This enlarges managers’
perceived autonomy, fostering their intrinsic motivation to engage in CSR.
A related argument stems from the notion that CSR may be perceived by
managers as a conditional or so-called prima facie moral duty rather than as an
all-things-considered moral duty (Ross, 1930). If managers expect that pursuing
 NGO Pressure, Intrinsic Motivation, and CSR 145

CSR will harm their enterprise’s financial performance, they hesitate to imple-
ment CSR as they also consider other moral duties towards their enterprise, such
as providing job security for employees. The survival of the enterprise is essential
and job creation and continuation are often seen as the first responsibility of busi-
nesses (Fassin et al., 2011). Lack of anticipated market benefits will then weaken
intrinsic motivation because CSR can only be considered a moral duty if there
are no other, more important, moral reasons against it (Kuckertz and Wagner,
2010). That is, perceiving that CSR has financial value leads to greater acceptance
of CSR as a moral obligation on which managers should act.
However, perceived market pressures on CSR may also crowd out intrinsic
motivation. First, it is possible that managers perceive market pressure as a threat
that compels them to improve the enterprise’s CSR, leaving them less room for
manoeuvre. CSR that does not leave room for free choice intrudes directly into
the manager’s realm of self-determination, decreasing their locus of control (Frey,
1992; Graafland and Bovenberg, 2020). Second, and more subtle, if managers
perceive that they are rewarded for their CSR by stakeholders, they may attribute
their CSR policies to the reward rather than to their own intentions and thus
discount their intrinsic interest in the activity as the cause of their decisions (Lin-
denberg, 2001). The mechanism is known as over-justification and leads to lower
post-behaviour intrinsic motivation (Deci et al., 1999). Third, a change in per-
ceived market effects of CSR changes the frame of managers’ decision context.
Goals influence the frame within which cognitive processes take place (Linder
and Foss, 2018). The frame influences the information attended to, the processing
of this information, and the alternatives considered (Lindenberg, 2001). Market
benefits of CSR create a so-called ‘gain frame’, for example a frame linked to
the goal of improving one’s resources while curtailing attention to moral obliga-
tion. CSR aspects generating positive market benefits then become more salient,
stimulating managers’ attitudes towards extrinsic motivation for CSR (Linden-
berg, 2003). This means that an increase in perceived market benefits crowds
out intrinsic CSR motivation. These arguments together lead to two competing
crowding out hypotheses:

Hypothesis 14.3a/b Intrinsic CSR motivation of enterprises is positively/negatively

related to perceived market benefits of CSR.

Mediation
Mediation analysis permits examination of processes and gives insight into how
an independent variable exerts an effect on a dependent variable via the inclusion
of a third variable, known as the mediator variable (Fiedler et al., 2011). Next
to the three main hypotheses outlined earlier, we need to examine whether the
perceived market benefits of CSR act as a mediator between NGO and media
pressure on the one hand and intrinsic CSR motivation on the other hand. Such
146 Institutional Drivers of CSR

mediation effects in motivation crowding have been rarely examined before

(Resh et al., 2019). As NGOs and media can attract public attention to misbe-
haviour, they can mobilize various types of stakeholders on the capital market,
product market, and labour market and thus potentially increase perceived market
benefits from CSR. As these market benefits from CSR may, in turn, crowd in or
crowd our intrinsic motivations to CSR, we expect that NGO and media pres-
sures indirectly affect intrinsic motivations through the perceived market benefits
of CSR to some extent. Hence, it is hypothesized that:

Hypothesis 14.4 The perceived market benefits of CSR mediates the effect of NGO
and media pressure on intrinsic CSR motivation of enterprises.

14.3 Methodology
The data are taken from the survey in 2011. The perceived CSR pressure by
NGOs and media on the enterprise’s CSR was measured by a survey question
asking ‘To what extent do NGOs and/or (social) media monitor the enterprise’s
CSR?’ The answers were measured by a seven-point Likert scale, ranging from
‘not at all’ (1) to ‘very much’ (7).
Perceived market benefits were measured by four questions, surveying manag-
ers’ perceptions of the reputational effects of CSR, the effects of CSR on profit
margins and sales of the enterprise, and the effect on profitability in the long
term. In response to the question ‘To what extent does engagement in CSR
influence the following aspects for your enterprise?’, managers again could fill
out a seven-point Likert scale, again ranging from ‘not at all’ (1) to ‘very much’
(7) for each item.
Following Graafland and Bovenberg (2020) the intrinsic CSR motivation was
measured by the survey question ‘How important are the following motives for
your enterprise to engage in CSR?’ Two measures were used. First, respondents
could respond by a seven-point Likert scale ranging from ‘not at all’ (1) to ‘very
much’ (7) to the statement ‘We engage in CSR because we feel responsible for
the planet and the society’. Furthermore, we asked respondents to respond to
the statement ‘We engage in CSR because it creates personal satisfaction for the
people in our enterprise’ using the same seven-point Likert scale.
Environmental performance was operationalized by four measures indicating
the efforts of companies to improve EP. We used four survey questions measuring
concrete actions to reduce energy consumption, water consumption, and waste
disposal, and to improve EP of suppliers. For each issue, we used a three-point
scale ranging from 0 (no effort), 0.5 (incidental effort), to 1 (continuous effort).
We used both explorative and confirmatory factor analysis to test the cluster-
ing of the survey variables in the three factors identified by our labels ‘Perceived
market benefits’, ‘Intrinsic CSR motivation’, and ‘Environmental performance’.
The results are reported in Table 14.1. The factor loadings for all individual
 NGO Pressure, Intrinsic Motivation, and CSR 147

TABLE 14.1 Descriptive statistics and factor analysis of survey itemsa

Variables Mean SD Factor loadings

Perceived market Intrinsic Environ.

benefits motivation performance

CSR increases turnover (35) 3.26 1.66 0.88

CSR increases profit margins 3.24 1.63 0.89
on products (34)
CSR limits reputation risks 4.42 1.67 0.67
(39)
CSR improves long term 4.11 1.70 0.86
profitability (38)
We engage in CSR because 5.21 1.48 0.88
we feel responsible for the
planet and the society (25)
We engage in CSR because it 5.09 1.42 0.86
creates personal satisfaction
for the people in our
enterprise (26)
Energy consumption (91) 0.67 0.37 0.78
Water consumption (92) 0.61 0.40 0.80
Waste disposal (93) 0.77 0.34 0.78
Environmental performance 0.52 0.41 0.67
suppliers (94)
Eigenvalue 3.57 1.19 1.98
Cronbach alpha 0.87 0.70 0.77
Construct reliability 0.90 0.86 0.84
Average variance extracted 0.69 0.76 0.58
a Extraction Method: Principal Component Analysis; Rotation Method: Oblimin with Kaiser Nor-
malization. KMO = 0.795, p-value Bartlett’s Test of Sphericity = 0.000. The numbers in brackets
refer to the numbers of the survey questions reported in Appendix 1.

variables exceed 0.50. The Cronbach’s alphas indicate the internal consistency of
both factors. The construct reliability and convergent validity (measured by the
average variance extracted) for both factors satisfied the accepted thresholds of
0.70 and 0.50, respectively (Hair et al., 2010). In the regression analysis, the three
factors for market benefits, intrinsic motivation, and EP are used. The factors are
standardized and normalized to zero mean and unit standard deviation.
A potential bias in the regression analysis is reverse causality bias. Enterprises
with intrinsically motivated owner-managers might show more consistency in
their CSR strategy. They may therefore be more able to convince stakeholders of
the quality of their CSR efforts, increasing the market rewards for CSR (Wang
and Choi, 2013). Moreover, intrinsically motivated managers who want CSR for
its own sake will show more perseverance in developing market opportunities,
even if market effects are not visible in the short term (Kuckertz and Wagner,
148 Institutional Drivers of CSR

2010). Theoretically, it is therefore possible that intrinsic motivation has a posi-

tive reverse causal effect on perceived market benefits of CSR. We test for reverse
causality through instrumental variables (IV), but with a subtle extension to the
standard procedure, because good instrumental variables for the perceived market
benefits, the independent variable in the second equation, were lacking, while a
good instrument for intrinsic motivation, the dependent variable, was available.
This enabled us to examine if there is causality from the dependent to the inde-
pendent variable. To be specific, we test the reverse effect from intrinsic moti-
vation on perceived market benefits of CSR directly, using the share of female
executives in the board of the enterprise as instrumental variable for intrinsic
motivation. Regression analysis (controlling for all control variables) showed that
this instrumental variable indeed has a positive and very significant effect on
intrinsic motivation (t-value 4.52). Next, we used IV regression analysis to esti-
mate the effects of (instrumentalized) intrinsic motivation on perceived market
benefits, and the results showed that the effect is negligible (p-value is 0.943).
Based on these findings it can be concluded that there is no reverse causality from
intrinsic motivation on perceived market effects.

14.4 Results
The results of the structural equation modelling are reported in Table 14.2.
The estimation results in column 1 show that perceived market effects of
CSR depend positively on perceived CSR monitoring by NGOs and media,
which provides support for Hypothesis 14.2. In column 2 intrinsic motiva-
tion is found to be significantly positively related to perceived market ben-
efits but not to CSR monitoring by NGOs and media. These results support
Hypothesis 14.3a and reject Hypothesis 14.3b, while providing no support
for Hypothesis 14.1a or 14.1b.1 From column 3 it can be concluded that
both perceived market benefits of CSR (which is an indicator of extrinsic
motivation) and intrinsic motivation stimulate companies to improve their EP.
Particularly, intrinsic motivation is a strong driver; its impact is twice that of
perceived market benefits.
An advantage of SEM is that it provides a convenient method to test the
significance of indirect effects (Shrout and Bolger, 2002). The indirect effect of
CSR monitoring by NGOs and media on intrinsic motivation through perceived
market benefits is highly significant (see Table 14.3). Hence, although CSR
monitoring by NGOs and media has no direct effect on intrinsic motivation, it
indirectly crowds in intrinsic motivation by increasing perceived market benefits.
This provides support for Hypothesis 14.4. More specifically, the findings show
that the perceived market benefits of CSR positively mediate the effect of NGO
and media pressure on intrinsic CSR motivation of enterprises.
Table 14.3 also compares the direct effect of perceived market benefits on
EP and the indirect effect mediated by intrinsic motivation. These effects have a
 NGO Pressure, Intrinsic Motivation, and CSR 149

TABLE 14.2 Estimation resultsa

1 2 3

Perceived market Intrinsic Env.

benefits motivation performance

Structural model
CSR monitoring 0.31*** 0.02
NGOs and
media
Perceived market 0.57*** 0.16***
benefits
Intrinsic 0.31***
motivation
Measurement model
Perceived market CSR increases sales 0.59***
benefits
CSR increases profit margins on products 0.55***
CSR reduces reputation risks 0.76***
CSR improves profitability in the long term 0.73***
Intrinsic motivation We feel responsible for the planet and the society 0.73***
CSR creates personal satisfaction for the people 0.78***
in our enterprise
Environmental Energy consumption 0.53***
performance
Water consumption 0.59***
Waste disposal 0.57***
Environmental performance suppliers 0.60***
a Standardized coefficients. * p < 0.05; ** p < 0.01; *** p < 0.001. Controlled for region, sec-
tor, market position in the chain, intensity of price competition, business culture, company size,
the skill and age structure of the enterprise, the function and the age of the respondent. Details
on the measurement of control variables are reported in Appendices 1 and 2. Global fit indices:
RMSEA = 0.033; CFI = 0.942; TLI = 0.917; SRMR = 0.017; R2 = 0.462.

similar magnitude. Thus, the influence of external pressure from CSR monitor-
ing by NGOs and media on EP is equally motivated by intrinsic and extrinsic
motives.

14.5 Conclusion
This chapter develops a framework that theorizes how external pressures from
NGOs and media affect intrinsic motivation of (managers of    ) enterprises towards
CSR. Whereas in earlier literature on CSR (cf. Muller and Kolk, 2010; Weaver
et al., 2005), intrinsic and extrinsic motives have often been conceptualized
as independent from each other, we theorize several types of mechanisms that
can cause motivation crowding effects of external pressures on intrinsic CSR
150 Institutional Drivers of CSR

TABLE 14.3 Direct and indirect effectsa

From: On: Mediated by Estimate

Indirect effects
CSR monitoring NGOs Intrinsic motivation Perceived market 0.197***
and media benefits
Perceived market benefits Environmental Intrinsic motivation 0.039***
performance
Direct effects
Perceived market benefits Environmental 0.035***
performance
a Unstandardized coefficients; *** p < 0.001.

motivation of enterprises, such as freedom to act, framing, self-attribution, signal-

ling of (dis)trust, and preference update. Through this study we thus suggest that
motivation crowding theory offers an alternative focus on understanding a variety
of motivations of SMEs to engage in CSR, giving rise to further research on how
these motivations may interact.
Whereas motivation crowding theory has been tested on several types of
behaviour of households and consumers, there is scant empirical research on
crowding effects of financial incentives on the intrinsic motivation for CSR
in enterprises. By testing the mechanisms on a sample of 4,364 enterprises in
12 European countries, the study complements the empirical literature in a set-
ting that is highly relevant for working towards sustainability, given that most
CSR impacts appear at the production stage, that is, through enterprises.
Developing further insight into motivation crowding effects is important
for a nuanced understanding of the motivating power of external pressures on
an enterprise’s CSR efforts, not only in theory but also in practice. If external
pressures that drive extrinsic motives positively affect intrinsic motivations, the
disregard of this relationship may lead to an underestimation of their relevance
for CSR. After all, next to their motivating effect on CSR through extrinsic
motivations, external pressures will then also foster CSR indirectly by stimulat-
ing intrinsic motivations. But if, conversely, managers are motivated to CSR by
intrinsic motives, and external pressures are liable to crowd out these motives,
such pressures may even weaken the enterprise’s engagement in CSR, working
counter-productively. A better understanding of all these motivations and their
interactions will contribute to more effective ways to stimulate CSR initiatives
in enterprises.
This chapter specifically investigated the role of perceived market benefits
of CSR as a mediator in the relationship between NGO and media pressure
and intrinsic CSR motivation. Within the ongoing debates on drivers for CSR
within SMEs (cf. Baumann-Pauly et al., 2013; Hamann et al., 2017), this is a rel-
evant contribution to interpret such drivers. The study indicates that crowding in
 NGO Pressure, Intrinsic Motivation, and CSR 151

rather than crowding-out effects are relevant in the CSR behaviour of enterprises
that are pressured by NGOs and media. This finding is opposite to many studies
of motivation crowding in environmental behaviour of households or consum-
ers that support the crowding out hypothesis (Pellerano et al., 2017; Rode et al.,
2015). These results beg the question why crowding in is more relevant for CSR
behaviour of business organizations than for social behaviours of private house-
holds or individual consumers. A possible reason for these deviating responses can
be found in the arguments underpinning Hypothesis 14.3a on crowding in. For
example, rewarding environmentally desirable behaviour can increase perceived
self-determination in a business context, more so than in the context of a private
household. Enterprises that face severe competition may not be able to survive if
their (often costly) investments in CSR are not rewarded by market parties. This
is particularly relevant for SMEs. Because of their small scale, CSR measures can
be relatively costly for SMEs. In this context, an increase in market demand for
environmentally responsible products will be perceived as a business opportu-
nity that substantially increases the freedom of the enterprise to pursue a CSR
strategy, which triggers a higher intrinsic motivation. This argument applies less
to financial rewarding of household contributions to environmental goods, for
which findings are mixed at best and where crowding-out effects have regularly
been observed (Schwartz et al., 2019). In these cases, it is more likely that, as
Frey and Oberholzer (1997) argued, individuals often perceive price incentives as
an external intervention controlling their behaviour, which decreases their self-
determination and hence their intrinsic motivation.

Notes
* An extended text of this chapter has been published as an open access article under
the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives
License in: Graafland, J.J., and de De Bakker, F.G.A. (2021). Crowding in or crowding
out? How non-governmental organizations and media influence intrinsic motivation
towards corporate social and environmental responsibility. Journal of Environmental Plan-
ning and Management, https://doi.org/10.1080/09640568.2021.1873110. Copyright ©
University of Newcastle Upon Tyne, reprinted by permission of Taylor & Francis Ltd,
www.tandfonline.com on behalf of University of Newcastle Upon Tyne. Frank de Bak-
ker is affiliated to IESEG School of Management, Division Management & Society to
LEM-CNRS UMR 9221 in Lille in France.
1 We also tested for non-linearities, as previous research has shown that financial benefits
impact intrinsic motivations only beyond a certain level (Ezzine-de-Blas et al., 2019).
Hence, the probability of crowding out may increase when NGO and media pressures
and perceived market effects become so pressing that they leave little room for manoeuvre
by the owner-manager. The test results partly support this intuition, as squared perceived
market benefits have a significant negative effect on intrinsic motivation. However, the
effect is rather small in comparison to the positive linear effect. Hence, even for enter-
prises that perceive large market benefits from CSR, an increase in perceived market
benefits does not crowd out intrinsic motivation. Furthermore, squared NGO and media
pressure was found to have a small, but significant negative effect on perceived market
benefits, but no significant effect on intrinsic motivation was detected.
15
GOVERNMENT REGULATION,
BUSINESS LEADERS’ MOTIVATION,
AND ENVIRONMENTAL IMPACTS*

15.1 Introduction
The literature on motivation crowding has theorized that incentives-based poli-
cies designed to recruit self-interest might harm the intrinsic motivation to supply
public goods (Boyer et al., 2016). Also in the environmental domain, studies have
shown that price incentives can crowd out intrinsic motivations (Pellerano et al.,
2017). These effects pertain also to other types of external interventions, such as
government regulation. In an influential paper, Cardenas et al. (2000) showed that
the introduction of modestly enforced government-imposed regulations in three
rural villages in Colombia increased resource extraction. They suggested that one
of the interpretations of this finding is that regulation crowds out other-regarding
behaviour. Also, Vollan (2008) found that imposing external penalties through
outside regulations tends to worsen the situation, whereas employing enabling
rewards does not. Recent research by Abatayo and Lynham (2016), however, did
not confirm this finding. They found no differences between externally imposed
regulations and self-governing regulations and between weak externally imposed
regulation and no regulation. They concluded that externally imposed regula-
tions do not crowd out intrinsic motivation. In contrast, Choi (2015) found that
a mandatory carbon price reduces the willingness to pay for voluntary carbon
offsets, whereas Han et al. (2018) found that an increase in garbage fees crowds
out households’ pre-existing motivations for sorting waste, again supporting the
crowding-out mechanism.1
The literature on motivation crowding in the environmental domain has
focused on the behaviour of only individuals or households. How government
intervention impacts intrinsic motives of firms has neither been theorized nor
empirically tested, even though business organizations are a major source of
DOI: 10.4324/9781003216483-19
This chapter has been made available under a CC-BY-NC 4.0 license.
 Government, Intrinsic Motivation, and CSR 153

environmental damage. This chapter takes a first step to fill this research gap by
focusing on motivations of top managers of SMEs to adopt CSR. Compared to
their larger counterparts, the behaviour of small firms is disproportionately driven
by the values and motives of the managers (Wickert et al., 2016). Therefore,
crowding-out effects are more likely to occur for SMEs than for large companies.
A second shortcoming of previous studies on crowding effects of govern-
ment regulation of environmental behaviour is that they researched the relation-
ship between various types of regulations and environmental outcomes without
measuring intrinsic motivation and testing how intrinsic motivation affects this
relationship between regulation and EP. In a literature overview of 18 studies on
the impact of economic incentives on conservation policy, Rode et al. (2015)
found that only four studies measure intrinsic motivation (of which, none inves-
tigated the effects of government regulation). They argued that explicit informa-
tion about intrinsic motivation is essential to develop an understanding of the
specific conditions under which crowding effects occur, as ‘observing behaviour
does not make it possible to isolate economic from intrinsic motivations’ (Rode
et al., 2015: 280). If government regulation is found to improve EP, the literature
interprets this finding as evidence that crowding out of intrinsic motivation does
not occur. However, it cannot be ruled out that other factors affect this relation-
ship. Empirical evidence on whether government regulation crowds out intrinsic
motivation is therefore still lacking. Our research fills this second research gap by
measuring intrinsic motivation and testing how government regulation impacts
this motivation. Our results show that a positive relationship between govern-
ment regulation and EP actually goes together with crowding out of intrinsic
motivation. We thus correct the standard interpretation in the literature that a
positive relationship between government regulation and EP implies that crowd-
ing out of intrinsic motivation is absent.
The research question in this chapter is therefore twofold. First, to what extent
does government regulation crowd out intrinsic motivation towards improving
EP in SMEs? Second, how do indirect effects caused by crowding out of intrinsic
motivation compare with the direct effects of government regulation on EP? The
chapter contributes to the previous literature on motivation crowding in CSR in
two important ways. First, instead of analysing individual or household behav-
iour, we research to what extent government regulation crowds out intrinsic
motivation towards EP of SMEs. Second, by separating the effect of government
regulation on intrinsic motivation from its direct effect on EP, our study is the
first that empirically identifies crowding out of intrinsic motivation by govern-
ment regulation. Our approach allows us to disentangle the effects of government
regulation on EP caused by crowding out of intrinsic motivation from other
effects of government regulation on EP.
Here, we first develop a conceptual framework for exploring how government
regulation influences voluntary initiatives to protect the environment through the
intermediation of motivations of top managers of SMEs. Next, we discuss the
154 Institutional Drivers of CSR

methodology of our research. Section 15.4 presents the estimation results and
various types of robustness analyses. The last section summarizes the findings.

15.2 Conceptual Framework
This section first discusses how the motivation of business leaders affects vol-
untary initiatives of SMEs to improve their EP. Next, we describe the tenets of
motivation crowding theory and provide reasons for why government regulation
may crowd out intrinsic and extrinsic motivations of business leaders. Finally, we
present the overall conceptual framework.

Motivation and Environmental Performance of Small

Businesses
Motivation refers to the reason upon which one acts. The literature distinguishes
between intrinsic motives and extrinsic motives (Frey, 1998; Weaver et al., 1999;
Lindenberg, 2001; Scopelliti et al., 2018) (see Chapter 6). Business leaders who
feature intrinsic motives for improving EP perceive good EP as an end in itself,
independent of other (mostly financial) benefits (Muller and Kolk, 2010). An
extrinsic motive encourages EP because it has instrumental value for other goals
than good EP, such as reputation and long-term financial performance of the
company.
Various types of intrinsic motivation exist (Lindenberg, 2001). First, in Deci
et al. (1999), enjoyment or fun derived from the activity is at the heart of the con-
ceptualization of intrinsic motivation. For example, business people may enjoy
a ‘warm glow’ from contributing to a public good. However, as argued by Frey
(1998) and Lindenberg (2001), intrinsic motivation may also involve moral obli-
gations. This motivation stems from the feeling that one must follow a particular
rule, norm or principle. The goal is to act appropriately. Business leaders feel that
they are responsible to prevent negative impacts of their companies on the natural
environment.
Although it seems obvious that motives drive behaviour, in the context of
business organizations the role of motives is more complex because motivation is
basically an individual-level construct rather than a company level construct (Katz
and Kahn, 1978). We bypass this theoretical concern by focusing our research on
director-owners of SMEs. As regards behaviour of businesses, the upper echelon
theory argues that organizational strategies reflect the values and beliefs of power-
ful actors in the organization (Hambrick and Mason, 1984). Business leaders are
shaping the strategic direction of their company. Their motives therefore affect
the strategic initiatives of the firm, such as engaging in CSR to enhance EP. The
dominant influence of leaders in defining the interests of the company will be
particularly strong for business leaders of SMEs. They are often directly involved
in decisions on CSR and can change the CSR strategy of the firm substantially
 Government, Intrinsic Motivation, and CSR 155

(Waldman et al., 2006). Their value-laden decisions are observed and interpreted
by subordinates and will also influence the subordinates’ values, beliefs, and
behaviour (Kim et al., 2017). As the leader with high status and power, the busi-
ness leader will in fact serve as a role model for the employees in the organization
and foster their cooperation in the implementation of environmental policies.
Lynch-Wood and Williamson (2014) found that in smaller firms the responsibil-
ity for environmental issues tends to reside with owners or directors, whereas in
larger firms it is often delegated. The motives of business leaders of SMEs there-
fore have a decisive influence on the company’s policies. These arguments yield
the following hypothesis:

Hypothesis 15.1 The stronger the intrinsic CSR motivation of its business leader is, the
more voluntary initiatives an SME will take to improve its EP.
Hypothesis 15.2 The stronger the extrinsic CSR motivation of its business leader is, the
more voluntary initiatives an SME will take to improve its EP.

Government Regulation and Motivations

Motivation crowding theory has recognized that external pressures may crowd
out intrinsic motivation (Frey and Jegen, 2001). However, whether government
regulation crowds out intrinsic motivation of business leaders of SMEs to improve
EP has not yet been researched. Motivation crowding theory provides various
reasons for the crowding-out phenomena (Deci et al., 1999; Frey and Jegen,
2001; Bowles and Polania-Reyes, 2012; Han et al., 2018). First, crowding out
is observed if the external pressure is perceived to be coercive, thereby decreas-
ing self-determination and the freedom to act (Frey, 1998). Compared to mar-
ket incentives, government regulations are typically perceived as more restrictive
to self-determination. The government interventions interfere directly with the
business leader’s realm of self-determination. This particularly applies to hard reg-
ulations with convincing threats of punishments of non-compliance. In that case,
business leaders have no discretion regarding how they respond to this pressure,
and this will reduce their enjoyment from engaging in environmental actions.
As the second reason for impacting intrinsic motivation, government regula-
tion may affect the salience of moral preferences by framing effects. In particular,
the regulation may frame choice behaviour of business leaders in terms of the self-
interest of avoiding government intervention rather than the responsibility for the
common good of protecting a public good. Ostman (1998) suggests that external
control of common pool resources increases an orientation on self-interest, as
it shifts responsibility to the regulatory agency and thereby absolves individuals
from other-regarding moral obligations. However, the framing argument can also
explain crowding in (meaning that regulations enforce motivations), as govern-
ment regulation may provide certain cues for appropriate moral behaviour and
trigger moral engagement (Bowles and Polania-Reyes, 2012). Governments are
156 Institutional Drivers of CSR

in fact important institutional players with the ability to influence social norms,
values, and societal expectations on appropriate corporate behaviour (Weaver
et al., 1999). Government regulations may thus signal to the business leader that
moral values are at stake in EP, thereby enhancing his or her intrinsic motivation.
A third channel through which government regulation crowds out intrinsic
motivation is that it conveys information about the motives of the regulator (Sli-
wka, 2007). The implicit bad news of regulations is that they signal distrust in
the business leader’s motivation and willingness to protect the public good of the
environment. Moreover, these regulations convey the desire of the regulator to
control the behaviour of the company. This makes the business leader feel that
his or her competence and involvement are neither recognized nor appreciated
by the regulator, which leads the business leader to reduce intrinsic motivation.2
The conclusion is that impairing self-determination and signalling lack of trust
and respect provide reasons for government regulations to crowd out the intrinsic
motivation of business leaders of SMEs to improve EP. Only the framing argu-
ments are ambiguous.
Government regulations may not only harm intrinsic motivation but also
crowd out extrinsic motivation. The market failures that cause environmen-
tal degradation provide companies with market opportunities to realize strate-
gic benefits (Dean and McMullen, 2007). For example, companies that address
environmental degradation may improve their reputation and their profitability
(Surroca et al., 2010). Regulatory policies addressing negative externalities of
environmental degradation reduce these pay-offs (Hunt and Fund, 2016). By
forcing all companies to improve their EP by meeting common standards that
apply to all, government regulations reduce the opportunities of companies to
distinguish themselves from other companies.
Based on these considerations, we formulate the following hypotheses:

Hypothesis 15.3 Government regulation crowds out the intrinsic motivation of a busi-
ness leader towards improving EP of the SME.
Hypothesis 15.4 Government regulation crowds out the extrinsic motivation of a busi-
ness leader towards improving EP of the SME.

Conceptual Framework
We complement hypotheses 15.1–15.4 by two other relationships of the direct
effects of voluntary initiatives by individual companies and government regula-
tion on EP (A and B in Figure 15.1), assuming that both channels are likely to
improve a firm’s EP.
Figure 15.1 shows that our analysis extends the literature on motivation
crowding effects in environmental economics by separating out the effects of
government regulation on intrinsic and extrinsic motivations. In this way, we
 Government, Intrinsic Motivation, and CSR 157

FIGURE 15.1 Conceptual framework

disentangle the regulatory impact on EP caused by indirect effects due to crowd-

ing effects on intrinsic and extrinsic motivation from the direct effects of govern-
ment regulation on EP.

15.3 Methodology
We measured motivation by eliciting the reason for the company’s engagement
in CSR using the following survey question: ‘How important are the follow-
ing motives for your enterprise to engage in CSR?’ The intrinsic motivation of
the business leader was measured by the response to two statements reflecting
on this survey question. The first statement inquired into the extent to which
personal satisfaction is a motive to engage in environmental responsibility. The
second statement measured the extent to which the company engages in CSR
because the company feels responsible for the environment and society. Extrinsic
motivation was measured by the responses to three statements on financial and
reputational benefits of EP. The responses to all statements were measured by a
seven-point Likert scale.
In order to measure legal enforcement of EP, and voluntary initiatives by the
enterprise itself, we asked respondents to indicate which cause contributed most
to reductions in the company’s energy consumption, waste disposal and water
consumption during the period 2007–2010. Two dummies for each of the causes
measure the two alternative options. For example, for legal enforcement the
dummy equals 1 if the respondent agreed that EP was improved mainly because
of legal requirements. A substantial share of business leaders did not select either
of these options and, instead, selected the option ‘non-applicable.’ Since the ques-
tion inquired into the causes of the reduction in energy consumption, waste
disposal and water consumption, the most likely reason for selecting the option
‘non-applicable’ is that the company did not reduce energy consumption, waste
disposal and/or water consumption during the period 2007–2010.
We measured EP by the use of two procedural measures: setting targets to
improve environmental outcomes and reporting the realization of these tar-
gets (see Chapters 2, 7, and 8). Environmental performance is measured on a
three-point scale: no use of targets and reporting (0), use of targets or reporting
(0.5), and use of targets and reporting (1). The advantage of simple, specific and
158 Institutional Drivers of CSR

concise questions on the use of procedural measures to measure EP is that they

diminish social desirability bias (Podsakoff et al., 2003). Also Wakabayashi and
Arimura (2016) employed these self-reported data to measure EP. As reported
in Table 15.1, only 10–13% of the companies responded that they adopt these
procedural measures. These low scores indicate that the responses to these survey
questions are not biased by social desirability bias and thus provide reasonable
reliable indicators.
In order to research the validity of the constructs of government regulation,
voluntary own initiatives, intrinsic motivation, extrinsic motivation and EP, we
performed Principal Component Analysis (with Oblimin rotation). Table 15.1
reports the results. The Cronbach’s alphas indicate the internal consistency of
six factors. We tested the reliability of the factors further by confirmatory factor
analysis using structural equation modelling. The global fit indices (CFA = 0.939;
TLI = 0.923; SRMR = 0.025) indicate a good model fit. The construct reli-
ability and convergent validity (measured by the average variance extracted) for
all factors satisfied the accepted thresholds of 0.70 and 0.50, respectively. The
predicted factor values identified by the measurement model are standardized to
zero mean and unit standard deviation. We included these factors in our regres-
sion analysis.
A possible complication for our empirical research is that companies with
strongly motivated business leaders are more likely to go beyond external require-
ments and thus are less likely to report that government regulations were the most
important cause for improved EP during the period 2007–2010. In order to test
for reverse causality, we employed the share of women managers as instrumental
variable for intrinsic motivation. According to the gender socialization theory,
women demonstrate more concern for others, are more emphatic, and show
more altruistic attitudes (Williams and Polman, 2015). Hence, we expect a posi-
tive influence of the share of women managers on intrinsic motivation. Multiple
regression analysis (controlling for all other control variables) indeed showed a
significantly positive effect (t-value = 4.93). For extrinsic motivation, we adopt
as an instrument the intensity of monitoring of the company’s social and EP by
NGOs and media; in a transparent environment, EP yields more strategic mar-
ket value (Campbell, 2007). Multiple regression analysis showed a significantly
positive effect (t-value = 12.79). When using IV analysis, we found that nei-
ther intrinsic nor extrinsic motivation reversely affect the government regulation
(p-values vary from 0.299 to 0.827). Hence, motivation does not reversely impact
government regulation.

15.4 Results
In the regression analysis, we employed the conditional mixed process estimator
in order to control for correlation between the residuals for intrinsic and extrinsic
motivation, voluntary initiatives and EP. We distinguished two samples. In the
 Government, Intrinsic Motivation, and CSR 159

TABLE 15.1 Factor analysis of survey itemsa

Variables Mean SD Factor loadings

Gov. Vol. Intrinsic Extrinsic Env.

regulation initiative motivation motivation Perf.

Lower energy consumption

due to (108):
- legal requirements 0.07 0.25 0.91
- own voluntary initiatives 0.50 0.50 0.88
Lower waste due to (111):
- legal requirements 0.08 0.26 0.89
- own voluntary initiatives 0.40 0.49 0.85
Lower water consumption
due to (110):
- legal requirements 0.06 0.24 0.93
- own voluntary initiatives 0.45 0.50 0.90
We engage in CSR
because:
- my enterprise feels 5.28 1.47 0.88
responsible for the
planet and the society
(25)
- it creates personal 5.15 1.41 0.89
satisfaction for the people
in my enterprise (26)
- it serves long-term 3.72 1.89 0.76
financial interests of
shareholders and/or
owner (20)
- it limits reputational risks 4.50 1.63 0.75
(24)
- large customers ask for 3.77 1.89 0.73
it (27)
Environmental
performance:
- energy consumption (96) 0.11 0.23 0.87
- waste disposal (98) 0.13 0.24 0.86
- water consumption (97) 0.10 0.21 0.86
Eigenvalue 2.56 3.53 1.75 1.00 1.08
Cronbach’s alpha 0.89 0.85 0.70 0.62 0.87
Construct reliability 0.94 0.91 0.83 0.79 0.90
Average variance extracted 0.83 0.77 0.72 0.56 0.75
a The numbers in brackets refer to the numbers of the survey questions reported in Appendix 1.
Extraction Method: Principal Component Analysis; Rotation Method: Oblimin with Kaiser
Normalization.
160 Institutional Drivers of CSR

first sample, the reference option to which we compare government regulation

are those companies for which business leaders had selected ‘voluntary own ini-
tiatives’ in the survey question as the main cause of environmental improvements
by the company. In this sample, companies for which the business leader had
selected ‘not applicable’ for this survey question are not included. In the second
sample, we employed companies for which the business leader had selected ‘not
applicable’ as reference option for government regulation. In this sample, compa-
nies for which the business leader had selected ‘voluntary initiatives’ are excluded.
Correlation analysis showed that intrinsic and extrinsic motivation of business
leaders who had selected ‘not applicable’ is significantly lower than for business
leaders who had selected ‘voluntary own initiatives’. Accordingly, crowding-out
effects from government regulation are less likely. Hungerman (2009) showed
that crowding-out effects are stronger if intrinsic motivation is high. Indeed, only
if companies are intrinsically motivated to start with, can government regulation
crowd out intrinsic motivation. For the other equations for voluntary initiatives
and EP, we used a sample consisting of all respondents. In these equations, com-
panies whose business leader had selected the ‘non-applicable’ option are the
reference category.
The estimation results in column (1) of Table 15.2 support Hypotheses 15.1
and 15.2 that intrinsic and extrinsic motivations stimulate voluntary initiatives
to enhance EP. Columns (2a) and (3a) report the estimation results explaining

TABLE 15.2 Estimation resultsa

1 2ab 2bc 3ab 3bc 4

Vol. Intrinsic motivation Extrinsic motivation Env.

initiatives performance

Gov. regulation −0.28*** −0.05** −0.15*** 0.07** 0.10***

Voluntary 0.43***
initiatives
Intrinsic 0.75***
motivation
Extrinsic 0.41**
motivation
R2 0.07 0.12 0.11 0.10 0.09 0.13
N 2,373 1,648 1,046 1,648 1,046 2,373
a * p < 0.05; ** p < 0.01; *** p < 0.001. Controlled for company size, time horizon, skill level, age
structure, organizational culture, region, industry, position in the chain, and intensity of competition.
b Reference: companies that filled in ‘voluntary initiatives’ in the survey question on the main cause
of the improvement in EP
c Reference: companies that filled in ‘non-applicable’ in the survey question on the main cause of
the improvement of EP
 Government, Intrinsic Motivation, and CSR 161

motivations for the first sample in which companies that selected ‘voluntary own
initiatives’ are the reference option. The results show that government regulation
crowds out intrinsic and extrinsic motivation of business leaders. These results
support hypotheses 15.3 and 15.4. Columns (2b) and (3b) report the estima-
tion results explaining motivations for the second sample in which companies
for which business leaders had selected ‘non applicable’ are the reference option.
Once again the results indicate crowding out of intrinsic motivation by govern-
ment regulation, but the magnitude of the crowding effect appears to be much
smaller. For extrinsic motivation, the crowding-out effects turn into crowding-in
effects.
Column (4) shows that government regulation and voluntary initiatives sig-
nificantly enhance EP. Voluntary initiatives are substantially more effective in
stimulating EP than government regulation is.
Table 15.3 reports the indirect and total effects of government regulation on
EP. The first column of Table 15.3 shows the (positive) direct effects of govern-
ment regulation on EP from column (4) of Table 15.2. The second column
reports the indirect effects of government regulation on EP through crowding
effects on intrinsic and extrinsic motivations. The total effects are equal to the
sum of the direct and the indirect effects of government regulation. For the first
sample, Table 15.3 shows that the negative indirect effect of government regula-
tion through crowding out intrinsic and extrinsic motivations offsets the direct
positive effect of government regulation. Bowles (2016) calls this ‘strong crowd-
ing out’. These empirical results confirm the crowding-out mechanism: govern-
ment regulation significantly harms intrinsic and extrinsic motivations of business
leaders, thereby reducing voluntary initiatives of SMEs to protect the environ-
ment. Crowding-out effects are almost absent in the second sample. Accordingly,
the total effect of government regulation is substantially positive. This implies that
only if intrinsic motivation is already low to begin with, does government regula-
tion contribute to EP of SMEs.

TABLE 15.3 Direct, indirect, and total effects of regulation on environmental performancea

Direct effect Indirect effect Total effect

Through Through Total

intrinsic extrinsic
motivation motivation
Reference: voluntary initiatives
0.10*** −0.09*** −0.03** –0.12*** −0.02
Reference: no voluntary initiatives
0.10*** −0.01** 0.01** −0.01 0.09***
a * p < 0.05; ** p < 0.01; *** p < 0.001.
162 Institutional Drivers of CSR

15.5 Conclusion
This chapter sets out to research to what extent government regulation crowds
out intrinsic motivation towards EP in SMEs and how the indirect effects caused
by crowding out of intrinsic motivation compare with the direct effects of gov-
ernment regulation on EP.
Over the last quarter century, much research has been performed on motives
of CSR, distinguishing between extrinsic and intrinsic motives (Muller and Kolk,
2010). Previous research did not, however, consider that intrinsic motives can
depend on external pressures that drive extrinsic motivations. This study develops
a more nuanced understanding of how external pressures and intrinsic motives
relate by advancing the hypothesis that government regulation impacts intrinsic
motivation. Insight into motivation crowding effects is important, because disre-
garding motivation crowding out leads to overestimation of the influence of gov-
ernment regulations on EP. This study therefore adds to the literature that studied
the effects of government regulation on environmental innovation of compa-
nies (Hunt and Fund, 2016) but did not explore the impact of public policy
on intrinsic and extrinsic motivations. Our study shows that the effectiveness of
government regulation in stimulating EP of SMEs is contingent on the intrinsic
motivation of its business leaders.
Our results are in line with previous research concluding that government
regulation generates motivation crowding effects on environmental behaviour of
rural households (Cardenas et al., 2000; Choi, 2015; Han et al., 2018) and farm-
ers (Vollan, 2008), but diverge from the results of Abatayo and Lynham (2016).
They found that government regulation improves EP and interpreted this finding
as evidence that crowding out of intrinsic motivation does not occur, although
they did not test this explicitly. Our results show that a positive relationship
between government regulation and EP actually can go together with crowd-
ing out of intrinsic motivation. These findings suggest that Abatayo and Lynham
(2016) may have misinterpreted their results as evidence against crowding out of
intrinsic motivation.
An unexpected outcome of our research is that for companies in the second
sample, government regulation increases rather than decreases extrinsic motiva-
tion, which is opposite to Hypothesis 15.4. The reason may be that government
regulations teach business leaders of companies with low EP that improvements
required by government regulations yield financial and other benefits, thereby
boosting extrinsic motivation to enhance EP. Another explanation is that envi-
ronmental improvements mandated by government regulations are relatively
costly and that the regulations make business leaders realize that voluntary proac-
tive measures might be more cost-efficient.
An important implication of our research is that motivation crowding out may
occur, even if government regulation improves EP. Previous studies’ assumption
that a positive correlation between government regulation and EP indicates no
 Government, Intrinsic Motivation, and CSR 163

crowding out of intrinsic motivation is unwarranted. Our study provides a more

refined analysis of the crowding mechanism by separating it from the direct effects
of government regulation on EP. It provides empirical evidence that a positive
relationship between government regulation and EP does not exclude crowding
out of intrinsic motivation. The reason is that the negative effects of motivation
crowding out on EP can be offset by the positive direct effects of government
regulation on environmental quality.

Notes
* An extended text of this chapter has been published by Informa UK Limited, trad-
ing as Taylor & Francis Group on behalf of University of Newcastle upon Tyne, as
an open access article under the terms of the Creative Commons AttributionNon
Commercial-NoDerivatives License (http://creativecommons.org/licenses/by-nc-
nd/4.0/) in: Graafland, J., and Bovenberg, L. (2020). Government regulation, business
leaders’ motivations and environmental performance of SMEs. Journal of Environmental
Planning and Management, 63(8): 1335–1355. Lans Bovenberg is affiliated to the depart-
ment of Economics of Tilburg University in The Netherlands.
1 Demirel et al. (2018) found that effective environmental protection entails collabora-
tion between government regulation and voluntary environmental measures. Coercive
legislation does not leave much room for flexibility and voluntary choices by managers
and frequently pushes the manager to adopt environmental measures without consider-
ing effectiveness (Daddi et al., 2016). Both Daddi et al. (2016) and Demirel et al. (2018)
did, however, not analyze effects of government regulation on intrinsic motivations.
2 However, Rode et al. (2015) provide several arguments that government regulation can
also crowd-in intrinsic motivation. One of the arguments is that it is easier for intrinsi-
cally motivated companies to act upon their motivation if the government regulation
creates a level playing field by compelling companies that are not intrinsically motivated
to invest in environmental improvements.
16
ECONOMIC FREEDOM AND CSR
Moderation by Intrinsic Motivations*

16.1 Introduction
CSR is conditioned on the role and responsibilities of business in society with
regard to social and environmental issues. Whether free market capitalism is com-
patible with or harmful to CSR is strongly debated. Various authors argue that
capitalism may inhibit CSR, because private industry will invest in the most
profitable technologies, which leads to a focus on the cheapest rather than socially
responsible processes (Williamson et al., 2006; Bell, 2015). Other authors argue
that economic freedom in markets and competition stimulate CSR (Baughn
et al., 2007; Jackson and Apostolakou, 2010; Kinderman, 2012; Hartmann and
Uhlenbruck, 2015), and that businesses has expressed its interest in adopting a
more extensive CSR approach conditional upon receiving greater freedom from
the state (Kinderman, 2008). In an extensive welfare state, this role has been tra-
ditionally marginal in relation to the democratic political decision-making pro-
cess regarding social issues. Social policies were the domains of the public sector,
whereas issues directly related to conditions of work should be negotiated with
unions, often backed by a legal rule that extended the outcome of these negotia-
tions to other employees. Issues like unemployment insurance and health care
are therefore not the result of voluntary initiatives of companies, but are either
determined at the political level by the state or by negotiations with unions. Simi-
larly, intensive government regulation of environmental aspects of business opera-
tions leaves little room for CSR. Assuming diminishing returns from CSR, the
more intensive and elaborate government regulation, the less profitable any addi-
tional voluntary CSR policy will be. The main task left for companies is to run
their corporations in a rational and efficient way, while respecting both the out-
comes of the negotiations with trade unions as well as the extensive government
DOI: 10.4324/9781003216483-20
This chapter has been made available under a CC-BY-NC 4.0 license.
 Econ. Freedom, Intrinsic Motive, and CSR 165

regulation with regard to safety and health standards, equal opportunities, waste
disposal, pollution and all other social and environmental issues regulated by law
(De Geer et al., 2010). This is particular relevant for SMEs in relation to environ-
mental issues, because they base their environmental practices almost exclusively
on achieving compliance with regulations.
While others have considered the benefits and costs of regulation (cf. Bram-
mer, Hoejmose, and Marchant, 2012; Agan et al., 2013), in this chapter we
look at the broad measure of economic freedom. Economic freedom means that
property rights are secure and that individuals are free to use, exchange, or give
their property to another as long as their actions do not violate the identical
rights of others (Gwartney and Lawson, 2003). Economic freedom declines if
the government intervenes through taxation, trade tariffs or other trade barri-
ers, or regulations of credit, output and labour markets. A stronger protection of
property rights has been found to lead to CSR improvements (Ioannou and Sera-
feim, 2012). Free trade, another exponent of economic freedom, has however,
ambiguous effects. Whereas the so-called gains-from-trade hypothesis presumes
that trade has a positive effect on the environment, the so-called race-to-the-
bottom hypothesis states that open countries adopt lax environmental standards
and become pollution havens in order to attract multinational corporations or
export pollution-intensive goods (Frankel and Rose, 2005). A literature study of
Carson (2010) shows that the supporting empirical evidence of either hypothesis
remains scant and fragile. Also for state regulation, evidence is mixed. Camisón
(2010) found that the effectiveness of coercive regulation in promoting environ-
mental innovation is lower than voluntary policies. Demirel et al. (2018) found
that effective environmental protection entails collaboration between government
regulation and voluntary environmental measures. Coercive legislation does not
leave much room for flexibility and voluntary choices by managers and frequently
pushes the manager to adopt environmental measures without considering effec-
tiveness (Daddi et al., 2016). For economic freedom more generally, Jackson and
Apostolakou (2010) argued and found that firms in liberal market economies
outstrip firms in coordinated market economies, because their voluntary CSR
initiatives substitute for the lack of government interventions. Kinderman (2012)
stated that during the period of rapid deregulation and liberalization in the UK (a
typical liberal market economy) CSR not only developed and thrived, but even
managed to outperform the previous economic model in terms of corporate
accountability and corporate standards.
We contribute to this literature, presenting evidence for an important modi-
fication of the argument of Jackson and Apostolakou (2010) and Kinderman
(2012) that companies voluntarily adopt a more extensive CSR approach if the
state reduces its interventions: the positive effect of economic freedom on CSR is
conditional on internal motivations to CSR. The literature on motives for CSR
distinguishes between extrinsic and intrinsic motives (Muller and Kolk, 2010).
An extrinsic motive encourages CSR if it is instrumental for other goals, such
166 Institutional Drivers of CSR

as financial performance or the company’s reputation. Intrinsic motives perceive

CSR as an end in itself, independent from other benefits. Intrinsic (environmen-
tal) motivation may stem from personal satisfaction of engaging in CSR when
executives enjoy helping others or from a sense of responsibility to contribute to
society and the welfare of future generations (Lindenberg, 2001). Previous stud-
ies have focused on drivers external and internal to the firm (Weaver et al., 1999;
Aguilera et al., 2007; Bracke et al., 2008; Haller and Murphy, 2012), but did not
consider that the influence of internal drivers interact with the external drivers.
We fill a gap in this literature studying this interaction, exploiting the variation
between companies in their environmental motivation and between countries in
their level of economic freedom. We hypothesize and test that economic free-
dom increases CSR for firms with internally motivated managers, for example
through voluntary actions (Alberini and Segerson, 2002), while absence of eco-
nomic freedom increases CSR for firms without. This chapter thereby fits in a
growing literature that considers more ‘behavioural’ drivers for environmental
impacts (Croson and Treich, 2014).
This chapter thus makes two major contributions to existing literature. First,
we extend and deepen existing literature on institutional drivers of CSR by argu-
ing that the impacts of market institutions on CSR depend on their virtuous
interaction with internal motivations towards CSR. Second, we test empirically if
and what kind of motivation interacts with economic freedom in their influences
on CSR. In our empirical research, we focus on SMEs.

16.2 Conceptual Framework
Following other studies (Weaver et al., 1999; Aguilera et al., 2007), we assume
that CSR depends on a combination of external pressures (economic freedom
in our context) and factors internal to the company. We extend previous studies
as we postulate that the CSR is influenced by the interaction between inter-
nal motivations and economic freedom. More specifically, we assume that the
interaction between economic freedom and internal motivations stimulates the
participation in environmental networks that improves environmental impacts
at company level (see Figure 16.1). Here, we will first discuss Hypothesis 16.1.
Next, we elaborate on Hypothesis 16.2, which concerns the main contribution
of this chapter.

FIGURE 16.1 Conceptual framework

 Econ. Freedom, Intrinsic Motive, and CSR 167

Participation in Environmental Networks

and Environmental Impacts
In the small business context, a growing literature and awareness has emerged
on the effectiveness of implicit and embedded approaches to environmental
responsibility (Wickert et al., 2016). Effective implementation for SMEs requires
cooperation, in which firms draw on their social capital and connections to stake-
holders with high proximity. External knowledge compensates the constrained
in-house expertise and provides appropriate solutions to ecological challenges
(Bos-Brouwers, 2010). Participation in external networks to share best practices
is particularly appropriate for this purpose (Valentine, 2016). Indeed, small busi-
nesses that invest in tools and solutions with significant pro-environmental impact
identify these solutions through other participants in their networks (Wohlfarth
et al., 2017).
Based on this argument, we expect that participation in external environmen-
tal networks helps SMEs improving their environmental impacts:

Hypothesis 16.1 Participation in environmental networks improves environmental impacts.

Economic Freedom, Internal Motivations, and Participation

in Environmental Networks
Institutional theory describes how corporations’ decisions depend on the institu-
tional context (North, 1990), and this framework is central to most studies con-
sidering differences in firms’ social and environmental impacts across countries
(Matten and Moon, 2008; Ioannou and Serafeim, 2012). But how the free market
system affects the CSR of companies is still an underdeveloped research theme.
The degree of freedom of a market system can be measured by the economic
freedom of a country, which refers to the personal liberty to voluntary exchange
and compete in the market while enjoying security and property protection
(Gwartney and Lawson, 2003). Economic freedom comprises several dimensions
such as low share of government in GDP and low tax rates, protection of property
rights, freedom to exchange goods and services internationally, and no regula-
tory restraints that limit the freedom of exchange in credit, labour, and product
markets. Earlier studies by Baughn et al. (2007) and Hartmann and Uhlenbruck
(2015) found that economic freedom stimulates CSR.
However, when researchers only focus on institutional factors, there is insuf-
ficient consideration for differences in CSR at the individual company level.
Although some companies have incorporated CSR in their business model, it is
not standard business practice. There is a flavour of social desirability in the belief
that alleviating regulatory constrains from firms increases their contribution to
society and the environment in terms of resources and efforts. But corporations
have more options. Various authors argued that capitalism may inhibit rather than
168 Institutional Drivers of CSR

encourage improving environmental impacts, since private industry will mostly

invest in technologies that it expects to be profitable (Bell, 2015).
In this chapter, we postulate that internal motivations of managers are funda-
mental for the company’s engagement in CSR in a free market system. The lit-
erature on motives for CSR distinguishes between extrinsic and intrinsic motives
(Muller and Kolk, 2010; Rode et al., 2015; Abatayo and Lynham, 2016). An
extrinsic motive encourages CSR because of its instrumental value for other
goals, such as financial performance or the company’s reputation. Intrinsically
motivated CSR requires no separate reward but the behaviour itself (Vollan,
2008). Intrinsic motivation may stem from personal satisfaction of engaging in
CSR when executives enjoy helping others (Rabin, 1998) or enjoy a ‘warm glow’
from contributing to a public good. But intrinsic motivation may also stem from
a genuine concern for the environment and a sense of obligation to contribute
to society and the welfare of future generations (Lindenberg, 2001; Bansal and
Roth, 2000).
We expect that economic freedom will hardly encourage companies to
increase their engagement in CSR if they are not intrinsically motivated to take
responsibility for the environment. That is, we expect that the positive relation-
ship between economic freedom and CSR is conditional on intrinsic motivation.
Since environmental policies may require costly investments, companies will be
less motivated by the extrinsic profit motive to make investments in CSR. This
particularly holds for SMEs. The level playing field on which most SMEs operate
means that they face severe competition and this puts profitability under pressure.
Low profitability induces low cost strategies and reduces a long-term orientation
so that long-term strategic benefits from CSR in terms of improved reputation,
cost reduction, increased consumer demand and reduction in risks often remain
beyond the strategic horizon. Moreover, because of their smaller size, Bram-
mer, Hoejmose, and Marchant (2012) argued that SMEs are less visible to NGOs
and media, compared to large companies, and cannot take advantage of CSR as
instrumental for extrinsic profit motives. This implies that, as Lynch-Wood and
Williamson (2007) argue, the profit motive is potentially weak to induce SMEs
to go beyond compliance to the law, though we do not want to fully exclude
reputational effects, for example if their CSR is monitored by local NGOs or
local media. If a local NGO or newspaper spreads negative news about a small
company, it might directly harm its reputation at its location (    Jamali and Mirshak,
2007) and the company would run the risk of economic loss (Russo and Tencati,
2009). Because of their intimate relationship with the community in which they
operate, SMEs also need to pursue a community-friendly policy (    Jenkins, 2009).
Hence, also some SMEs will realize that low CSR may have serious consequences
for the enterprise’s reputation and economic performance and be extrinsically
motivated to implement environmental policies in order to improve their envi-
ronmental impacts. However, if companies are motivated by the business case, they
will adopt CSR only insofar it can be aligned to narrow strategic interests (Marens,
 Econ. Freedom, Intrinsic Motive, and CSR 169

2008). These companies will be tempted to use ceremonial instead of substantive

CSR policies in order to gain social legitimacy without incurring the costs of
substantive CSR policies. CSR is ceremonial if companies decouple policies from
implementation and/or impacts (    Jamali, 2010; Okhmatovskiy and David, 2012).
But if the management of a company is intrinsically motivated to improve
CSR performance, economic freedom enables the managers to implement envi-
ronmental policies that improve environmental impacts, such as participation in
environmental networks, even if these are costly and not profitable. Indeed, firms
whose managers are highly intrinsically motivated to CSR are likely to apply
broad and effective programmes if external conditions allow them to (Muller and
Kolk, 2010). If companies have little freedom to determine their own policies,
internal motivations will have a lesser effect on environmental impacts. Under
these conditions internally motivated companies would perhaps have a stronger
inclination to do so, but in practice focus on complying with the interventions
and standards prescribed by the government (    Jackson and Apostolakou, 2010).
The discussion here illustrates that in free market economies companies with-
out intrinsic motivation are unlikely to participate in environmental networks
that improve environmental impacts, whereas intrinsic motivation is unlikely to
stimulate participation in environmental networks if the economic freedom to
undertake private initiatives is limited. In this interactive view, there must be a ‘fit’
between the institutional environment and firm-internal characteristics, includ-
ing managers’ intentions. Based on these arguments, we propose the following
hypothesis.

Hypothesis 16.2 The participation in environmental networks is positively related to

the interaction between the intrinsic motivation and economic freedom.

16.3 Methodology
The data are taken from the survey in 2011. Following literature (Treviño et al.,
2006; Lindenberg, 2001; Muller and Kolk, 2010) motivation is defined as the
reason upon which one acts. One way to empirically measure motives is by ask-
ing people for the reason for a certain action (Elster, 2007). The principle of nemo
gratis mendax (no one lies freely) suggests that expressions of motive should not
be doubted per se, but only if there is reason because of particular circumstances
(O’Mahoney, 2012). We measure intrinsic motivation by two survey questions.
The first question measures moral motivation by asking the respondent to state
his or her view on the extent to which the company’s engagement in CSR
is motivated by the company’s responsibility for the environment and society.
The second survey question measures personal satisfaction by inquiring to what
extent personal satisfaction of the people in the enterprise is a motive to engage
in environmental responsibility. Extrinsic motivation was measured by three sur-
vey questions on long-term financial benefits, reduction in reputational risks and
170 Institutional Drivers of CSR

customer demand as motives for engaging in CSR. All survey questions are meas-
ured by a seven-point Likert scale.
The questions for participation in environmental networks were based on lit-
erature and in collaboration with the SME consultant. In response to the question
‘Which measures are realized in your enterprise?’, several measures were given,
including participation in CSR networks in the supply chain (Pirsch et al., 2006;
Bos-Brouwers, 2010), partnerships with professional training institutes in order
to anticipate the technological evolution of products or services (Bos-Brouwers,
2010), participation in local CSR initiatives of governments or social organiza-
tions (Barth and Wolff, 2009), and dialogue with societal organizations and local
communities (Hall et al., 2015). For each measure, the respondent could choose
between three options: ‘no’ (0), ‘yes’ (1) and ‘unfamiliar with this measure.’ The
third option is recoded as ‘no’.
Environmental impacts were measured by the decrease in energy use, water
use, and waste disposal (see Chapters 2, 3, and 10). We used both explorative and
confirmatory factor analysis to test the clustering of the survey variables in the
four factors identified by our labels ‘Intrinsic motivation’, ‘Extrinsic motivation’,
‘Environmental networks’, and ‘Environmental impacts’ (see Table 16.1).
We use the average score of the ‘Economic Freedom of the World’ index
of Fraser Institute during 2008–2010, downloaded from the websites of Fraser
Institute. Most statistical and other information underlying this index are received
from government sources and are verified with independent, credible third-party
sources.

16.4 Results
We used structural equation modelling with maximum likelihood estimation
as estimation method. The structural paths and the confirmatory factor analysis
are simultaneously estimated. As the economic freedom variables are country-
level variables and CSR variables are firm-level variables, we cluster errors over
countries to account for the unobservable factors that are correlated with firm’s
motivation and performance within each country and are not correlated with
those from other countries (Peterson et al., 2012). Table 16.2 reports the estima-
tion results for the structural paths and measurement model (confirmatory factor
analysis).
The estimation results in columns 1 and 2 show that the interaction term of
economic freedom (EF) and intrinsic motivation increases participation in envi-
ronmental networks, in support of Hypothesis 16.2. The results in Columns 3
and 4 show no significant positive effect of the interaction term of economic
freedom and extrinsic motivation. The last two columns show the effects to be
robust, despite the correlation between the two internal motivation variables.
The importance of intrinsic motivation vis-à-vis extrinsic motivation is further
stressed by comparing the direct effects of intrinsic and extrinsic motivation on
 Econ. Freedom, Intrinsic Motive, and CSR 171

TABLE 16.1 Descriptives and factor analysisa

Variables Mean SD Factor loadings

Intrinsic Extrinsic Env. Env.

motivation motivation networks impacts

Your enterprise feels responsible 5.21 1.48 0.88

for the planet and society (25)
It creates personal satisfaction 5.09 1.42 0.87
for the people in your
enterprise (26)
It serves long-term financial 3.78 1.85 0.73
interests of shareholders/
director owner (20)
It limits reputational risks (24) 4.56 1.58 0.74
Large customers ask for it (27) 3.97 1.88 0.75
CSR cooperation supply chain 0.37 0.48 0.66
(46)
Partnerships with training 0.36 0.48 0.65
institutes (47)
Participation in local initiatives 0.42 0.49 0.73
(48)
Active dialogue with NGOs 0.17 0.38 0.66
(45)
Decrease in energy 0.46 1.38 0.86
consumption (102)
Decrease in water consumption 0.34 1.09 0.88
(104)
Decrease in waste (105) 0.38 1.21 0.86
Eigenvalue 1.05 2.74 1.41 2.17
Cronbach 0.73 0.62 0.62 0.83
alpha
a The numbers in brackets refer to the numbers of the survey questions reported in Appendix 1.
Extraction Method: Principal Component Analysis; Rotation Method: Oblimin with Kaiser Nor-
malization. Kaiser–Meyer–Olkin (KMO) = 0.735; p-value of Bartlett’s Test of Sphericity = 0.000.

environmental networks. These seem highly significant when considered in iso-

lation (columns 1–4), but the coefficient for extrinsic motivation suffers from
omitted variable bias, shown in the last two columns. The joint model shows
significant direct effects for intrinsic motivation and insignificant for extrinsic
motivation. The last row shows that firms’ participation in environmental net-
works have a significant positive effect on environmental outcomes, supporting
Hypothesis 16.1. From these estimation results we conclude that only the interac-
tion between intrinsic motivation and economic freedom influences CSR.
Another noteworthy aspect is that the interaction term between economic
freedom and intrinsic motivation is also seen to have a direct, significant effect
172 Institutional Drivers of CSR

TABLE 16.2 Estimation resultsa

Dependent variable 1 2 3 4 5 6

Env. Env. Env. Env. Env. Env.

networks outcomes networks Outcomes networks outcomes

Structural paths interaction terms

EF × Intrinsic 0.036* 0.028* 0.037* 0.018
motivation
(0.016) (0.011) (0.016) (0.016)
EF × Extrinsic 0.012 0.021 0.013 0.015
motivation
(0.028) (0.011) (0.029) (0.014)
Structural paths direct linear terms
Intrinsic motivation 0.379*** 0.023 0.333*** 0.039
(0.016) (0.019) (0.028) (0.022)
Extrinsic 0.280*** −0.007 0.076 −0.021
motivation
(0.040) (0.022) (0.048) (0.024)
Economic freedom −0.022 0.075*** −0.067 0.068** −0.031 0.073**
(EF)
(0.027) (0.024) (0.040) (0.024) (0.028) (0.024)
Environmental 0.152*** 0.168*** 0.151***
networks
(0.036) (0.035) (0.034)
Global fit indices (for 1 and 2, 3 and 4, 5 and 6)
RMSEA 0.02 0.03 0.03
CFI 0.95 0.91 0.91
TLI 0.93 0.88 0.88
SMRM 0.02 0.02 0.02
Measurement model (confirmatory factor analysis)
Intrinsic motivation
- responsibility 0.79*** 0.79***
- personal 0.73*** 0.73***
satisfaction
Extrinsic
motivation
- financial benefits 0.52*** 0.49***
- reputational risks 0.71*** 0.76***
- customer demand 0.54*** 0.51***
Environmental
networks
- cooperation 0.47*** 0.49*** 0.48***
supply chain
- partnerships 0.47*** 0.48*** 0.47***
- local initiatives 0.60*** 0.58*** 0.59***
- dialogue 0.47*** 0.47*** 0.47***
 Econ. Freedom, Intrinsic Motive, and CSR 173

Dependent variable 1 2 3 4 5 6

Env. Env. Env. Env. Env. Env.

networks outcomes networks Outcomes networks outcomes
Environmental
outcomes
- energy 0.76*** 0.77*** 0.77***
- waste 0.77*** 0.77*** 0.77***
- water 0.82*** 0.82*** 0.82***
a Standardized coefficients. * p < 0.05; ** p < 0.01; *** p < 0.001. Controlled for GDP per capita
(PPP, constant international USD in 2011), power distance, individualism, sector, the company’s
position in the chain, intensity of price competition, the size and growth of the company (measured
by the logarithm of the number of FTEs), the skill and the age structure of the company, func-
tion and the age of the respondent. N = 4,338. Global fit indices: RMSEA = 0.03; CFI = 0.91;
TLI = 0.88; SRMR = 0.02.

TABLE 16.3 Direct, indirect, and total effects on environmental impactsa

Direct effect Indirect effect Total effect

Economic freedom (EF) 0.082 (0.000) 0.004 (0.488) 0.079 (0.000)

Intrinsic motivation 0.022 (0.226) 0.054 (0.000) 0.075 (0.000)
EF x Intrinsic motivation 0.030 (0.012) 0.006 (0.002) 0.036 (0.005)
a Unstandardized coefficients; p-values in brackets.

on environmental outcomes in column 2. This finding indicates that the interact-

ing influence of intrinsic motivation and economic freedom on economic out-
comes is not only mediated by cooperation in the supply chain, partnerships with
training institutes, participation in local initiatives and dialogue with NGOs, but
also by other measures that improve environmental impacts, that are not included
in our measurement of environmental networks.
Based on the estimation results in column 1 and 2 of Table 16.2, we calcu-
lated the total effects of the interaction term of economic freedom and intrinsic
motivation on environmental impacts, that is, the sum of the direct effect and the
indirect effects through participation in environmental networks. The results in
Table 16.3 show that the direct, indirect as well as the total effect of the inter-
action term of economic freedom and intrinsic motivation on environmental
impacts are significant.
Next, we calculated the differential effects between Italy (lowest economic
freedom) and the UK (highest economic freedom) for a firm with average, low
and high intrinsic motivation. Table 16.4 shows that a rise in economic free-
dom induces companies with low intrinsic motivation to worsen environmental
impacts, whereas companies with high intrinsic motivation use the extra eco-
nomic freedom for bettering their contribution to the environment. The table
174 Institutional Drivers of CSR

TABLE 16.4  Estimated total effect of difference in economic freedom on environmental

impactsa

Intrinsic motivation of companies (X)

X = Lowest in Sample X = Sample Average X = Highest in sample

–0.15 0.27 0.69
a a1 (EFUK – EFIt) + a2 (EFUK – EFIt) * X. a1 and a2 denote the total effects of economic freedom (EF)
and the interaction term of economic freedom and intrinsic motivation, EFUK (standardized) eco-
nomic freedom of UK, EFIt (standardized) economic freedom in Italy, and X (standardized) intrinsic
motive.

unambiguously shows the importance of the interaction between intrinsic moti-

vation and economic freedom for environmental impacts. The average effect of
economic freedom is positive, though.

16.5 Conclusion
Though awareness of the need for a transition to a more sustainable economy
is widely spread, not every firm is equally supportive for (voluntarily) meas-
ures that improve environmental impacts. Particularly SMEs may be hesitant to
invest resources in sustainable production processes, because of intensive competi-
tion. Governments may enforce improved environmental impacts by government
interventions, but these come with the disadvantage of losing out on volun-
tary initiatives. The question whether more or less economic freedom results
in more environmental responsible management, has remained open. Previous
research has shown that (certain aspects of    ) economic freedom might increase
CSR (Baughn et al., 2007; Jackson and Apostolakou, 2010, Ioannou and Sera-
feim, 2012; Kinderman, 2012; Hartmann and Uhlenbruck, 2015). But these pre-
vious studies did not consider how the free market system affects the corporate
environmental impacts of companies. Although economic freedom may stimulate
some companies to incorporate CSR in their business model, it is not a standard
business practice.
We approached the question how economic freedom affects CSR by studying
its interaction with internal motivations. For as far as we know, we are the first
in the literature to consider this interaction mechanism. The main contribution
of our analysis lies in the finding that the influence of economic freedom on
environmental impacts appears to be contingent on the intrinsic motivation of
companies. This mechanism is reminiscent to interaction effects between exter-
nal pressures and internal motivation proposed by Muller and Kolk (2010). They
found that firm-internal characteristics, including managers’ intentions, deter-
mine CSR benefits from external pressures. Also Weaver et al. (1999) found that
firms whose managers are highly committed to ethics have broader and more
deeply rooted ethics programmes compared to firms engaged in response to
 Econ. Freedom, Intrinsic Motive, and CSR 175

external pressures. This indicates that intrinsic motivation increases the influence
of external stimuli to perform certain types of behaviour. We postulate that such
interaction also regulates the influence of institutions on company’s CSR, and
our empirical results confirm the hypothesis: economic freedom stimulates firms
whose managers are intrinsically motivated, to integrate environmental sustain-
ability into their operations, while firms whose managers lack intrinsic motiva-
tion reduce their environmental impacts.
Besides the interaction effect with intrinsic motivation, we also find a direct
effect of economic freedom on environmental impacts. With fewer government
interventions, greater pressure may come from stakeholders towards the develop-
ing CSR practices (    Jackson and Apostolakou, 2010). Furthermore, economic
freedom stimulates free trade, which increases the exchange of information and
spurs managerial innovation and diffusion of new technologies that provide com-
panies with more cost-efficient solutions to improve their environmental impacts
(Frankel and Rose, 2005).

Note
* An extended text of this chapter has been published as an open access article under
the terms of the Creative Commons Attribution 4.0 International License (http://
creativecommons.org/licenses/by/4.0/) in: Graafland, J.J., and Gerlagh, R. (2019).
Economic freedom, internal motivation, and corporate environmental responsibility of
SMEs. Environmental and Resource Economics, 74: 1101–1123. Reyer Gerlagh is affiliated
to the department of Economics at Tilburg University in The Netherlands.
17
ECONOMIC FREEDOM
AND CORPORATE SOCIAL
RESPONSIBILITY
The Role of Long-Term Orientation*

17.1 Introduction
Engagement of firms in CSR differs between countries (Gallego-Álvarez and
Ortas, 2017) and understanding these differences is an important issue in interna-
tional business research (Ioannou and Serafeim, 2012). In explaining these differ-
ences two perspectives stand out: the approach from national culture (e.g. Peng
et al., 2014) and the approach from institutions (e.g. Young and Makhija, 2014).
These two perspectives have remained largely disconnected, and in the few cases
that culture and institutions are combined, they tend to be presented as separate
explanatory factors without exploring possible interactive effects of cultural and
institutional differences (e.g. Ioannou and Serafeim, 2012).
In this chapter, we show that integrating the cultural and institutional perspec-
tives, by studying the combined effects of institutions and culture on CSR prac-
tices is a promising direction of research. We explore possible interdependencies
between the two sets of factors by analysing how the cultural characteristic of
long-term orientation (LTO) and the set of institutions associated with economic
freedom, in combination, help understand international differences in CSR prac-
tices of firms. This analysis is interesting in its own right, given the increasing
importance of CSR, but we also present it as an example of how looking at
interdependencies between culture and institutions can be useful in international
comparative management research (Peterson and Barreto, 2018).
We selected economic freedom as an indicator of institutional differences
between societies because this concept captures a constellation of institutional
factors that has been demonstrated to influence important economic behaviours
and outcomes. However, whether economic freedom should be expected to be
good or bad for CSR is not self-evident. Economic freedom could enable firms
DOI: 10.4324/9781003216483-21
This chapter has been made available under a CC-BY-NC 4.0 license.
 Econ. Freedom, LT Orientation, and CSR 177

to voluntarily engage in CSR (Kinderman, 2012), but freedom could also be

used to economize on CSR, since private companies will only invest in activi-
ties believed to be profitable (Bell, 2015). Only if firms are long-term oriented,
will CSR benefits (that mostly materialize in the long term) be seen to outweigh
CSR costs (that mostly occur in the short term).
Societal-level long-term orientation distinguishes between societies in which
the emphasis is on the past or present, and those that pay much attention to the
future (Hofstede and Minkov, 2010). The consequences of this cultural dimen-
sion have so far remained relatively unexplored, but from a theoretical perspec-
tive time orientation has a potentially important influence on CSR (Kitzmueller
and Shimshack, 2012; Durach and Wiengarten, 2017). LTO can be expected to
positively influence assessments of the value of CSR initiatives, for example in
terms of corporate reputation and quality of stakeholder relations (Rehbein et al.,
2013). However, whether such investments are indeed undertaken also depends
on economic freedom. Only if firms have the freedom to decide about their level
of CSR (i.e. this is not strictly regulated by the government) an increase in LTO
will result in more engagement in CSR.
In this study we extend the work of Graafland and Noorderhaven (2018),
who concluded that previous studies of the relationship between national cul-
ture and one aspect of CSR, environmental responsibility, has not led to robust
cumulative results. One reason for this, pursued in this chapter, could be that it
is the combination of institutional and cultural factors that influences CSR. We
develop hypotheses for the interactive effect of economic freedom and long-term
orientation on CSR. We test these hypotheses on a sample of 4,651 SMEs from
12 European countries, and find supporting evidence that the influences of cul-
ture and institutions on CSR interact.
Next, we first present the conceptual framework and methodology. Then we
describe the results and summarize the findings.

17.2 Conceptual Framework
Institutions create incentives for and constraints on firm strategies (e.g. Ingram
and Clay, 2000), and they may be expected to also influence firms’ decisions
regarding CSR. Institutions in a country form ‘the set of fundamental political,
social, and legal ground rules that establishes the basis for production, exchange,
and distribution’ (Davis and North, 1971: 6). It is reasonable to argue that firms
embedded in different national institutional environments will ‘experience diver-
gent degrees of internal and external pressures to engage in social responsibil-
ity initiatives’ (Aguilera et al., 2007: 836). Ioannou and Serafeim (2012) indeed
found that a number of institutional factors related to the political system, the
education and labour system, and the financial system influence CSR.
While the study of Ioannou and Serafeim (2012) showed that the national
institutional context matters for CSR, we are still left with some important
178 Institutional Drivers of CSR

questions. Ioannou and Serafeim (2012) analysed the influence of institutions in

the form of isolated factors, like ‘union density’ or ‘absence of corruption’, but
did not explore how interrelated sets of institutional factors affect CSR. Conse-
quently, insights into the influence of institutions on CSR remain fragmented.
Rather than only looking at separate variables, it is important to consider the
institutional environment as an interdependent configuration of structures (    Jack-
son and Deeg, 2008).

Economic Freedom
We propose that economic freedom forms such a configuration of institutional
factors, reflecting the extent to which economic activity is promoted to be
coordinated by ‘personal choice, voluntary exchange, open markets, and clearly
defined and enforced property rights’ (Gwartney, 2009: 939). Of course, many
other aspects of institutional environments could be taken into account (see, e.g.,
Fainshmidt et al., 2018). However, we believe that economic freedom has prima
facie plausibility as an institutional complex influencing CSR.
Economic freedom has been demonstrated to influence important economic
behaviours and outcomes (e.g. Banalieva et al., 2018), and various studies have
argued that free markets and competition also stimulate CSR (El Ghoul et al.,
2017; Hartmann and Uhlenbruck, 2015; Jackson and Apostolakou, 2010). How-
ever, the idea that economic freedom should be expected to be good for CSR is
not self-evident. It could also lead to economizing on CSR-related expenses in
order to increase immediate returns.

National Culture
We contend that the question whether economic freedom leads to more or to
less CSR depends on a third factor: culture. Culture has been shown to influ-
ence many aspects of firm behaviour (Hofstede, 2001). Different dimensions of
national cultures can be distinguished, and previous studies have explored possible
effects of these dimensions on aspects of CSR (Graafland and Noorderhaven,
2018). The original study of Hofstede identified four dimensions: individualism-
collectivism, power distance, uncertainty avoidance, and masculinity-femininity
(Hofstede, 2001). Power Distance (PDI) refers to the extent to which the mem-
bers of a society believe that power in the society should be concentrated in the
hands of the leaders, and that these people should be obeyed without question.
Individualism-collectivism (IDV) distinguishes between societies in which ties
between individuals are loose and people are mainly concerned about themselves
and immediate family, and societies in which people are integrated into strong
groups that they will protect in exchange for unquestioning loyalty. Uncertainty
avoidance (UAI) indicates a country’s intolerance for uncertainty and ambiguity.
It gives an indication to what extent people feel uncomfortable in unstructured
 Econ. Freedom, LT Orientation, and CSR 179

situations. Masculinity-femininity (MAS) refers to the distribution of emotional

roles between the genders. Masculinity stands for a society in which men are
supposed to be assertive, competitive, ambitious and materialistic. Femininity
involves societies in which both men and women are supposed to have a prefer-
ence for caring, cooperation, modesty and quality of life.
In the literature on international differences in CSR authors have used Hof-
stede’s framework to develop hypotheses regarding the relationship between the
four dimensions of national culture and CSR. PDI has been theorized by authors
to have a negative effect (Park et al., 2007; Ioannou and Serafeim, 2012; Peng
et al., 2014; Thanetsunthorn, 2015; Tsoy and Yongqiang, 2016; Cox et al., 2011;
Gallego-Álvarez and Ortas, 2017), because PDI decreases consumer pressure on
businesses with regard to CSR-related issues and environmental accountability is
more likely to be ignored for the interests of the power holders. Also masculinity
reduces CSR, because materialistic, masculine values like the pursuit of economic
growth may lead to slower adoption of costly technology necessary for environ-
mental sustainability. The effect of individualism is more ambiguous. Hampden-
Turner and Trompenaars (2000) argued that individualist countries tend to be
more focused on shareholders’ interests and therefore more concerned on tasks
that create shareholder value rather than stakeholder value. In a collectivistic soci-
ety people are more likely to have stronger relationships with others (Michailnova
and Hutchings, 2006), succumb more to group pressure and it is therefore more
common to cater to the need of all stakeholders (Williams and Zinkin, 2008;
Ringov and Zollo, 2007). On the other hand, Ioannou and Serafeim (2012)
argued that firms in individualist countries are more likely to undertake explicit
CER activities in response to perceived expectations of their shareholders. Also
on uncertainty avoidance, divergent views are voiced in the literature. On one
hand, it is argued that societies with high uncertainty avoidance are less open to
change and less innovative (De Mooij and Hofstede, 2010; Ringov and Zollo,
2007) and therefore less likely to adapt to changing needs of stakeholders. How-
ever, businesses can use CSR to reduce uncertainties (Williams and Zinkin, 2008;
Ho et al., 2012) and then uncertainty avoidance may stimulate CSR.

Long-Term Orientation
Whereas the four dimensions of national culture discussed earlier have been iden-
tified in Hofstede’s original study of IBM (Hofstede, 1980), in later work Hofst-
ede has also included long-term orientation (Hofstede and Minkov, 2010). Given
our interest in how economic freedom may influence CSR in combination with
cultural characteristics, we focus on cultural influences related to time orien-
tation, because this factor influences how firms respond to economic freedom
(Kitzmueller and Shimshack, 2012; Miska et al., 2018). Time orientation plays an
important role in CSR (Slawinski and Bansal, 2009). Time orientation, and spe-
cifically the extent to which people take the future into consideration in making
180 Institutional Drivers of CSR

decisions, is reflected in the long-term versus short-term orientation dimension

of national cultures (Hofstede, 2001). This dimension of national cultures has a
number of connotations, the most important of which in the present context is
the emphasis on immediate need gratification in short-term oriented cultures,
and on postponement of need gratification in long-term oriented cultures (Hof-
stede and Minkov, 2010).
Previous research exploring the relationship between LTO and CSR has
shown ambiguous results (Graafland and Noorderhaven, 2018). We propose that
these conflicting and inconsistent findings may be due to the interaction with
other factors. More specifically, we contend that looking at the combined effect
of economic freedom and LTO helps to develop a more robust understanding of
international differences in CSR.
With more economic freedom, CSR will depend stronger on market incen-
tives, instead of government intervention. Whether market incentives stimulate
CSR crucially depends on the perception of time (Kitzmueller and Shimshack,
2012). The time horizon applied in the calculation of costs and benefits of CSR
is influenced by a firm’s environment. The longer the time horizon of the society,
the more stakeholders of companies will value long-term benefits of voluntary
CSR initiatives, for example in terms of quality of stakeholder relations (Rehbein
et al., 2013). And if consumers and other stakeholders care about the quality of
life of future generations, they are more likely to protest against unsustainable
business practices and are more willing to punish irresponsible behaviour (King,
2008).
LTO in the national environment can press managers to engage in CSR prac-
tices that will pay out only in the future (Bénabou and Tirole, 2010). This sug-
gests that a high level of economic freedom is associated with a high level of CSR,
provided that the firm operates in a society that takes a long-term perspective. We
can also argue that LTO stimulates CSR, but especially if firms have the freedom
to decide about their level of CSR. Based on these arguments, we hypothesize an
interactive effect of economic freedom and society-level LTO on CSR:

Hypothesis 17.1 Economic freedom and society-level long-term orientation interactively

stimulate CSR.

17.3 Methodology
The data are taken from the survey in 2011. We operationalized CSR by nine
concrete measures that SMEs can take to improve their CSR performance (Graaf-
land et al., 2003) (see Table 17.1). All are measured on a binary scale ranging (0:
no; 1: yes). To assess construct validity, we performed principal component analy-
sis (with Oblimin rotation). The CSR measures load on two factors, representing
the external and internal dimensions of CSR. Cronbach alpha values support
 Econ. Freedom, LT Orientation, and CSR 181

TABLE 17.1 Descriptives and factor analysisa

Variables Mean SD Factor loadings

External CSR Internal CSR

CSR cooperation supply chain (46) 0.37 0.48 0.65

Partnerships with professional training 0.36 0.48 0.68
institutes (47)
Participation in local CSR initiatives 0.42 0.49 0.75
(48)
Active dialogue with NGOs 0.17 0.38 0.60
concerning CSR issues (45)
CSR related remuneration (50) 0.08 0.27 0.60
Whistle-blower procedure (51) 0.19 0.39 0.62
Ethics committee (52) 0.11 0.32 0.71
CSR training (53) 0.29 0.45 0.63
The use of a reference guide or 0.23 0.42 0.64
external CSR tool to measure CSR
performance (54)
Eigenvalue 2.95 1.09
% Variance explained 33 12
Cronbach alpha 0.62 0.65
a The numbers in brackets refer to the numbers of the survey questions reported in Appendix 1.
Extraction Method: Principal Component Analysis; Rotation Method: Oblimin with Kaiser Nor-
malization. KMO = 0.824, p-value Bartlett’s Test of Sphericity = 0.000.

internal reliability of both factors. In the regression analysis we use the factors
estimated by the factor analysis.
For economic freedom we used average scores of the ‘Economic Freedom of
the World’ (EFW) index of the Fraser Institute as well as of those of the Herit-
age Foundation, over the years 2008–2010. The indices for national culture were
taken from Hofstede’s databank (http://geert-hofstede.com/countries.html).

17.4 Results
We estimated the model with structural equation modelling, using maximum
likelihood as estimation technique. In order to control for the confounding effects
that result from the use of variables at different levels of aggregation (country ver-
sus company), we used (country) clustered and robust standard errors.
The estimation results in Table 17.3 show that the centered interaction term
of economic freedom and long-term orientation is significant for both internal
and external CSR, and across the two indicators of economic freedom (Fraser
Institute and Heritage Foundation), whereas no stable pattern is found for the
two factors in isolation. This provides supports for Hypothesis 17.1.
182 Institutional Drivers of CSR

TABLE 17.2 Descriptives macro variables

Mean SD

Economic freedom Fraser 7.33 0.23

Economic freedom Heritage 68.04 5.96
Long-term orientation 57.27 12.79

TABLE 17.3 Structural equation modela

Fraser Institute Heritage Foundation

1 2 3 4
External CSR Internal CSR External CSR Internal CSR
Economic freedom (EF) 0.02 0.01 −0.04 0.08*
Long-term orientation −0.08*** 0.01 −0.03 0.03
(LTO)
Centered interaction 0.17** 0.12* 0.10* 0.11**
term
(EF * LTO)
R2 0.14 0.09 0.14 0.09
a Standardized coefficients; clustered and robust standard errors; * p < 0.05; ** p < 0.01; *** p <
0.001; N = 4,651. Controlled for sector, position in the chain, the market position of the company,
the degree of unionization of the company’s employees, the size of the company (measured by the
logarithm of the number of employees in FTEs), the age and skill structure of the company, the age
of the respondent, and the function of the respondent. Furthermore, we controlled for the other
dimensions of national culture. However, as correlation analysis showed that power distance and
masculinity were highly related in our set of countries (r = 0.88), we dropped masculinity.

17.5 Conclusion
Institutional factors and cultural factors have been argued to explain international
differences in firm behaviour, but these two sets of factors have most often be
studied in isolation from each other. Both institutions and cultures function as
external constraints and enablers in the strategic decision processes of firms, hence
it makes sense to look at these sets of factors in conjunction. Our study shows
that when looking at CSR practices, an explanation based on the combined,
interactive effects of culture (represented by LTO) and institutions (reflected by
economic freedom) has a stronger explanatory power than the two factors in
isolation. In line with this, the contribution of this chapter is to provide more
clarity on the institutional and cultural factors that contribute to international
differences in levels of CSR.
Our findings suggest that research into international differences should not
only look at both institutions and culture, but also specifically at the interaction
between both types of factors. This point was made earlier on the level of the
 Econ. Freedom, LT Orientation, and CSR 183

firm (Schultz, 2012), and we extend this to the societal level. This ties in with
recent work on other topics in international management, like IPOs (Lewellyn
and Bao, 2014) or venture capital (Li and Zahra, 2012). For comparative inter-
national management research to make progress it is not only important to better
distinguish institutions from culture, and analyse how these two sets of factors
are mutually influencing (Redding, 2008), but also to explore more broadly how
culture and institutions together, rather than separately, affect important firm
behaviours.

Note
* A different version of this chapter that used CSR data of large companies from ASSET4
has been published in: Graafland, J.J., and Noorderhaven, N. (2020). Culture and insti-
tutions: How economic freedom and long-term orientation interactively influence cor-
porate social responsibility. Journal of International Business Studies, 51(6): 1034–1043.
Niels Noorderhaven is affiliated to the department of Management at Tilburg Univer-
sity in The Netherlands.
18
COLLECTIVE AGREEMENTS AND
EQUAL OPPORTUNITIES FOR
WOMEN AND MINORITIES*

18.1 Introduction
Because of international differences in CSR policies of companies, research into
CSR has become more focused on its institutional roots (Aguilera and Jackson,
2003; Campbell, 2007; Matten and Moon, 2008; Jackson and Apostolakou, 2010;
Brammer, Jackson and Matten, 2012). One of the institutions that has been rela-
tively unexplored in CSR research is collective agreements. Only Ioannou and
Serafeim (2012) researched how labour unions affect CSR. Using ratings from
ASSET41 for public companies in 42 countries, they found that union density
stimulates both environmental and social CSR. The research of Ioannou and
Serafeim (2012) does not, however, address which of the many social aspects, that
are included in the social dimension of CSR as constructed by ASSET4, are more
or less encouraged by union coverage.
The social dimension of CSR comprises very heterogeneous aspects in the
rating system of ASSET4, including customer and product responsibility, com-
munity interests, respect of human rights, diversity and opportunities, quality of
employer-workforce relation,2 employment health and safety, and training and
development. It is not surprising that union coverage improves aspects of the
social dimension of CSR that concern core interests of incumbent employees
that unions aim to protect, such as fair wages, the use of fixed-term contracts,
training and development, and health and safety. Previous research has shown,
for example, that, relative to uncovered workers, union-covered workers are
more likely to receive more days of training (Booth et al., 2003). In addition,
union-covered workers experience greater returns to training, and face a higher
wage growth. In establishments where unions are recognized, labour turnover
is also reduced (Blau and Kahn, 1983). Furthermore, labour unions use their
DOI: 10.4324/9781003216483-22
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 Collective Agreements and CSR 185

collective bargaining and participation in health and safety committees to influ-

ence workplace health and safety standards (for an overview, see Pouliakas and
Theodossiou, 2013).
However, these findings do not give insight into how coverage by collec-
tive agreement affects labour issues that have a wider societal interest. In our
research we focus on two important, yet unexplored, social aspects of CSR that
go beyond the immediate interests of incumbent workers, namely gender diver-
sity in the management of the company and equal opportunities for groups that
have a relative disadvantaged position on the labour market. To date, there has
been no large-scale, multi-country research in the relationship between collec-
tive agreements and these two dimensions of labour market equality. The core
research question of this chapter is therefore: do collective agreements encourage
gender diversity in the management of the company and equal opportunities for
groups that have a relative disadvantaged position on the labour market, including
migrants or their descendants?
We test our hypotheses on a sample of 4053 enterprises in 12 European coun-
tries for which detailed information of the share of employees represented by
collective agreement per firm is available. This data provides information about
differences in union coverage between companies within countries, and therefore
provides a more accurate picture of the influence of collective agreements than
macro indicators of union density. In the next section, we present the conceptual
framework. In section 18.3, we describe our methodology. Next, we present our
empirical findings, followed by a conclusion.

18.2 Conceptual Framework

Collective Agreements and Labour-Related CSR

One of the neglected forces in institutional CSR theory is the role of collective
agreements. A collective agreement is written between a representation of work-
ers and an entrepreneur, or business representation, and regulates the working
and employment conditions as well as the labour relations management (Biedma-
Ferrer et al., 2015). It is established between the elected representatives of the
workers and those who act on behalf of the company, but can be extended to
employees and employers of other companies. Such cases of extension mecha-
nisms exist in varying degree in EU Member States.3
According to Aguilera and Jackson (2003), the lack of attention to the role of
collective agreements in CSR reflects weak employee participation in the United
States, where the concept of CSR originated. Also in the practice of CSR, labour
unions have been largely excluded from participating as equal partners. Conse-
quently, organized labour greeted CSR with ambivalence (Brammer, Jackson
et al., 2012). To unions, the concept of CSR lacks a distinct connection to the
central role that corporations have as employers (De Geer et al., 2010).
186 Institutional Drivers of CSR

Still, unions may play an important role in the realization of CSR related goals,
because they are instrumental to voicing workers’ collective needs and desires
to the management (Freeman and Medoff, 1984). Campbell (2007) argued that
companies are more likely to behave in socially responsible ways when they are
engaged in institutionalized dialogue with unions. Their influence may not be
visible in voluntary, explicit CSR measures, but is more implicit through sector
and national negotiations on labour-related issues (Matten and Moon, 2008).4 In
countries that showed weakening of labour unions, firms started to score higher
on explicit CSR as a substitute for institutional regulation and social coordina-
tion (    Jackson and Apostolakou, 2010). Still, to the extent that unions empower
employees, corporations may also face pressure to adopt explicit CSR measures.
For example, powerful labour unions may use their influence to pressure compa-
nies to adopt better labour standards throughout their supply chain and push for
extended benefits for employees, focusing on health and safety provisions, labour
relations policies, and more workplace amenities (Ioannou and Serafeim, 2012).
For instance, they can pressure suppliers, who are known for the abuse of migrant
workers, into paying them properly.

Collective Agreements and Equal Opportunities of Women

and Disadvantaged Groups
Based on union representation theory (Lurie, 2015), we expect, however, that col-
lective agreements might have negative effects on social issues of wider societal
interest, such as equal opportunities for women and disadvantaged outsiders on the
labour market. Union representation theory predicts that unions tend to advocate
the interests of the median worker who often works full time for a single employer.
A union’s duty to protect and advance the collective interests of all of its members
might conflict with the particular interests of specific groups. Although a minority
of union members may significantly value equal opportunities for specific groups,
the majority of union members may have little interest in these issues, which induces
the union to disregard the interests of specific groups that are victims of discrimina-
tion (Widiss, 2012). Consequently, union representation may encourage packages
that do not reflect the preferences of marginal worker groups (Budd, 2007).
Women and employees from disadvantaged groups are disproportionately
represented in non-standard atypical work, which may include part-time work,
temporary agency work, flex-work, self-employed homecare work, and contrac-
tor work (Lurie, 2013). Previous studies have found that unions tend to under-
represent women’s interests systematically and to promote discriminatory policies,
notwithstanding high rates of unionized women (McBride, 2001). One of the
reasons might be that women are under-represented in union decision-making
structures (Lurie, 2015). Most of the union representatives are men and this may
have a negative outcome for gender equality in the bargaining process. Previ-
ous research has also shown that unions tend to under-represent the interests
 Collective Agreements and CSR 187

of foreign workers too (Albin, 2013). Unions face the tension that the more
immigrants that become active in the domestic labour market, the more com-
petition there is for traditional groups of employees that they represent, and the
worse working conditions might become for these groups. Particularly in times
of ample national supply of labour, trade unions are likely to oppose recruitment
of immigrant workers. Due to widespread unemployment, labour market com-
petition might increase and inclusive union policies towards immigrants may thus
clash with the interests of native workers (Penninx and Roosblad, 2000). Unions
may therefore be inclined to defend the interests of national members and resist
migrants or hesitate to defend them, for example against exploitation.
Based on union representation theory and previous empirical research, we
therefore posit the following hypotheses:

Hypothesis 18.1 Collective agreements reduce female representation in board and execu-
tive positions.
Hypothesis 18.2 Collective agreements reduce the inflow of employees from disadvan-
taged groups.

Interrelationship Between Women Management and Hiring

of Disadvantaged Groups
Besides a direct negative influence from collective agreements on the inflow of
employees from disadvantaged groups, we also expect a negative indirect effect
mediated by the share of women in the top management of the company. We
base this argument on social role theory that predicts that women are more social-
ized into communal values reflecting a concern for others than men, (Mason and
Mudrack, 1996) and therefore more likely to be motivated by altruistic concerns
(Williams and Polman, 2015). This has been confirmed by research that showed
that female managers are more involved in corporate philanthropy (Williams,
2003; Ibrahim and Angelidis, 2011; Marquis and Lee, 2013). Because of their
altruistic concerns, it is therefore likely that female board members or execu-
tives will take more responsibility for providing job opportunities to people from
disadvantaged groups than male top managers. Therefore, we hypothesize that:

Hypothesis 18.3 Female representation in board and executive positions increases the
inflow of employees from disadvantaged groups.

18.3 Methodology
Table 18.1 presents an overview of the general characteristics of the companies
in the sample.
The use of collective agreements differs significantly among the twelve coun-
tries in our sample, ranging from 15% in the UK to 95% in France due to the
188 Institutional Drivers of CSR

TABLE 18.1 Sample characteristics (in %)

Country % in sample Union density Extension Coverage Share of employees

(2013)a collective collective covered by collective
agreementsb agreementsc agreement in sample

UK 3 26 not 29 15
Denmark 7 67 not 80 65
Finland 4 69 very frequent 91 87
Sweden 5 68 not 88 84
Austria 2 28 seldom 95 72
France 7 8 very frequent 98 95
Germany 9 18 moderate 59 54
Netherlands 11 18 frequent 81 75
Hungary 4 11 seldom 33 29
Poland 7 13 seldom 25 47
Italy 31 37 not 80 94
Spain 11 17 very frequent 70 92
a Source: OECD https://stats.oecd.org/Index.aspx?DataSetCode=UN_DEN
b Source: Eurofound http://adapt.it/adapt-indice-a-z/wp-content/uploads/2013/08/efficacia_ccnl_
eu.pdf
c Source: www.worker-participation.eu/National-Industrial-Relations/Across-Europe/Collective-
Bargaining2

TABLE 18.2 Descriptive statisticsa

Variable Mean SD

Collective agreement (70) 70.06 43.45

Women in board (67) 23.38 25.82
Inflow disadvantaged (68) 7.18 14.61
a The numbers in brackets refer to the numbers of the survey questions reported in Appendix 1.

large-scale extension of collective agreements in that country. The different shares

of employees in our sample that is covered by collective agreements per country
reflect the differences in macro shares reported by the European Union.
Survey data were taken from the survey in 2011. The independent variable,
collective agreements, was measured by a survey question measuring the ‘Share of
employees covered by collective bargaining agreement as a % of the total number
of employees in 2010.’ The representation of females in board or executive posi-
tions was measured by a survey question asking for the ‘Share of women in the
board and/or executive positions in 2010.’ The inflow of employees from disad-
vantaged groups was measured by a survey question on the ‘Share of employees
recruited from disadvantaged groups (e.g. migrant workers, people with disabili-
ties, long term unemployed) as a % of the total inflow in 2010.’
 Collective Agreements and CSR 189

TABLE 18.3 Estimation resultsa

Women in board Inflow of disadvantaged

Collective agreements 0.04*** 0.06**

Women in board 0.17***
R2 0.08 0.08
a N = 4053. Standardized coefficients * p < 0.05, ** p < 0.01, *** p < 0.001. The (Santorra-Bentler)
global fit indices are: Chi2 = 0.068; RMSEA= 0.012; CFI = 0.987; TLI = 0.966; SMRS = 0.004;
R2 = 0.133. We controlled for sector, position in the supply chain, intensity of price competition,
country, company size (number of FTEs), skill structure and age structure, and inverse Mill’s ratio.

18.4 Results
We used structural equation modelling in STATA with maximum likelihood as
estimation technique and Satorra-Bentler correction for non-normality. The
results are reported in Table 18.3.
The estimation results show that the representation of women in the board
and executive positions and the inflow of employees from disadvantaged groups
are significantly positively related to collective agreements. Hence, we reject
Hypotheses 18.1 and 18.2. Hypothesis 18.3 that the share of female managers
increases the inflow of employees from disadvantaged groups is supported. If we
test the indirect effect of collective agreements on the inflow of employees from
disadvantaged groups as mediated by the share of female managers, we find a
small but significant positive effect (p-value < 0.001). Hence, by fostering the
share of female managers, collective agreements indirectly increase the inflow of
disadvantaged employees as well.

18.5 Conclusion
In this chapter, we set out to research the effect of collective agreements on social
dimensions of CSR that concern wider societal interests beyond the immediate
interests of incumbent workers that unions typically represent, namely gender
diversity in the management of the company and equal opportunities for groups
that have a relative disadvantaged position in the labour market. Whereas previ-
ous cross-country research by Ioannou and Serafeim (2012) showed that union
coverage stimulates social and EP of large companies, we expected to find oppo-
site results for gender equality and job opportunities for applicants that have a
disadvantaged position in the labour market. This expectation was based on the
union representation theory that predicts that unions advocate the interests of
the median worker and that advancement of these interests conflict with the
particular interests of specific groups that are disproportionately represented in
non-standard, atypical work.
190 Institutional Drivers of CSR

Based on a sample of 4053 enterprises in Europe and using micro data of

the share of employees covered by collective bargaining agreement per company,
we found, however, that collective bargaining stimulates both the presence of
women managers in the top management of the enterprise as well as the inflow
of employees from disadvantaged groups. Moreover, we also detected a positive
indirect effect from collective agreements on the inflow of disadvantaged employ-
ees, as women managers are more inclined to hire labour from these groups, than
male managers.
These results provide additional evidence for the positive effects of union cov-
erage on CSR identified by Ioannou and Serafeim (2012). They argued that
labour unions may increase overall awareness within society by acting as the firm’s
ambassador for environmental and social policies. But the question remains why
this is the case. A possible explanation is that unions take account of the negative
societal effects that result from unemployment of employees from disadvantaged
groups, because they often coordinate their actions at the macro level. For indi-
vidual companies, these negative effects are largely a given and the benefits from
fighting them are negligible to the individual company. At the macro level, how-
ever, the unemployment of employees from disadvantaged groups is not given and
is rather dependent on the policies of unions at this level. They cause substantial
societal costs that harm the interests of all union members. This motivates unions
operating at the national level to bargain for policies at the meso and micro level
in sectoral or firm level agreements that provide more equal opportunities for
disadvantaged groups. An example of such a policy is an agreement of the Dutch
national unions FNV, CNV and RMU with the company CêlaVíta that agreed
to offer partly disabled employees a job.5
Another explanation is that the weakening of the position of trade unions dur-
ing the last decennia has triggered attempts to revitalize unions, with inclusion of
underrepresented groups being a foremost strategy. In Europe, such organizing
has been implemented in the United Kingdom and, more recently, in the Neth-
erlands (Marino et al., 2015). For example, in 2005 the FNV published a report
‘De vakbeweging van de toekomst: Lessen uit het buitenland’ that intended to redefine
itself. One of the issues addressed in this report was the importance of ‘organ-
izing’ new groups of people, including migrant workers (Connolly et al., 2014).6
Marino et al. conclude that these revalidation efforts of unions, by a more inclu-
sive strategy that takes serious the interests of previously marginalized groups,
suggest that inclusive attitudes toward migrant workers are inversely related to
the degree of institutional embeddedness of unions. If the institutional power
of unions reduces, they become more dependent on union membership, which
stimulates them to attract new, underrepresented, groups of workers to increase
union membership. However, this conclusion is not supported by our research,
as our findings indicate that union coverage stimulates a wider societal orienta-
tion.7 Consequently, collective agreements improve companies’ implementation
 Collective Agreements and CSR 191

of policies that foster equal opportunities for women and employees from disad-
vantaged groups in the labour market.

Notes
* An extended text of this chapter has been published in an open access chapter under
the terms of the Creative Commons License CC BY NC ND in Graafland, J.J. (2018).
Collective agreements and equal opportunities for women and disadvantaged groups. In
Rijken, C., and De Lange, T. (Eds.), Towards a decent labour market for low-waged migrant
workers (pp. 267–282). Amsterdam: Amsterdam University Press.
1 ASSET 4 is one of the major sustainability ratings agencies, often called ESG raters,
as they rate companies on the three dimensions Environment, Social and Govern-
ance. Other well-known ESG rating agencies are KLD, Sustainalytics, Vigeo and
FTSE4Good.
2 It seems that Ioannou and Serafeim (2012) failed to notice that the workforce and
employment category in ASSET4 includes trade union representation, which makes
their analysis partly tautological.
3 Matten and Moon (2008) distinguished explicit from implicit CSR. Explicit CSR
means that corporations adopt voluntary CSR programs. Implicit CSR is often not
voluntary, but rather a reaction to the regulations by the state or by social partners, like
vocational training, pensions or health care in collective agreements. Matten and Moon
argued that the CSR in Europe is best described as implicit CSR. In liberal economies
with immature welfare states and little social regulations, companies more often pursue
explicit CSR.
4 As a result, collective agreements can apply to (temporary) migrant workers, whether
EU or non-EU nationals, ethnic minorities and (or as) nationals alike.
5 www.rmu.nu/weblog/akkoord+over+cao+clavta_1312.
6 In 2004, former FNV chairwomen Jongerius proposed to introduce legally binding
minimum quotas for the inflow of employees from migrant groups, but employers
refused to support this idea. In a phone call with FNV in August 2017, it appeared that
there are no examples yet of collective agreements that provide provisions to increase
employment among migrant employees.
7 If we also include the degree that collective agreements are extended (based on the third
column in Table 18.1) as indicator of institutional embeddedness of unions (besides the
influence of coverage of collective agreements per firm), we find no significant effects
on the share of women in the board or the inflow of employees from disadvantaged
groups, Hence, institutional embeddedness through extension of collective agreement
does not negatively affect the share of women in the board or the inflow of employees
from disadvantaged groups.
PART V

Integration and
Management Lessons
19
OVERVIEW OF RESULTS
AND INTEGRATION

19.1 Overview of Hypotheses and Empirical Results

Impacts of CSR
In Part I we researched impacts of CSR on environment, innovation and reputa-
tion. Table 19.1 presents an overview of the hypotheses and test results.
The estimation results showed that both informal and formal instruments,
such as the use of targets and ISO 14001 certification, improve EP of SMEs by
reducing energy and water consumption and waste disposal. ISO 14001 certifica-
tion has also an indirect positive impact in EP by stimulating the participation in
external networks that provide SMEs practical knowledge and information about
specific measures and technologies that reduce energy cost. Hence, we found no
evidence of decoupling between the use of environmental management instru-
ments and environmental impacts. This indicates that CSR instruments are not
merely used in a ceremonial way. This finding is similar to findings of Graafland
and Smid (2019) who tested the environmental impacts of CSR management
instruments on a sample of 1,000 large companies in 24 countries. They found
that for most CSR issues examined, CSR programmes of high quality (as meas-
ured by scope, the use of targets, and the use of strict deadlines) have relatively
strong positive CSR impacts.
These studies pertain to the effectiveness of CSR at the micro business level.
This leaves open the impacts of CSR on the macro level. The society is, ulti-
mately, interested in the impacts of CSR for the economy as a whole, not only
for the micro business level. Even if CSR generates positive impacts at the micro
business level, its macro effect remains uncertain. One cannot simply assume that
isolated successful CSR measures on the microeconomic level necessarily have

DOI: 10.4324/9781003216483-24
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196 Integration and Management Lessons

TABLE 19.1 Impacts of CSR: Overview of hypotheses and test results

Hypothesis support

2.1 The use of targets improves environmental impacts of SMEsa +

3.1 ISO 14001 certification positively affects environmental impacts of +
SMEs
3.2 Participation in external networks positively affects the environmental +
impacts of SMEsb
3.3 ISO 14001 certification stimulates participation in external networks +
4.1 The use of CSR instruments contributes to innovation +
4.2 The positive impact of CSR instruments on innovation is greater in −
consumer-focused industries
4.3 The positive impact of CSR instruments on innovation is greater in less −
eco-friendly industries
5.1 High CSR intensifies CSR monitoring by NGOs and media +
5.2 Firm size positively moderates the positive influence of CSR on CSR +
monitoring
5.3 The intensity of CSR monitoring moderates the influence of CSR on +
the exposure to criticism on the company’s CSR
a This hypothesis is similar to Hypothesis 10.3.
b This hypothesis is similar to Hypothesis 16.1.

a positive influence on related macroeconomic indicators (Korhonen, 2003). As

an example, assume several companies in an industry strategically focus on CSR,
thereby increasing social efficiency. It could then be the case that the other com-
panies in the industry try to remain competitive via price cuts and cost reductions
by maximized offloading on third parties. Empirical research by Graafland et al.
(2016) on a sample of 22 countries and 1,576 companies showed, however, that
CSR reduced greenhouse gas emissions at the country level during 2004–2011.
But their estimation results also indicated that the long-term effect of CSR is
rather modest. A rise in the average CSR score by 10 points (on a scale from 0 to
100) would reduce GHG emissions by approximately 2% on average. This modest
impact is in line with the estimation results in Chapter 2 in this book that showed
that if SMEs maximize the use of informal and formal environmental manage-
ment instruments, the annual growth rate in energy, water, and waste would only
fall with 0.3–0.4%.
Besides the positive effects on EP, CSR strengthens the long-term economic
performance of company by encouraging innovation. Whereas previous research
by Flammer and Kacperczyk (2016) had shown that CSR (measured by stake-
holder orientation) has a positive causal effect on innovation, this link has not
been tested for SMEs. In Chapter 4 we found confirmative evidence of the find-
ing of Flammer and Kacperczyk (2016) that CSR sparks innovation. However,
our analysis did not support two other findings of Flammer and Kacperczyk’s that
 Overview of Results and Integration 197

the CSR-innovation link is moderated by consumer-focused and high-pollution

industries.
Chapter 5 analysed the effects of CSR on reputation. Literature has often argued
and found that one of the advantages of engaging in CSR is that it can improve the
firm’s reputation. CSR helps to differentiate the firm from competitors and often
carries with it a kind of insurance-type protection of reputation by reducing busi-
ness and corporate risks. Reputation is a valuable resource that will lead to improved
financial performance. However, most literature has overlooked that CSR may also
endanger reputation, if CSR policy statements do not go together with favourable
impacts. By communicating its CSR, a firm sets itself up to be targeted by activists.
Then reputational benefits of CSR may easily turn into reputational liabilities if the
company falls short of the CSR expectations of stakeholders. Chapter 5 showed
that this so-called reputational liability is also relevant for SMEs.

Internal Drivers of CSR

In Part II we studied several internal drivers of CSR. Table 19.2 presents an over-
view of the hypotheses and the empirical findings.

TABLE 19.2 Internal drivers of CSR: Overview of hypotheses and test results

Hypothesis support

6.1 Extrinsic motives stimulate CSRa +

6.2 Intrinsic motives stimulate CSRb +
6.3 Extrinsic motivation is positively related to company size +
6.4 Intrinsic motivation is negatively related to company size −
7.1 The influence of family business ownership on EP is non-linearly +
moderated by the involvement of family members in management
7.2 Company size negatively moderates the influence of family business +
ownership on EP
8.1 Having more women in management has a positive, non-linear, +
effect on an SME’s use of relational environmental management
instruments
8.2 The use of relational environmental management instruments improves +
the EP of SMEs
9.1 Firms with an open systems business culture are more likely to engage +
in stakeholder relations
9.2 Firms with an open systems business culture are more likely to put +
effort into improving EP
9.3 Firms with an open systems business culture are more likely to put +
effort into improving social performance
a A similar hypothesis is Hypothesis 15.2.
b Similar hypotheses are Hypotheses 12.2 and 15.1.
198 Integration and Management Lessons

In Chapter 6, we found that CSR is positively affected by intrinsic and extrin-

sic motives. The effect of intrinsic motives appears to be stronger than the effect
of extrinsic motives. As expected, large companies have a stronger extrinsic moti-
vation towards CSR than small companies. But Hypothesis 6.4 that intrinsic
motives are stronger for small companies is not supported. The implication is that
company size has a positive effect on CSR through both extrinsic and intrinsic
CSR motives.
Motives are grounded in the value system of the company, which can be classi-
fied as an information institution (see Chapter 1). Besides motives, we researched
several other internal institutional factors: ownership structure, gender structure
of management, and business culture. Chapters 7 and 8 showed that owner-
ship and gender structure affect CSR, but the effects are non-linear and context
dependent. Family ownership stimulates CSR most in small companies and if the
company is jointly managed by family and non-family members. Furthermore,
more women in management increases CSR because women managers make
more use of relational environmental instruments than men managers. However,
this positive effect only holds to some level. More specifically, if the share of
women in management exceeds 54%, negative effects set in. Chapter 9 showed
that business culture is an important internal driver of CSR. Companies com-
bining an external focus with a flexible management style (the so-called open
systems business culture) are more actively engaging in CSR than companies with
an internal focus and an emphasis on centralization and control over organiza-
tional processes.

Competition and CSR

Part III analysed the effects of competition on CSR. The competitive environ-
ment of the company is not an institutional factor (Campbell, 2007) but closely
related to institutions such as antitrust laws of governments. Table 19.3 presents an
overview of the hypotheses and the empirical findings of Part III.
Chapter 10 showed that the intensity of price competition worsens EP by stimu-
lating short-termism. Besides the mediation effect through time horizon, no direct
effect from price competition on CSR was found. The total effect of price compe-
tition on EP is therefore rather small. Besides price competition, companies can also
compete on innovation. Chapter 11 found that this type of competition encourages
the innovation motive of CSR, meaning that companies are motivated to engage
in CSR because it stimulates the innovation of the company. In a competitive
environment with intense technological competition, innovation is conceded to
be essential for survival. Chapter 12 showed, furthermore, that technological com-
petition does not only trigger an innovation motive, which can be classified as an
extrinsic CSR motive, but also intrinsic CSR motivation.
These results are in line with research by Graafland and Smid (2015) on a
sample of large companies rated by Sustainalytics. They found that the intensity
 Overview of Results and Integration 199

TABLE 19.3 Competition and CSR: Overview of hypotheses and test results

Hypothesis support

10.1 A higher intensity of price competition shortens the time horizon of the +
company
10.2 CSR efforts and procedures are positively related to the time horizon of +
a company
11.1 The stronger the top manager’s innovation motivation towards CSR, +
the more the firm will engage in CSR
11.2 The intensity of technological competition increases a top manager’s +
innovation motive to engage in CSR
11.3 A top manager’s innovation motive to engage in CSR mediates the +
effect of the intensity of technological competition on CSR
12.1 The owner-manager’s perception that CSR enforces the innovative +
capability of the firm positively moderates the relationship between
technological competition and intrinsic CSR motivation

of technological competition significantly increases CSR, whereas the effect of

the intensity of price competition is insignificant.

Institutional Drivers of CSR

Part IV analysed the relationship between CSR and several external institu-
tions, including social licence pressure by NGOs and media, government
regulation, economic freedom, and collective bargaining. In some of the esti-
mated models, we found that the effects of external institutions on CSR are
mediated by internal factors. For example, the impact of social licence on
CSR is mediated by the perceived strategic benefits of CSR. Another exam-
ple is the impact of government regulation on CSR, which is mediated by
intrinsic CSR motivation through crowding-out effects. In some other chap-
ters, we found evidence of internal factors moderating the impact of external
institutions on CSR. For example, the impact of economic freedom on CSR
was found to depend on intrinsic CSR motivation. External institutions may
also interactively influence CSR, such as economic freedom and the cultural
characteristic of long-term orientation. The moderation of the relationship
between economic freedom and CSR by long-term orientation has also been
found by other recent research by Graafland and Noorderhaven (2020b) on
a sample of large companies rated by ASSET4. Besides societal long-term
orientation, we found a negative effect of power distance and positive effects
of individualization and uncertainty avoidance. The results for individualiza-
tion are supported by research by Graafland and Noorderhaven (2020b), who
found similar effects. Finally, opposite to our expectations, we found that col-
lective bargaining agreements stimulate gender equality and opportunities for
200 Integration and Management Lessons

disadvantaged groups. These findings show that labour unions act as the firm’s
ambassador for the social dimensions of CSR.

19.2 An Integrative Analysis of the Effects of Company

Size on CSR
As discussed in Chapter 1, one of the gaps that this book aims to fill is large-
scale empirical research of the impacts and drivers of CSR by SMEs. Literature

TABLE 19.4 Institutions and CSR: Overview of hypotheses and test results

Hypothesis support

13.1 The social licence pressure perceived by a company depends positively on +

its size
13.2 The market benefits that a company perceives from its CSR depend +
positively on the perceived social licence pressurea
13.3 The environmental impacts of a company depends positively on the +
perceived market benefits from CSR
13.4 The environmental impacts of a company is positively associated with +
the perceived social licence pressure
13.5 The regulation motive is more important for small companies than for −
large companies
13.6 The environmental impacts of an SME depends positively on the +
regulation motive
14.1 Intrinsic CSR motivation of an enterprise is positively related to −
perceived NGO and media pressure
14.3 Intrinsic CSR motivation of enterprises is positively related to perceived +
market benefits of CSR
14.4 The perceived market benefits of CSR mediates the effect of NGO and +
media pressure on intrinsic CSR motivation of enterprises
15.3 Government regulation crowds out the intrinsic motivation of a business +
leader towards improving EP of the SME
15.4 Government regulation crowds out the extrinsic motivation of a business +/−
leader towards improving EP of the SME
16.2 The participation in environmental networks is positively related to the +
interaction between the intrinsic motivation and economic freedom
17.1 Economic freedom and society-level long-term orientation interactively +
stimulate CSR
18.1 Collective agreements reduce female representation in board and −
executive positions
18.2 Collective agreements reduce the inflow of employees from disadvantaged −
groups
18.3 Female representation in board and executive positions increases the +
inflow of employees from disadvantaged groups
a A similar hypothesis is Hypothesis 14.2.
 Overview of Results and Integration 201

has argued that SMEs differ in many respects from large companies. First, they
are often privately owned and managed by their owners (Spence, 1999; Jenkins,
2009). As discussed in Chapter 8, family businesses differ in various respects from
non-family-owned firms. They have different stakeholder orientation, with a
greater focus on internal aspects like work–family issues (    Jamali et al., 2008).
They forge strong caring relationships with employees and are important players
within their local community. Another difference is that SMEs are often organ-
ized on an informal basis – and so are their CSR policies. Many scholars suggest
that SMEs are even often unknowingly socially responsible. As far as existing
legislation and regulations are concerned, the majority of SMEs are ‘vulnerable
compliant’. That means that they do not know enough about environmental leg-
islation to ensure that they are always compliant (European Commission, 2002).
Furthermore, as it is practically impossible for NGOs and media to monitor each
small company, they attract less public attention than large companies. For this
reason, Lynch-Wood and Williamson (2007) argued that the social licence motive
will not be sufficient to induce SMEs to go beyond compliance to the law. They
are just too small to be visible. Finally, as small companies often lack strategic
assets that reduce the competition, they can less afford themselves to apply a long-
time horizon on the return on investments (Segelod, 2000).
On the other hand, because of their intimate relationship with the commu-
nity in which they operate, SMEs have a stronger need to pursue a community-
friendly policy. SMEs rely to a much greater extent than large enterprises do on
the prosperity of the local communities in which they operate. The reputation of
a company at its locations, as employer, producer or actor, strongly influences its
competitiveness. Managers of SMEs often interact with stakeholders in network
relations, where stakeholders communicate their expectations informally. The
personal contacts between the owner-manager and various stakeholders help to
build trustful partnerships in a natural way. As a result, SMEs are more sensitive
to signals from local customers and suppliers. Furthermore, as cited by William-
son et al. (2006: 318): ‘SMEs, being flatter and potentially quicker on their feet
and without analysts and shareholders fixated by price/earnings ratios, are better
placed than major corporates to take advantage of the fact that society and the
media revere qualities such as honesty, integrity and the ability to say sorry.’ Also,
the employee loyalty and the long tenure of leadership may encourage a positive
attitude towards CSR.
In the previous chapters, we tested and found confirmation of several of these
notions on the effect of company size on CSR in literature. However, we did not
provide a full, integrative analysis of how company size affects CSR through the
various internal and external factors that drive CSR. The goal of this section is to
do just that. For this goal, Tables 19.5 and 19.6 present the results of a structural
equation model that integrates most of the research in the preceding chapters.
As the model is very large (including 18 dependent variables and 36 explanatory
TABLE 19.5 Results of structural equation modela

202
External factors Internal factors CSR implementation (direct effects)

Integration and Management Lessons

Pcom Tcom NGO CA TH ExtMot InnMot IntMot FBO WM EO FO EFS EFE TRE RelIn ISO14 IntIn
Company size −0.04 0.09 0.15 0.23 0.07 0.08 0.06 0.04 −0.29 −0.03 −0.06 −0.08 0.16 0.14 0.10 0.20 0.23 0.18
External factors
Price competition −0.07 −0.03 −0.04 −0.03 0.04
(PCom)
Technological 0.07 0.24 0.26 0.26 0.04 0.05 0.12 0.20 0.04
competition
(Tcom)
Monitoring 0.08 0.24 0.24 0.19 −0.06 0.08 0.04 0.04 0.08 0.03 0.23 0.09 0.15
NGO & media
(NGO)
Government −0.04 −0.07 0.03 −0.05
regulation
Collective 0.10 0.10 0.07 0.04 0.03
agreements
(CA)
Internal factors
Time horizon 0.06 0.05 0.03 0.06 0.03 0.04
(TH)
Extrinsic motive 0.04 0.10 0.02 −0.03 0.04 0.07
(ExtMot)
Innovation motive 0.07 0.06 0.03 0.14 0.03 0.10
(InnMot)
Intrinsic motive 0.21 0.16 0.04 0.13 0.03 0.08
(IntMot)
Family business 0.04
ownership
(FBO)
Women 0.12 0.05 0.04 0.04 −0.04 0.03
management
(WM)
External
orientation
(EO)
Flexibility 0.09 0.04
orientation
(FO)
R2 0.10 0.02 0.07 0.28 0.06 0.11 0.11 0.08 0.09 0.24 0.05 0.10 0.22 0.19 0.05 0.26 0.14 0.18
a Based on data from 2011 survey (except for family business ownership). Estimated with missing variables. N = 13,637. Controlled for region, sector, skill level, age,
tenure, B2C, function of the respondent, company age, respondent age, and inverse Mill’s ratio. For the estimation results of the control variables, see Tables A2.5 and

Overview of Results and Integration 203

A2.6 in Appendix 2. Standardized coefficients. Normal: p < 0.05; Italics: p < 0.01; Bold: p < 0.001. Global fit statistics: RMSEA = 0.009; CFI = 0.989; TLI = 0.975;
R2 = 0.70. ESF and EFE represent social and environmental efforts and are based on questions 62/63/65/66 and 91–94 in Appendix 1, respectively; TRE is the use of
environmental targets and reporting and is based on questions 96–98; RelIn, ISO14 and IntIn are relational instruments, ISO 14001 certification and internal instru-
ments. RelIn is based on questions 45–48 and IntIn on questions 50–54 in Appendix 1. ExtMot, InnMot, and IntMot are based on questions 20/21/23/24/27, 22/37,
and 25/26, respectively; TH on questions 17/29.
204 Integration and Management Lessons

variables), we excluded moderation effects and the impacts part of Part II to

keep the model manageable. Furthermore, in successive rounds of estimation we
dropped all relationships that appeared to be insignificant (p > 0.05).
Table 19.5 shows that company size is negatively related to the intensity of
price competition and positively related to the intensity of technological com-
petition. This means that SMEs face more intense price competition than large
firms and less technological competition. Price competition negatively affects
CSR by shortening time horizon (see Chapter 10). Technological competition
has a positive impact on CSR through the innovation motive, other extrinsic
motives, and through intrinsic motives (Chapters 11 and 12). Besides, Table 19.5
shows that technological competition is positively related to time horizon, exter-
nal orientation, and flexibility orientation, all of which stimulate CSR. There-
fore, we conclude that small companies engage less in CSR than large companies
through the channels of price and technological competition.
Regarding external institutions, company size is found to be positively related
to CSR monitoring by NGOs and media (see also Chapter 13). Because of more
intense CSR monitoring, large companies perceive larger strategic benefits from
CSR, which in turn encourages their extrinsic and intrinsic CSR motivation
(Chapter 14). Furthermore, Table 19.5 shows that CSR monitoring by NGOs
and media is positively related to time horizon, external and flexibility orienta-
tion and has a direct positive impact on the implementation of CSR. All together,
CSR monitoring is one of the main channels through which company size has a
positive impact on CSR and a main explanation why small companies engage less
in CSR than large companies.
Company size is not related to government regulation, indicating that small
and large companies perceive equal pressure from government regulations to
improve their EP. Furthermore, large companies more often participate in col-
lective agreements, which has a positive effect on the share of women in man-
agement and inflow of employees from disadvantaged groups (Chapter 18). The
share of women in management, in turn, positively affects various types of CSR
implementation (see Table 19.5). Table 19.5 shows that collective agreements also
directly stimulate the implementation of CSR.
For internal factors, we find that company size is positively related to time
horizon, meaning that large companies are more long-term oriented than small
companies. As time horizon encourages the implementation of CSR (see Chap-
ter 10), company size has a positive influence on the implementation of CSR
through this internal factor. Furthermore, we find a small positive effect of com-
pany size on intrinsic CSR motivation and a relative large effect on extrinsic
motivations (in line with the results in Chapter 6). The second effect reflects
the positive relationship between company size and strategic benefits from CSR
that inform the extrinsic motivation. A similar channel is the innovation motive,
which can also be perceived as an extrinsic motive to engage in CSR (Chap-
ter 11). As all three motives stimulate the implementation of CSR, these findings
 Overview of Results and Integration 205

imply that the three motivational factors induce large companies to engage more
in CSR than small companies.
As discussed earlier, family owner structures are more common for small firms
than for large firms. This observation is supported by the negative relationship
between company size and family ownership in Table 19.5. As the impact of FBO
on environmental CSR is positive for small companies (see Chapter 8), small
companies will engage more in CSR than large companies through ownership
structures.
Table 19.5 shows, furthermore, that the share of women is slightly higher in
small companies than in large companies. Although the effect of company size
through the share of women on CSR is context dependent (see Chapter 7), given
that the average share of women in management is well below the turning point
of 54%, the negative correlation between company size and women manage-
ment implies that small companies engage more in implementing CSR than large
companies through a higher share of women management. Only for ISO 14001
certification, the effect of share of women is slightly negative.
A similar effect is found for business culture. As both the external focus and
flexibility orientation are stronger for small companies than for large companies,
and as the open systems business culture stimulates CSR (see Chapter 9), com-
pany size negatively affects CSR through business culture.
Besides the indirect effects through external and internal drivers of CSR, we
find substantial direct effects of company size that are not mediated by the exter-
nal and/or internal drivers. Due to a lack of sources and experience, SMEs are less
able to explicitly recognize CSR issues and are less familiar with CSR standards
(Lepoutre and Heene, 2006). Time, finances, and a lack of skills and knowledge
are commonly identified as constraints to CSR by SMEs (Studer et al., 2006).
Due to their small size, it is often too costly to recruit CSR specialists. Tak-
ing responsibility for the complex supply chain in which they operate would be
simply too costly. Overall, the direct effect explains about ¾ of the total positive
effect on CSR implementation, about ¼ is explained by indirect effects through
external and internal factors (see Table 19.6).

19.3 Limitations and Directions for Future Research

This study is characterized by several limitations and leaves open several other
relevant research questions, all of which provide avenues for future research.

Data and Measurement Limitations

A potential weakness of this study is the use of self-reported data of CSR. A great
advantage of using survey data is that surveys provide an efficient way to gather
lots of information from many companies. Particular for SMEs, basing data on
observations of real behaviour would be very costly, as SMEs provide substantial
206 Integration and Management Lessons

TABLE 19.6 Indirect and total effectsa

Indirect effects Total effects

EFS EFE TRE RelIn ISO14 IntIn EFS EFE TRE RelIn ISO14 IntIn
Company 0.06 0.05 0.03 0.07 0.03 0.05 0.23 0.19 0.13 0.27 0.27 0.23
size
External factors
Price −0.01 −0.01 −0.01 −0.01 −0.00 −0.01 −0.01 −0.01 −0.04 0.04 −0.00
compe­
tition
Techn. 0.10 0.04 0.03 0.03 0.01 0.06 0.10 0.09 0.03 0.03 0.01 0.06
compe­
tition
NGO & 0.07 0.07 0.03 0.06 0.03 0.06 0.12 0.16 0.06 0.28 0.11 0.20
media
Gov. −0.02 −0.01 −0.00 −0.01 −0.00 −0.02 −0.01 0.03 −0.05 −0.00
regula­
tion
Collective 0.01 0.01 0.01 0.00 −0.00 0.00 0.12 0.07 0.04 0.04 −0.00 0.00
agree­
ments

a Standardized coefficients. Normal: p < 0.05; Italics: p < 0.01; Bold: p < 0.001. The total effects are
equal to the direct effects on CSR implementation reported in Table 19.5 and the indirect effects
reported in the left part of Table 19.6. ESF and EFE represent social and environmental efforts; TRE
is the use of environmental targets and reporting; RelIn, ISO14 and IntIn are relational instruments,
ISO 14001 certification and internal instruments.

less information to external parties than large companies. But a possible disadvan-
tage is that the survey data do not accurately reflect the real performance because
of social desirability bias. The results should thus be interpreted with some cau-
tion even though self-reported data are common in the literature (Arimura et al.,
2008; Wakabayashi and Arimura, 2016). To address social desirability, common
method, and non-response bias, we adopted several precautionary remedies and
ex-post tests.1 Second, as we have collected all our data by means of a single ques-
tionnaire, our research design obligated us to practice economy in our research,
as a too lengthy questionnaire would likely lead to lower response rates. Given
the relatively less mature state of the field of CSR research, we dedicated a large
part of our survey to the measurement of CSR. Other variables were, how-
ever, measured by a limited number of survey questions. For example, in Chap-
ter 4, wherein we explored the relationship between CSR and innovation, we
employed only two survey questions to measure innovation. Future studies could
elaborate on the measurement of innovation and use more advanced indicators.
A similar limitation applies to Chapter 9 that analysed the influence of business
culture on CSR. In our analysis, we employed only two survey questions to meas-
ure organizational culture. Although the Competing Values Framework is widely
 Overview of Results and Integration 207

accepted and strongly validated, it is still possible that we have missed important
aspects of organizational culture that may influence CSR. Future studies could
explore the role other dimensions of organizational culture play, for example
the dimensions distinguished by Hofstede et al. (1990). Furthermore, in various
chapters we measured intrinsic motivation by only two or three survey questions.
Future studies could explore the role of other dimensions of intrinsic motiva-
tions, such as professional interest in internal goods of practices. However, we do
not expect that this will fundamentally change our conclusions. The arguments
we developed for intrinsic motivation will probably also hold for competence-
related types of intrinsic motivation, as rewards have symbolic properties related
to perceived competence or self-efficacy, causing individuals to care more about
doing the task well (Eisenberger et al., 1999). For example, Harackiewicz and
Manderlink (1984) found that performance-contingent rewards stimulate intrin-
sic motivation more than favourable performance feedback without reward.
Third, we examined a varied set of SMEs all over Europe. This is helpful to
obtain a first view on CSR in these organizations, but a more in-depth analysis
of SMEs from a particular industry and from other parts of the world would be
a useful next step. Future research should therefore broaden the scope of the
research to other regions in order to further test the generalizability of the find-
ings. For instance, are SMEs operating in a business-to-business context in, say,
Asia driven by different motivations in their CSR initiatives? Nevertheless, we
believe that this extensive European study of SMEs offers a useful starting point
for such further work.
Finally, it should be noted that the analyses in this book are based on data col-
lected in 2011 and 2014. It is likely that CSR has evolved since then. However,
it should be noted that in Europe the focus on CSR started in the 1990s and
gradually increased. By 2011, the relevance of CSR was broadly recognized by
business in Europe. Although it has still increased since then, it is not expected
to have changed that much. This is confirmed if one compares the results of the
more recent survey held in 2014 with the results in 2011. As can be seen from
Tables A2.4 and A2.5 in Appendix 2, CSR only slightly changed from 2011 to
2014. Also the internal and external drivers of CSR hardly changed during this
period. From these results, it can be assumed that the results of the study are likely
to be still largely valid in more recent years than 2014.

New Hypotheses
As each chapter investigated a limited number of hypotheses, there is ample room
for extending the research in new directions.
A first type of limitation that calls for model extensions is that the theories
that underlie the hypotheses are not tested. For example, in Chapter 7 we show
that family ownership stimulates CSR under certain conditions. However, the
underlying SEW-related theory is not investigated. For example, is it because
208 Integration and Management Lessons

family companies attach a higher value to the company having a good reputa-
tion that they use more often CSR instruments, or are other variables causing
this relationship, such as care for future generations of the family? Future research
could target these underlying causes to provide more detailed tests of the predic-
tive value of the theory.
A related limitation is that in most chapters we only researched a limited num-
ber of independent, mediation, and dependent variables. For example, in Chap-
ter 3 we analysed the environmental impact of ISO 14001 certification through
external networks. Besides stimulating participation in external networks, ISO
14001 may also yield other benefits. For example, Poksinska et al. (2003) and
Arimura et al. (2008) have argued that ISO 14001 does not only serve ecological
improvements but also contributes to regulatory compliance, ecological transpar-
ency, and/or enterprise image. Future research could investigate other impacts
of ISO 14001 in the context of small business, to determine how valuable the
standard is for SMEs.
Third, in Chapter 6 we showed that a company will be driven by a mixture
of intrinsic and extrinsic motivations. In Chapter 14 it was argued, however,
that CSR may be perceived by managers as a conditional or so-called prima
facie moral duty. If managers expect that pursuing CSR will harm their enter-
prise’s financial performance, they hesitate to implement CSR, as the survival
of the enterprise is essential and job creation and continuation are often seen as
the first responsibility of businesses. This suggests that the influences of intrinsic
and extrinsic motivations may be moderated by the financial situation of the
company. When the external economic factors become too strenuous, the influ-
ence of intrinsic motivation on CSR may go down and extrinsic motivation will
become more important.
Another example is Chapter 8 that studied relational management instruments
as mediator between the share of women managers and CSR. Future research
could focus on other mediators. For example, it can be argued that type of moti-
vation mediates this relationship (e.g. intrinsic versus extrinsic motivation). Sec-
ond, one can reasonably ask how the impact of women managers on sustainable
business practice changes if the size of the business grows or declines, as it is
unclear what the tipping point is for any of the findings presented as firm size
changes. Third, the finding that a higher representation of women in manage-
ment contributes to CSR opens up new avenues for future research into the
relationship between gender and product and process innovation. Literature has
recognized that gender diversity and CSR increase innovation (Miller and del
Carmen Triana, 2009). By relating CSR to the representation of women in man-
agement, our findings point at a new hypothesis, namely that CSR mediates the
effect of women managers on product and process innovation.
In Chapter 11, we focused on the effect of the innovation motive and vari-
ous other strategic motives on environmental and social CSR. As our research
indicates that motives may have different relevance for environmental and social
 Overview of Results and Integration 209

CSR, future research could elaborate on theorizing the differences in the rela-
tionship between various sets of motives and different dimensions of CSR. Fur-
thermore, in this chapter we focused on one specific aspect of the environment
of companies, the intensity of technological competition, and how this affects
CSR through top manager’s motivations. Future research should go beyond this
starting point and analyse what kind of other external factors or factors internal
to the company make business leaders more aware of the link between CSR and
innovation and stimulate them to be more proactive in responding to CSR trends
in the market.

Note
1 See Appendix 2 for an overview of various procedures we used to increase the reliability
of the responses to the survey questions.
20
POLICY AND MANAGEMENT
IMPLICATIONS

20.1 Impacts of CSR

The results of Part I of this book have a number of policy implications.
First, SMEs may be encouraged to formalize their environmental management
by simple measures like the use of targets. Our empirical analysis in Chapter 2
shows that there would be much to gain in terms of environmental impacts if
companies were to exploit the potential of formalizing environmental manage-
ment, since most companies currently still refrain from targeting their environ-
mental impacts. This kind of process step may contribute to greater awareness
and may improve the quality and durability of the environmental management
because subjective elements are supplemented with objective measures.
SMEs could further improve their environmental impacts by more elaborate
management systems, such as ISO 14001. If the effects of ISO 14001 on envi-
ronmental impacts were to be absent or weak for SMEs, promoting the use of
this relatively costly instrument among SMEs would be inadvisable. This reflects
the view expressed by Fassin (2008) that standardized schemes are of no use for
SMEs. The research in Chapter 3 indicates, however, that this view is too pes-
simistic, because the findings show that ISO 14001 provides SMEs with an incen-
tive to cooperate with other enterprises in order to improve their environmental
impacts. The policy implication of these findings is that stimulating the use of
ISO 14001 among SMEs is particularly fruitful for realizing energy savings and
better waste and water efficiency when combined with participation in networks
with external parties. Such relational environmental management instruments are
particular appropriate for small businesses in improving environmental impacts,
as small firms have limited expertise and financial resources to invest in environ-
mentally responsible practices. Even if individual SMEs were to realize only small
DOI: 10.4324/9781003216483-25
This chapter has been made available under a CC-BY-NC 4.0 license.
 Policy and Management Implications 211

savings, the total overall environmental impact could be huge because of the very
large number of enterprises involved.
Third, the willingness to engage in CSR may be stimulated by communica-
tion of the finding that CSR stimulates innovation, as it suggests that CSR poli-
cies have important strategic value to the company (Porter and Kramer, 2006).
Participation in networks in the supply chain or local community to improve
CSR are also useful from this point of view, as it may be conducive to formation
of alliances that benefit innovation as well. Few innovations can be developed
unless SMEs cooperate with other businesses and other parties. Engagement in
innovation-motivated CSR may thus be a double-edged sword: improving CSR
helps to strengthen the firm’s reputation and to comply with legal requirements,
while also helping the firm to become more competitive in the long run. For
policy makers these findings are relevant because they show that stimulating CSR
creates a win-win situation by simultaneously improving the social and environ-
mental contribution to society and promoting innovation by SMEs and therefore
the long-term competitiveness of the economy. The innovation motive allows
policy makers to invoke a proactive, strategic argument in ‘selling’ CSR to com-
panies, including SMEs.
However, SMEs should also be aware that seeking public recognition of their
CSR put themselves in the spotlight of public opinion and scrutiny. Formal pro-
cedural measures to obtain legitimacy from external stakeholders, such as ISO
14001 and ISO 26000 certifications, may backfire if they are decoupled from real
sustainable development (Schwarz and Tilling, 2009). If NGOs start monitoring
a company in response to the larger visibility of the environmental policies of the
company, they might identify this gap and criticize the company for not meet-
ing the expectations raised by the ISO 14001 or ISO 26000 certification. The
managerial lesson for SMEs is that they should be careful in positioning them-
selves as sustainable firms that proactively pursue CSR policies once they started
to develop CSR initiatives. They should not focus too much on the reputational
benefits of CSR, because these may easily turn into reputational liabilities. Sym-
bolic adoptions of CSR policies meant to appease certain stakeholders may, in
fact, have negative consequences by changing the relationship between an organi-
zation and NGOs. Firms that want to improve their image through CSR policies
should anticipate that their policies empower external monitors that can criticize
the company in media if its CSR is more symbolic than substantive in nature.
Rather than a means of image management, the CSR strategy be therefore better
content driven. It is advisable to initially limit the visibility of the CSR policies
and let it substantially lag behind the actual implementation of CSR policies
within the firm (Wagner et al., 2009). Certifications such as ISO 14001 should
not be used primarily as a means to show off to clients or other stakeholders, but
rather as an instrument to foster the integration of CSR in the organizational
procedures so that the firm is on track in improving its EP before using it as a
means to enhance its reputation.
212 Integration and Management Lessons

A similar recommendation can be given for participation in local initiatives

with local governments and activist organizations to meet social or environmental
objectives or starting a dialogue with NGOs. Although this kind of cooperation
may improve a company’s reputation, it also makes it more vulnerable to public
criticism if the company performs poorly in other aspects of CSR. By making itself
more visible, chances are higher that the SME cannot hide inconsistencies in the
quality of different stakeholder relations. The firm is therefore recommended to
take care that its CSR policies are mutually consistent before participating in such
initiatives. Dialogues may make it easier to legitimate a firm’s activities and help
it to progress its CSR (Agudo-Valiente et al., 2015). However, by inviting local
NGOs to participate in a dialogue, the SME puts itself also in the picture of these
NGOs. The dialogue may not only inform the NGOs about the strengths of the
SME’s CSR, but also about its weaknesses. If not genuinely adopted, the dialogue
will not meet the expectations of a participating NGO, which may induce the
NGO to use this inside information to raise public criticism. The policy implica-
tion is that when preparing a stakeholder dialogue, SMEs should be careful in their
selection of stakeholders and take care that the expectations are not set too high to
prevent disappointment. Furthermore, if the SME is predominantly interested in
the dialogue because of economic reasons, it better just communicates this motiva-
tion, because research has shown that this raises less suspicion than communication
of intrinsic motives (Leonidou and Skarmeas, 2017; De Vries et al., 2015).

20.2 Internal Drivers of CSR

In Part II we analysed a set of internal drivers of CSR. From Chapter 6 we
learn that the best strategy to stimulate CSR would be to combine institutional
measures that stimulate extrinsic as well as intrinsic motivation, as both motivate
companies to engage in CSR. Intrinsic motivation requires a business culture
that stimulates moral sensitivity or awareness. The ethical cultures of compa-
nies are the result of a complex interaction between societal, organizational and
personal factors (Paolillo and Vitell, 2002). It is not sufficient to change the for-
mal structures of the business (Ford and Richardson, 1994). Changes in ethi-
cal cultures require attention to symbolic management that makes use of rituals,
symbols and stories that stimulate moral awareness (Treviño and Nelson, 1999).
This has important implications for the recruitment policies and the socialization
and training programmes at the company level. At the institutional level, moral
motivation can be fostered by normative calls for social responsible behaviour in
important business publications and curricula in business schools and by dialogues
with unions, employees, community groups and other stakeholders, because it
appears that companies then better appreciate the concerns of these other actors
(Campbell, 2007).
SMEs may also benefit from the fact that many of them are family-owned
businesses. For several reasons, selling your family company is not only a financial
 Policy and Management Implications 213

but also an ethical decision, and the consequence for the company’s CSR is one
of those ethical dimensions that should be carefully considered. However, sell-
ing a micro family company to a large non-family company may also have some
advantages. For example, if a small family company is taken over by a large public
company that already employs more instruments to improve CSR (because of
its large size), the public company might also implement these procedures in the
newly acquired company, benefiting its CSR. Because, as shown in Chapter 19,
company size has a positive effect on CSR and if a small family company is
sold to a big non-family company, this positive effect outbalances the negative
effect caused by the change in type of ownership. Furthermore, the non-linear
moderation of the relationship between family-business ownership and CSR by
the family involvement in management suggests that appointment of non-family
members in the management of a company fully managed by family members
stimulates CSR. Although the increase in non-family managers may weaken the
identification with the company, this disadvantage is overcome by the advantages
in terms of broadening the focus on a variety of stakeholder interests.
Chapter 8 sought to develop the understanding of the role of gender in envi-
ronmentally responsible small business practice by analysing how the use of man-
agement instruments mediates this relationship. The findings showed that the
proportion of women managers encourages the use of relational environmental
management instruments and that this type of management instrument posi-
tively mediates the relationship between women’s management and SME’s EP.
These findings imply that increasing the representation of women in management
in SMEs is not only desirable from the point of view of providing more equal
opportunities between men and women, but also has a wider societal contribu-
tion by improving the EP of SMEs, which in turn increases their shared value by
bettering reputation. Since we find that sustainable performance is optimal when
the share of women equals 54% (which is more than twice the current share),
the company should seek to create a balanced management team that mixes male
and female managers. As our study does not support critical mass theory for small
business, legal requirements that set minima quota for the share of women in
executive management levels in small business seem to be too restrictive, as they
reduce the SME’s freedom to employ the managers that best fit their needs in the
context in which they are operating.
Our analysis in Chapter 9 suggests that management can influence their
CSR by working towards a stronger external focus and flexibility orientation in
their organizational culture (Berger et al., 2007). Cameron and Quinn (1999)
described the various skills and attitudes that should be encouraged in employ-
ees if an organization is to move in this direction. A cautious and incremental
change process is advisable. ‘[A] culture change is not that management tries to
impose new behaviours (or talk), but a change of ideas, values and meanings of
large groups of people’ (Alvesson and Sveningsson, 2008: 42). While these ideas,
values and meanings cannot be changed directly, management can manipulate
214 Integration and Management Lessons

the organizational context, and in this way influence the ‘internal market’ for
employee behaviours conducive to CSR (Berger et al., 2007). The changes
needed include moving to a more participative decision style (Berger et al., 2007;
Dunphy et al., 2003). Aligning corporate culture and CSR requires a long-term
policy. This view fits with the emerging perspective that becoming a sustainable
corporation requires ‘sufficient persistence, over many years’ (Eccles et al., 2014:
2853). Various practitioner-oriented approaches and tools can be used in culture
change programmes, like vision formulation and communication, establishing
a sense of urgency, creation of role models, and encouraging employee owner-
ship of changes. Finally, organizational cultures cannot directly be influenced by
governments, but abandoning rigid regulation that hinders internal or functional
labour flexibility can make it easier for firms to move in this direction (Kleinkne-
cht et al., 2006).

20.3 Impacts of Competition on CSR

Chapter 10 showed that the intensity of price competition diminishes the long-
term orientation of a company, which in turn reduces CSR. The finding that
long-time orientation encourages CSR has important policy implications, both
at the institutional level and at the intermediate level of industrial organizations.
At the institutional level, governments should seek to enforce the time horizon
of companies, for example by stimulating banks that provide credit to SMEs to
consider the long-term potential of companies. At the level of industrial organi-
zations, norm-setting for corporate governance can contribute to the long-term
orientation of SMEs. Sacrificing long-term prospects to meet short-term earn-
ings expectations can be reduced by proper executive compensation schemes that
make remuneration dependent on long-term, instead of short-term, financial
performance (Mallin et al., 2013).
Furthermore, the finding that the intensity of price competition reduces the
time horizon of companies and hence indirectly discourages CSR may have
implications for competition policy. The guidelines of the European Commission
for the application of article 101 TFEU (formerly article 81 of the EC Treaty)
state that consumer welfare is the only goal of EU antitrust law. Limitations to
competition can only be justified by improvements to efficiency, either by low-
ering costs, improving quality, or creating more opportunities for innovation.
Practices that contribute to overall welfare by improving CSR are only allowed if
consumers obtain a fair share of the resulting benefit. The aim of antitrust policy
to increase consumer welfare by intensifying market competition may, however,
collide with other government policies that aim at sustainability goals, since stim-
ulating competition may simultaneously hamper CSR and the realization of the
environmental goals that CSR contributes to. Our results show, however, that
the net negative influence of the intensity of price competition on EP, although
significant, is nevertheless very small in absolute magnitude. Hence, although the
 Policy and Management Implications 215

argument that price competition worsens EP through increasing short-termism is

valid, it does not have much practical consequences and is therefore hardly worth
considering from a practical or policy point of view. The policy implication is
that there is scarcely a trade-off between the economic benefits from competition
policy, on one hand, and sustainability on the other hand. Hence, competition
policy will probably not lead to a net loss of social welfare caused by lower EP.
Whereas price competition has a small negative effect on CSR, we found
that the intensity of technological competition has a substantial positive effect.
As already noted in section 20.1, the perspective that CSR stimulates innova-
tion allows firms to incorporate CSR policies into their competitive strategy
(Porter and Kramer, 2006). Engagement in innovation-motivated CSR may thus
be a double-edged sword: improving CSR helps to meet society’s expectations
and to comply with legal requirements, while also helping the firm to become
more competitive in the longer run. By appealing to the innovation motive, top
managers of SMEs can be more effectively induced to develop a proactive CSR
strategy than by forced legal compliance. For policy makers, the results imply that
governments can stimulate CSR by economic policies that encourage techno-
logical competition, for example by funding R&D or offering tax credits to the
companies for the R&D expenditure made by those companies. Government
grants to directly fund innovative activities are known to have the most impact
when directed to SMEs. If such policies are targeted at CSR-related innovation,
they encourage CSR not only directly, but also indirectly by fostering a competi-
tive technological environment.
The fear that extrinsic motives arising from more intense technological com-
petition may reduce intrinsic motivation by crowding out, is not supported by the
analysis in Chapter 12. In this chapter, we show that intrinsic CSR motivation is
enforced by extrinsic motivations arising from external pressures to CSR. This
implies that it is also important to emphasize the business case. The expectation
that incentivizing companies in this way might be counterproductive because of
crowding-out effects on intrinsic motivations, as suspected by Graafland and Van
de Ven (2006), is unwarranted. This provides further support for the notion that
there need not be a trade-off between economic benefits from more competition
(the usual policy goal of competition policy) and social or environmental benefits
from CSR. Only if owner-directors are not aware of the positive effects of CSR
on innovation, such policies may harm intrinsic motivation. Therefore, policy
makers who aim at stimulating innovation as well as CSR in the marketplace
by market incentives, should inform managers about the innovation-enhancing
effects of CSR. By appealing to the innovation motive, owner-managers of SMEs
can be more effectively induced to develop a proactive CSR strategy, as it will
both increase extrinsic motivations towards CSR (because of its direct incentive
effect) as well as intrinsic motivation (because of the crowding in of this incentive
effect). This awareness can be stimulated if policy makers target their policies at
CSR related innovation.
216 Integration and Management Lessons

20.4 External Institutional Drivers of CSR

In Chapter 13 we analysed the influence of social licence pressure on CSR. We
found that, by increasing the transparency on CSR in the marketplace, NGOs
and media can increase the responsiveness of external stakeholders to enterprises’
CSR initiatives. In Chapter 14 we found that social licence pressure from CSR
monitoring of NGOs and media does not only raise extrinsic CSR motivation
arising from higher market benefits from CSR, but also enforce intrinsic CSR
motivation through this channel. A policy implication then is that the free func-
tioning of societal organizations and free press should be respected and not hin-
dered by political agendas. This countervailing power is vital for any society that
wants to limit potential negative externalities caused by free market operations
in a capitalistic economic system (Ali et al., 2017; Doh and Guay, 2006). If social
licence pressures for environmental impacts were to be absent or weak for SMEs,
the use and development of existing regulatory structures providing minimum
standards for many activities covered by CSR would remain the most effective
means to influence the environmental impacts of SMEs. This research shows,
however, that this view is too pessimistic for SMEs. We find that compliance
with legislation is less important than market-related strategic benefits from CSR.
Therefore, governments should not rely on regulation only. To stimulate SMEs’
CSR, it is better to publicly award enterprises with excellent CSR performance,
and couple this with soft regulations that induce enterprises to publish some key
performance indicators on CSR. This kind of information makes it easier for
local NGOs or media to collect information on the CSR impacts of enterprises
and enhances the perception of SMEs of the working of the social licence mecha-
nism. The guidelines for the information that should be provided should fit the
nature of SMEs and therefore be simpler than comparable publication guidelines
for large enterprises.
In literature it is argued that SMEs would favour external forms of regulation
rather than self-regulation, because this generates a ‘level playing field’ that allows
them to concentrate on the economic aspects and leave social and environmental
aspects to the government (Williamson et al., 2006). According to Williamson
et al. (2006), this implies that the use and development of existing regulatory
structures, providing minimum standards for many activities covered by CSR,
remains the most effective means to influence behaviour of SMEs. However, it is
important for governments to acknowledge the specific nature of SMEs. Because
of their small size, imposing regulatory compliance to CSR related regulations
disproportionally increases their non-productive overheads. Another problem of
strict government regulation addressed in Chapter 15 is that government regu-
lation crowds out intrinsic CSR motivation of companies with high intrinsic
motivation. Therefore, it is important to estimate the importance of intrinsic
motivation, before any government regulation is implemented. If only few busi-
nessmen are intrinsically motivated to begin with, government regulation cannot
 Policy and Management Implications 217

crowd out intrinsic motivation. But if intrinsic motivation is strong, government

regulation should be handled with care. Governments should then rather aim at
increasing the awareness among SMEs of (relatively easy ways of    ) implementing
CSR management instruments. Johnson (2015) found that in SMEs, managers’
awareness of CSR management instruments is the major determinant for the
implementation of instruments. In addition, other studies show that awareness-
raising programmes targeted at SMEs may be the best chance for higher adop-
tion rates of CSR management instruments, for example through mandatory free
audits on how to improve impacts (Bradford and Fraser, 2008). Furthermore,
Campbell (2007) advocates regulations based on consensus-building among com-
panies, government and other relevant stakeholders. This is in line with previ-
ous experimental studies that showed that crowding effects decline if regulation
respects the self-determination of participants (Vollan, 2008) and facilitates com-
munication (Abatayo and Lynham, 2016). From a motivation crowding per-
spective, it indeed seems crucial to seek cooperation with the stakeholders by
respecting their legitimate concerns, engaging their moral preferences, and allow-
ing businesses discretion on how to enhance the public good. Another policy
implication of the research in Chapter 15 is that government regulation may want
to focus on setting minimum requirements for EP. In this way, it will enhance the
EP of companies that have not taken voluntary initiatives because of low intrinsic
or extrinsic motivation. Our estimation results indicate that crowding-out effects
from government regulation are largely absent in this group. For countries with
little or no environmental regulation, our policy advice is for the government
to introduce minimum requirements to compel companies that lag behind to
improve their EP. This allows companies that are frontrunners in reducing envi-
ronmental harm to retain the scope to distinguish themselves from other compa-
nies by expressing their commitment to social responsibility through voluntary
initiatives.
Our analysis in Chapter 16 has shown that intrinsic motivation does not only
play an important role in stimulating CSR in itself, but also moderates the effects
of economic freedom on CSR. This finding implies that societies with free mar-
ket economies can flourish in-so-far as key market actors have positive intrinsic
motivation and act virtuously. In Chapter 17, we furthermore identified a cul-
ture of long-term orientation as a moderating factor in the relationship between
economic freedom and CSR. The policy and management implications of this
finding are, however, not so obvious, are long-term orientation at the level of the
society cannot be influenced policy makers. What our analysis does show is that
in countries with high long-term orientation this characteristic of national cul-
ture can only stimulate CSR if firms have sufficient economic freedom, a factor
that can be influenced by policy makers at the level of the society.
Finally, Chapter 18 has shown that collective bargaining agreements pos-
itively rather than negatively affect CSR. The policy implication that can be
derived from these findings is that societies should be careful in diminishing the
218 Integration and Management Lessons

role of unions, for example, by abolishing the legal extension of collective agree-
ments. The results indicate that nullifying the power of unions may reduce the
incentives for creating more equal opportunities for women in board positions
and for hiring employees from groups with a disadvantaged position in the labour
market. If the influence of unions diminishes, public spirit may decline and this
will make it more challenging to integrate people with a migrant history, into the
labour market, among them, the refugees that recently entered Europe.
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APPENDIX 1
Survey Questions

Introduction to Respondents of the Survey

The concept of CSR was introduced to the respondents as follows:

The topic of this survey is corporate social responsibility (CSR). CSR is the
practice whereby enterprises integrate social and environmental concerns
in their business operations on a voluntary basis, in order to contribute
to public prosperity in the longer run. It concerns various environmental
aspects (e.g. reduction of CO2 emissions, energy consumption, water con-
sumption and hazardous waste), but also social aspects (e.g. the provision of
equal opportunities to women, job opportunities for disadvantaged people,
training of employees, safe working conditions and contribution to social
projects). You can interrupt answering the online survey at any time and
return to it again whenever it suits you. If exact answers for your enterprise
are not possible, please provide your best estimate. Thank you very much
in advance.
 Appendix 1 253

TABLE A1.1 List of survey questions

No. Survey question Answer options

1 What is your position in the enterprise? 1 Director owner; 2 Director; 3

Manager; 4 Other
2 What is your age? 1 <30; 2 30–45; 3 46–55; 4 >55
3 Your company is: 1 fully owned by a family
2 partly owned by a family
3 not owned by a family
4 Your company is fully owned by a family 1 fully managed by family
and members
2 partly managed by family
members
3 not managed by family
members
5 Your company is partly owned by a family 1 fully managed by family
and members
2 partly managed by family
members
3 not managed by family
members
6 To whom do you sell your products and/or 1 Only enterprises; 2 Mainly
services? enterprises; 3 Both enterprises
and consumers; 4 Mainly
consumers; 5 Only consumers
How important are the following Seven-point scale ranging from
relationships for your enterprise? 1 ‘not at all’ to 7 ‘very much’
7 Relations with shareholders and/or director
owner
8 Bank relations
9 Employee relations
10 Customer relations
11 Supplier relations
12 Relations with government bodies
13 Local community relations
14 Societal relations (like NGOs)
15 Characterize your enterprise on the Select the answers on the seven-
following scale. The scale concerns the point scale here; 4 indicates an
organizational focus. This scale ranges intermediate position
from:
1 In our enterprise we focus on optimizing
the internal organizational efficiency
7 In our enterprise we focus on adapting
to the demands of the external
environment

(Continued)
254 Appendix 1

TABLE A1.1 (Continued)

No. Survey question Answer options

16 Characterize your enterprise on the Select the answers on the seven-
following scale. The scale concerns the point scale here; 4 indicates an
management style. This scale ranges from intermediate position
1 In our enterprise we manage employees
by supervision and strict compliance
mechanisms
7 In our enterprise we stimulate employees
autonomy and participative decision
making
17 What is the average time horizon of the 1 1 year or less; 2 2 years; 3
financial targets of your enterprise? 3 years; 4 4–5 years; 5 > 5 years
How important are the following motives Seven-point scale ranging from 1
for your enterprise to engage in CSR? ‘not at all’ to 7 ‘very much’
20 It serves long-term financial interests of
shareholders and/or director owner
21 It helps to meet (future) government
regulation
22 It leads to innovation
23 It reduces operational costs
24 It limits reputational risks
25 Your enterprise feels responsible for the
planet and the society
26 It creates personal satisfaction for the people
in your enterprise
27 Large customers ask for it
28 It fulfils expectations of society
29 CSR may demand extra financial resources. 1 1 year or less; 2 2 years; 3
What is the average time horizon for these 3 years; 4 4–5 years; 5 > 5 years
investments in your enterprise?
To what extent does engagement in CSR Seven-point scale ranging from 1
influence the following aspects for your ‘not at all’ to 7 ‘very much’
enterprise?
30 CSR makes it easier to attract investors
31 CSR makes it easier to get credit from banks
32 CSR improves inflow of highly qualified
employees
33 CSR motivates the employees
34 CSR increases profit margins on products
35 CSR increases turnover
36 CSR helps meeting (future) government
regulation
37 CSR improves innovative capacity
38 CSR improves profitability in the long term
39 CSR limits reputational risks
 Appendix 1 255

No. Survey question Answer options

40 To what extent did your enterprise face Seven-point scale ranging from 1
complaints (from inside or from outside ‘not at all’ to 7 ‘very much’
the enterprise) about your enterprises
social and/or environmental aspects?
41 Do industry and/or branch associations Seven-point scale ranging from 1
provide information on CSR? ‘not at all’ to 7 ‘very much’
42 Do NGOs and/or (social) media monitor Seven-point scale ranging from 1
your CSR? ‘not at all’ to 7 ‘very much’
Which measures are realized in your 1 Yes; 2 No; 3 Unfamiliar with
enterprise? this measure
43 Internal publication of a code of conduct
44 External publication of a code of conduct
45 Active dialogue with NGOs concerning
CSR issues
46 Cooperation with other enterprises in
supply chain to meet CSR goals
47 Partnerships with professional training
institutes (technical schools, laboratories,
etc.) to anticipate technological evolutions
of products or services
48 Participation in local initiatives (cooperation
with local governments or social
organizations) to meet social or
environmental objectives
49 Director/manager is answerable to CSR issues
50 Remuneration of management is explicitly
linked to CSR performance
51 A confidential person or a confidential
complaint procedure/whistle-blower
procedure
52 Ethics committee
53 Training programme in (aspects of    ) CSR for
employees and/or managers
54 The use of a reference guide or external
CSR tool to measure and verify your SR
performance
55 Use of global initiatives (like GRI and/or
Global Compact) as a frame of reference
Which measures are realized in your enterprise? 1 Yes; 2 No; 3 Partially;
56 ISO 9001/9002/9003 4 Unfamiliar with this measure
57 ISO 14001 and/or regulated by Eco-
Management and Audit Scheme (EMAS)
or Greenhouse Gas Protocol
58 SA 8000
59 Other (e.g. ISO 27001, FSC, etc.)

(Continued)
256 Appendix 1

TABLE A1.1 (Continued)

No. Survey question Answer options

Indicate for each social issue below whether 1 no; 2 on an ad hoc basis;
your enterprise actively improved it. 3 continuously
60 Share of women in board and/or executive
positions
61 Share of employees recruited from
disadvantaged groups (e.g. ethnic
minorities, people with disabilities, long
term unemployed)
62 Work–life balance
63 Employee training
64 Contribution to social projects (e.g.
sponsoring)
65 Reduction in workplace accidents and/or
sickness absence rate
66 Labour conditions of suppliers/subcontractors
and/or respect of human rights
What was your enterprise’s performance on %
the following social aspects in 2010?
67 Share of women in board and/or executive
positions
68 Share of employees recruited from
disadvantaged groups (e.g. ethnic
minorities, people with disabilities, long-
term unemployed)
69 Number of overtime hours as % of total FTEs
70 Share of employees covered by collective
bargaining agreement as % of total
number of employees
71 Sickness absence rate
72 Share of permanent employment contracts
as % of total number of employment
contracts
73 Contribution to social projects as % of net
profit
Has your performance on the following 1 Decreased more than 5%: -3.0
social aspects increased, decreased or 2 Decreased by 3–5%: -2.0
remained more or less the same in 2010 3 Decreased by 1–3%: -1.0
compared to 2007? 4 Not changed very much: 0.0
74 Share of women in board and/or executive 5 Increased by 1–3%: 1.0
positions 6 Increased by 3–5%: 2.0
75 Share of employees covered by collective 7 Increased more than 5%: 3.0
bargaining agreement
76 Share of permanent employment contracts
as % of total number of employment
contracts
 Appendix 1 257

No. Survey question Answer options

Has your performance on the following 1 Decreased by more than 2%
social aspects increased, decreased or 2 Decreased by 1–2%
remained more or less the same in 2010 3 Decreased by 0.5–1%
compared to 2007? 4 Not changed very much
77 Share of employees recruited from 5 Increased by 0.5–1%
disadvantaged groups as % of total inflow 6 Increased by 1–2%
78 Number of overtime hours as % of total 7 Increased by more than 2%
FTEs
79 Sickness absence rate
80 Contribution to social projects as % of net
profit
Please indicate whether your enterprise has 1 We use methods to measure;
taken the following measures 2 We use concrete targets;
81 Share of women in board and/or executive 3 We report on it;
positions 4 None of these
82 Share of employees recruited from
disadvantaged groups (e.g. ethnic
minorities, people with disabilities, long
term unemployed)
83 Work–life balance
84 Employee training
85 Contribution to social projects (e.g.
sponsoring)
86 Reduction in workplace accidents and/or
sickness absence rate
87 Labour conditions of suppliers/
subcontractors and/or respect of human
rights
88 What is the average length of contract in In number of years
your enterprise?
89 What are the average annual hours of
training (course, education) per FTE that
your enterprise fully or partly funds?
Indicate for each environmental issue below 1 no; on an ad hoc basis;
whether your enterprise actively improved 3 continuously
it.
90 Reduction of CO2 emissions
91 Reduction in energy consumption and/or
increase in use of renewable energy
92 Reduction in water consumption
93 Reduction in waste and/or increase in
recycling of waste
94 Environmental conditions of suppliers/
subcontractors

(Continued)
258 Appendix 1

TABLE A1.1 (Continued)

No. Survey question Answer options

Please indicate whether your enterprise has 1 We use methods to measure;
taken the following measures (multiple 2 We use concrete targets;
answers possible): 3 We report on it;
95 Reduction of CO2 emissions 4 None of these
96 Reduction in energy consumption and/or
increase in use of renewable energy
97 Reduction in water consumption
98 Reduction in waste and/or increase in
recycling of waste
99 Environmental conditions of suppliers/
subcontractors
Has your performance on the following 1 Decreased more than 5%: -3.0
environmental issues increased, decreased, 2 Decreased by 3–5%: -2.0
or remained more or less the same in 3 Decreased by 1–3%: -1.0
2010 compared to 2007 (respective 2013 4 Not changed very much: 0.0
compared to 2010)? 5 Increased by 1–3%: 1.0
101 CO2 emissions 6 Increased by 3–5%: 2.0
102 Energy consumption 7 Increased more than 5%: 3.0
103 Use of renewable energy
104 Water consumption
105 Waste
106 Share of waste that is recycled
Please indicate for each environmental aspect 1 Voluntary initiatives by own
which of these causes contributed most to enterprise
your improvement on that aspect 2 Collective initiatives in supply
107 Decrease in CO2 emissions chain and/or industry
108 Decrease in energy consumption 3 Legal requirements
109 Increase in use of renewable energy 4 Market pressure
110 Decrease in water consumption 5 Not applicable
111 Decrease in waste production
112 Increase in share of waste that is recycled
What was your enterprise’s employment? In FTE
113 In 2007
114 In 2010
115 What is the share of the skill level categories as % of total FTEs
of employees?
Low skilled (no qualifications, O-levels,
CSEs, GCSEs)
Medium skilled (A levels or BTEC equivalent)
High skilled (degree and post graduate level
qualifications)
116 What is the share of the age categories of as % of total FTEs
employees?
<25 years
25–50 years
>50 years
 Appendix 1 259

No. Survey question Answer options

119 Which of the following statements is most
applicable to your enterprise?
1 many enterprises are selling products
and/or services that have very similar
characteristics (so-called perfect market)
2 many enterprises are selling products and/
or services, but the product and/or services
have slightly different characteristics
(so-called monopolistic competition)
3 a few enterprises are active that provide 70%
or more of the market (so-called oligopoly)
4 no other enterprise is active that sells a
product and/or service that has similar
characteristics as your product and/or
service (so-called monopoly)
120 What best characterizes the market position 1 Your enterprise is market leader
of your enterprise in the market for your 2 Your enterprise is following the
main product or service? market leader
3 Your enterprise operates on a
level-playing field with many
enterprises
4 Your enterprise is niche product
supplier
In the market for your main product or Seven-point scale ranging from 1
service, your enterprise is prone to ‘not at all’ to 7 ‘very much’
121 price competition:
122 competition on quality and/or product
innovation
123 Has your enterprise introduced new or Seven-point scale ranging from 1
significantly improved products or services ‘not at all’ to 7 ‘very much’
since 2007? (Exclude the simple resale
of new goods and changes of a solely
aesthetic nature.)
124 Has your enterprise introduced new or Seven-point scale ranging from 1
significantly improved production or ‘not at all’ to 7 ‘very much’
organizational processes since 2007?
How important are the following motives Seven-point scale ranging from 1
for your enterprise to innovate? ‘not at all’ to 7 ‘very much’
125 Increasing market share
126 Reduction of production costs per unit
output
127 Meeting government regulation
128 Improvement of health and safety of your
employees
129 Reduction of your environmental impact
and/or your material and energy costs
APPENDIX 2
Sample and Methods of Statistical Testing

Sampling Method and Survey Development

Sampling Method
To disentangle the complex relationships between institutions, internal environ-
ment, CSR implementation, CSR impacts, and other impacts, we needed an
extensive databank. Empirical studies on CSR often use ratings from professional
rating bureaus, such as KLD, Asset4, Sustainalytics, Calvert, FTSE4Good, DJSI,
EIRES, or public data bases (Aravind and Christman, 2011). These data are typi-
cally only available for large companies (Testa et al., 2014) and not for SMEs.
Although several researches have been done to CSR of SMEs, all these researches
were based on samples that are limited to a small number of SMEs and often relate
to one or a few countries and typically include only a limited number of variables
to be analysed. These samples are too small for a wide econometric analysis of
CSR by SMEs.
For this reason we set up an ambitious new data project that aimed at gather-
ing data of CSR, its drivers, and its impacts for at least 1,000 enterprises in 12
European countries. The focus on European countries was due to data limita-
tions – a larger geographical diversity could not be obtained within the limits
of the financial means provided by the European Union. We therefore selected
a sample of countries that is considered representative of the existing variety
of political and economic institutions in Europe: Continental Western Europe
(Austria, Germany, France, and the Netherlands); Scandinavia (Finland, Sweden,
and Denmark); Mediterranean Europe (Italy, Spain); Central Europe (Poland and
Hungary); and Anglo-Saxon Europe (the United Kingdom) (see Table A2.1).
 Appendix 2 261

TABLE A2.1 Response to SME survey in 2011 and 2014 per country

2011 2014

Country Invitations Completed Response Invitations Completed Response

Responses rate (%) Responses rate (%)

UK 31,801 163 0.5 383 69 18.0

Italy 85,920 1,534 1.8 3,610 906 25.0
Spain 38,870 566 1.5 1,290 226 17.5
Denmark 8,431 358 4.2 633 141 22.3
Finland 6,039 240 4.0 433 83 19.2
Sweden 13,771 263 1.9 561 110 19.6
Austria 11,254 148 1.3 310 33 10.6
France 63,054 346 0.5 1,105 128 11.6
Germany 50,129 537 1.1 1,182 187 15.8
Netherlands 12,885 624 4.8 1,198 380 31.7
Hungary 12,155 223 1.8 492 94 19.1
Poland 30,693 315 1.0 1,125 141 12.5
Total 365,002 5,317 1.5 12,321 2,498 20.3

Our ambition could only be realized by using a high cost-efficient way of gath-
ering information. For that purpose, we contacted CentERdata, a data research
institute specialized in online data collection. CentERdata has much experience
in cross-European data collection and uses an advanced Language Management
Utility to coordinate questionnaire development in different languages. Because
questionnaires can be filled in online, the marginal costs of distributing question-
naires are extremely low if contact addresses are available.
In 2011, the survey was set out by CentERdata. After the first invitation,
we sent three reminders. In 2014, CentERdata repeated this survey among the
companies that cooperated to the survey in 2011.1 To fully benefit from the
longitudinal character of the study, the questions used in the 2011 survey were
also included in the new wave. A time interval of three years should be sufficient
to monitor the evolution of CSR over time, as CSR policies of companies only
gradually change. Companies from all industries participated in the survey (see
Table A2.3 below).
In October and November 2011 we fielded the first wave of the survey. The
e-mail addresses of companies were obtained from KOMPASS (www.kompass.
com). The researcher personally contacted the representative of KOMPASS in
his country and discussed the characteristics of the database to be delivered by
KOMPASS. An advantage of the KOMPASS database is that it includes both
large and small companies. The number of e-mails of enterprises per country was
set proportional to the total number of enterprises in these countries. A number
of e-mail addresses bounced and therefore were not useable. The survey was
262 Appendix 2

presented to 365,002 enterprises and 13,637 responded (3.7%), of which 5,317

completed the long survey. International mail surveys aiming at an industrial
population have a history of very low response rates varying between 6% and
16% (Harzing, 1997). Since our survey targeted SMEs, was electronic, and took
substantial effort to fill out, the response rate is even lower and in line with ex-
ante expectations. Based on statistical criteria (Cochran’s sample size using an
alpha of 0.05),2 this response is adequate to infer reliable research findings for
the total population of companies in the 12 countries. In November 2014, the
respondents who had participated to the first study were contacted again and
invited to take part in the second wave. The questionnaire was sent to 13,634
e-mail addresses, of which 9.6% was bounced. Of the remaining 12,321 invita-
tions, 2,498 companies completely responded. Using Cochran’s sample size for-
mula with alpha of 0.05, we find that this response, too, is adequate. Table A2.1
shows many responses from Italy. This is due to the large number of Italian SMEs.
The response rate was highest for the Netherlands, Denmark, and Finland. In
contrast, for the UK, Austria, and France, we received a relatively low number
of responses.
In our survey, we focused on small and medium-sized companies. As reported
in Table A2.2, the size of the SMEs in our survey is very different. A substantial
number of companies are micro enterprises with 10 or less employees. Also small
companies (between 10 and 50 employees) and medium-sized enterprises (50–
25) are well presented in our survey. Finally, 7–10 % of the respondents represent
large companies with more than 250 employees (in FTEs).
Table A2.3 reports the sector division. We distinguish 19 sectors based on
the National Accounts classification. Most companies operate in manufacturing
sectors, but a substantial part concerns service industries. In the two waves, the
sector allocation slightly changes, but no major differences occur.

Trend in CSR from 2011 to 2014

Tables A2.4 and A2.5 indicate how CSR changed during the period 2011–2014.
Table A2.4 reports the general organizational measures or instruments that can be
used to integrate CSR in the company’s organization. Table A2.5 presents issue-
specific measures for five social and five environmental aspects of CSR.
The first two measures indicate the commitment of the enterprise to CSR.
An internal code of conduct is quite common but externally published codes

TABLE A2.2 Company size (employees, FTE) (in %)

Micro (<10) Small (10–50) Medium (50–250) Large (>250)

2011 23 38 29 10
2014 35 36 22 7
 Appendix 2 263

TABLE A2.3 Sector division (in %)

2011 2014 2011 2014

Agriculture, forestry 2.2 2.7 Electricity, gas and 1.1 0.7

and fishing water supply
Mining and quarrying 0.6 0.5 Construction 7.2 6.6
Food products, 4.2 4.4 Trade and hotels and 8.7 8.2
beverages and restaurants
tobacco
Textile and leather 3.0 3.4 Transport 3.9 3.6
Paper, publishing and 2.2 2.2 Telecommunications 4.4 3.3
printing and computer services
Oil and chemical 2.9 3.3 Finance 1.1 0.9
industry
Metal industry 8.9 8.2 Real estate activities 0.8 0.7
Machine industry 9.0 9.3 Other services 18.0 17.2
Transport equipment 0.7 0.6 Other business activities 12.3 14.1
Other manufacturing 8.8 9.8

TABLE A2.4 Application of general CSR measures in 2011 and 2014 (%)

2011 2014

Internal code of conduct 48 52

External code of conduct 20 24
Dialogue with NGOs 17 18
Cooperation on CSR in supply chain 38 41
Partnerships with training institutes 35 38
Participation in local initiatives with regard to CSR 41 45
CSR remuneration management 7 7
CSR training programme 30 32
ISO 14001/EMAS/GHG protocol 16 18
Other certifications 17 21

of conducts are not. Comparing 2011 and 2014, the commitment to CSR is
slightly growing in time. This trend is also present for other measures that foster
external CSR relations, for example an active dialogue with NGOs, cooperation
with other companies in the supply chain, partnerships with professional training
institutes, and participation in local initiatives of governments or social organiza-
tions to achieve CSR objectives. During 2011–2014, particularly participation in
local initiatives increased. The company can also employ various instruments to
improve the CSR awareness within the firm. Examples are CSR training of man-
agers and other employees and CSR-dependent remuneration schemes. Table
A2.4 shows that linking the remuneration of managers to their CSR performance
264 Appendix 2

TABLE A2.5 Trends in issue-specific implementation (in %)

Effortsa Targets (%) Reporting (%)

2011 2014 2011 2014 2011 22014

Social aspects
Share of women in board and/or 44 47 11 12 10 13
executive positions
Share of employees recruited from 38 40 12 13 11 13
disadvantaged groups
Reduction in workplace accidents 80 83 27 29 29 31
and sickness absence rate
Employee training 75 77 35 37 29 31
Labour conditions of suppliers and 59 63 17 18 14 15
respect of human rights
Environmental aspects
Reduction in energy consumption 68 71 25 28 20 23
and/or increase in renewable
energy
Reduction in water consumption 61 63 18 21 18 20
Reduction in waste and/or increase 79 81 28 32 23 25
in recycling of waste
Environmental conditions of 51 53 13 13 13 13
suppliers
a Measured on a three-point scale ranging from 0 (no effort), 50 (incidental effort), to 100 (continu-
ous effort).

was still very rare in 2014, whereas CSR training was more common and growing
over time. The last category refers to management systems that foster CSR. Table
A2.4 shows that environmental certifications were not very common but slightly
growing. Furthermore, companies may apply sector-specific certifications. In the
Dutch construction sector, for example, the VCA certification (which focuses on
health and safety issues) is very common among SMEs.
Application of general instruments will allow companies to improve its CSR
outcomes. But the link between general instruments and concrete CSR out-
comes is mediated by measures at the issue-specific level. Table A2.5 presents
three types of indicators of the implementation of CSR at the issue-specific level:
the effort that companies spend on improving specific CSR issues, use of tar-
gets for improving the realization of the respective CSR aspects, and whether it
reports the realization of the targets. Table A2.5 shows SMEs have put gradually
more effort into improving their CSR. Between 2011 and 2014, the average
effort increased for all issues investigated. Safety and health issues and employee
training received most attention. However, improvement of labour conditions in
the supply chain was also an important item; almost 50% of SMEs said that they
put continuous effort in improving this issue. Least effort was put into fostering
 Appendix 2 265

the presence of women in top management of the company and recruitment of

employees from disadvantaged groups.
Only a small minority of SMEs attached such a high priority to improving
CSR that they used concrete targets and report on realization of these targets
to guide their policies, although the use of this kind of procedural measures was
slowly increasing between 2011 and 2014. Only for health and safety, employee
training and reduction in waste, targets, and reporting were more commonly used
by SMEs.

Methodology of Survey Development

In developing the survey, we first analysed how CSR is measured by professional
rating bureaus. We only considered generic measurements, not sector-specific
variables. Second, we sought guidance from an SME consultant who special-
ized in advising SMEs on their CSR to establish the kind of indicators known
to micro, small, and medium-sized companies, indicators that they could look
up relatively easily when filling out the survey questions. We also discussed
the survey questions in two rounds with a research team of 14 renowned CSR
researchers from the 12 European countries where the survey would be sent,
who participated in the IMPACT project of the FP7 programme of the Euro-
pean Union. Next, we pre-tested the survey by interviewing ten executives
from companies. We used a convenience sample (Sekaran, 2003) by selecting
companies from the local environment of the researcher. The companies were
selected from both manufacturing and service sectors (food industry, construc-
tion, trade, ICT, insurance) as well as from different size classes (micro, small,
medium-sized and large) to explore content validity in various different con-
texts. The executives were asked to fill in the survey before the interview was
held. Then the researcher visited the company and discussed the survey ques-
tions and the company’s responses in depth, to check whether the respondent
fully understood the survey questions and whether the questions suited the CSR
of the company. These interviews provided us with extensive feedback on the
survey questions. Based on the outcomes of this pilot survey, we fine-tuned the
cut-off values.
As the use of English-language questionnaires in cross-national surveys might
subconsciously adjust the responses, the survey was translated by members of the
IMPACT research team into their own languages for the 12 countries in which
the companies were located. As all of them are experts in CSR research and well
known with the survey questions because of their participation in the discus-
sion on the content and formulation of the survey questions, translation back of
the relative simple survey questions into English to ensure correspondence with
the original survey was not necessary. For the coordination of the translations,
CenterData used an advanced language management utility to ensure consistent
content coverage.
266 Appendix 2

Estimation Methodology

Measures to Remedy Common Method

and Non-response Biases
Using surveys potentially can cause several types of method biases, such as com-
mon method bias and non-response bias, or attrition bias in the 2014 survey.
Common method bias arises from common rater effects due, for example, to
social desirability and positive (or negative) mood state (Podsakoff et al., 2003). To
address the potential concerns of common method and non-response or attrition
bias, we used several precautionary remedies and ex post tests that are recom-
mended by Podsakoff et al. (2003) and Antonakis et al. (2010). First, to reduce
the potential for social desirability bias, we explained in a covering letter to the
respondents in both surveys that the study was confidential and to be used for
research purposes only. Respondents thus had little reason to present a more
favourable picture than they knew to be the case, and research has shown that
there are strong correlations between self-reported and actual behaviours (Beaver
and Prince, 2004). Second, item ambiguity was reduced by avoiding vague con-
cepts and keeping the questions simple, specific, and concise, steering respond-
ents to least effort genuine answers. CSR was measured by very concrete yes/no
questions (e.g. does your enterprise have a public code of conduct? Etc.), which
reduce influences from affective mood or social desirability. A third precautionary
remedy recommended by Podsakoff et al. (2003) that we employed is temporal
separation. When testing the influence of independent variables on the depend-
ent variables, we used in some of the analyses three years lagged values. As a
fourth precautionary measure, the scales of different variables often differed. This
reduces common method biases caused by commonalities in scale endpoints and
anchoring effects. Finally, to diminish the effects of consistency artefacts, we put
the survey questions that enquire the dependent variables at the end of the survey,
and the independent variables more up front, so that the respondents did not fill
in their responses to the independent variables with their response to the depend-
ent variables in mind (Muller and Kolk, 2010).
Besides these precautionary measures, we applied two ex post tests for com-
mon method bias (see Table A2.6). First, Podsakoff et al. (2003) recommend
Harman’s single factor test through an unrotated principal component analysis
on all the variables included in the analysis. The basic assumption of this tech-
nique is that if a substantial amount of common method variance is present,
either (a) a single factor will emerge from the factor analysis or (b) one general
factor will account for the majority of the covariance among the measures. Sec-
ond, in some chapters we also employed the marker variable technique (Lindell
and Whitney, 2001). A marker variable is a variable that is theoretically unre-
lated to at least one of the variables being studied. The correlation between this
 Appendix 2 267

TABLE A2.6 Overview of estimation methods per chapter

Part Ch. Common method Non-response Factor analysis Estimation techniques

Harman Marker Wave Heckman Attrition EFA CFA

I 2 + + + OLS, logistic
3 + + + + + SEM, lags
4 + + + + + OLS, IV, lags
5 + + + + IV, lags
II 6 + + + + OLS
7 + + + SEM
8 + + + + SEM, IV
9 + + + + OLS
III 10 + + + + SEM
11 + + + Bootstrap
12 + + Ordered logit
IV 13 + + + + SEM
14 + + + + SEM, IV
15 + + + CMP, IV
16 + + + + SEM
17 + + SEM
18 + + SEM

marker variable and the theoretically unrelated variable is treated as an indicator

of common method bias.
To evaluate the non-response and attrition bias, we used three ex post tests.
First, wave analysis compares the scores on key variables in the survey for early
respondents and late respondents, assuming that late respondents are more similar
to non-respondents than early respondents (Rogelberg and Stanton, 2007; Lin
and Ho, 2011). To apply this test, we constructed a wave variable with value 1 for
respondents that responded after the first invitation to participate in the survey,
value 2 for responses after the first reminder, value 3 for responses after the second
reminder, and value 4 for responses after the third reminder. If late respondents
differ from early respondents, it suggests some level of non-response bias exists.
The wave variable was included as an additional control variable in the regres-
sion analysis to correct for possible non-response bias. We further controlled for
non-response bias by using the Heckman two-step estimation procedure (Heck-
man, 1979; Lee, 1983; Puhani, 2000; Certo et al., 2016). Heckman developed a
two-stage procedure to eliminate the non-response bias in the regression analysis
that follows from a selective response. Heckman showed that non-response bias
can be interpreted as omitted variable bias and that the non-response bias disap-
pears if one includes the omitted variable, the so-called inverse Mills ratio, in the
regression analysis as control variable. In the first step, a probit model as selection
268 Appendix 2

equation is estimated for the full sample of 365,002 companies explaining the
response (0 for non-response; 1 for response) in 2011 by type of country, sector,
company size, and the year the company started. As exclusion restriction we used
the degree of feeling European as measured by the Eurobarometer because the
invitation letter that requested companies to respond to the survey was signed
by a representative of the European Union. It is expected that respondents who
feel more European are more inclined to cooperate with the survey, independ-
ent of their interest in sustainability. The estimation results of the probit model
supported this proposition and showed a highly significant positive effect on the
response rate of feeling European (p < 0.001), controlling for sector, company
size, and the year that the company started. From the regression result, we cal-
culated the inverse Mills ratio. The inverse Mills ratio expresses the unobserved
characteristics of the company that might affect the likelihood that a company
responds to the survey as well as the dependent and independent variables (caus-
ing the omitted variable bias). Next, the inverse Mills ratio is included as addi-
tional control variable in the regression analysis of the dependent variable. By
including the inverse Mills ratio as explanatory variable in the regression analysis,
one removes the selection bias part from the survey from the error terms. For
the second survey in 2014, we additionally tested for attrition bias (selection bias
caused by loss of participants) by performing regression analysis for the depend-
ent and independent variables on a dummy measuring the response to the 2014
survey for all respondents that responded to the 2011 survey.

Estimation Techniques
In order to ascertain the validity of the constructs of variables based on a cluster
of survey items, we used exploratory and confirmatory factor analysis (see Table
A2.6). If the proposed clustering is based on the literature and clearly related to
the theoretical meaning of these variables, but there is no previous literature that
establishes the relation between our expected factors, it is then common practice
to use an exploratory factor analysis (EFA) to test our predictions about the fac-
tor decomposition of the survey questions. EFA is independent of the structural
model; the factor elements are chosen purely on the basis of the subset of survey
questions and free of any a priori assumed relationships. For the exploratory factor
analysis, we used principal component analysis with Oblimin rotation. The con-
firmatory factor analysis (CFA) tests validity of the factors in the specific context
of the structural equation model by the estimation of the measurement model. It
is performed simultaneously with the estimation of the structural model.
For the regression analysis, we mostly used structural equation modelling
(SEM) with maximum likelihood estimation that simultaneously estimates the
structural paths and the measurement model (confirmatory factor analysis). Fac-
tor analysis and structural equation modelling are well-known estimation tech-
niques in management literature (Williams et al., 2009). The SEM methodology
 Appendix 2 269

has several advantages (Tomarken and Waller, 2005). First, it provides a conveni-
ent method to simultaneously estimate latent variables and their manifest indica-
tors (the measurement model/confirmatory factor analysis) and the relationships
among constructs (the structural model). The use of latent constructs represented
by multiple indicators provides more valid and reliable measurements of the vari-
ables studied and corrects for biases attributable to random error and construct-
irrelevant variance. This improves the ability to draw causal inferences because
testing models with good data and cross-validation allow a better understanding
of the phenomenon studied. Another commonly acknowledged strength of SEM
is the availability of measures of global fit that provide a summary evaluation
of the full model, in contrast to models that are estimated on an equation-by-
equation basis. Finally, SEM provides an easy way to test for mediation by the
estimation of direct and indirect effects (Bullock et al., 1994).
A possible weakness of the SEM methodology is that it cannot fully prove cau-
sality. Notwithstanding the several advantages discussed earlier, it can only offer
tentative causal inferences (Bullock et al., 1994). For this reason, we additionally
used in some chapters the instrumental variable (IV) approach to additional test
causality. We employed the Hausman specification test (also known as the Haus-
man test of endogeneity or Hausman-Wu test) and the Sargan test to test for
exogeneity of the dependent and instrumental variable. In some chapters, we also
used lagged variables, which is also a precautionary method to diminish reverse
causality in CSR research (Waddock and Graves, 1997; Surroca et al., 2010).
If we used SEM, it was easy to test for mediation by inspecting the significance
of indirect effects. In Chapter 11, we employed the regression-based macro for
SPSS of Preacher and Hayes (2008) to test for mediation, using 1,000 bootstrap
samples and bias-corrected confidence intervals. Because the mediation effect is
the product of parameters, its sample distribution is skewed, with a shorter, fatter
tail to the end of the distribution closer to zero. This implies that the lower bound
of the confidence interval has less than 2.5% of the true sampling distribution,
meaning that the 95% confidence interval will often improperly include zero.
The bootstrap test of Preacher and Hayes solves that problem by generating an
empirical sampling distribution of the mediation effect by bootstrapping. The
lower bound of the 95% confidence is at 2.5% on this cumulative distribution
(Zhao et al., 2010).
In Chapter 15, we used the conditional mixed process (CMP) estimator. The
CMP modelling framework is essentially that of seemingly unrelated regressions,
but is more general. In particular, the individual equations need not be classical
regressions with a continuous dependent variable. The dependent variables may
also be binary, ordered, and categorical or based on interval measures. CMP can
also estimate parameters in mixed-process simultaneous systems that are recursive,
meaning that endogenous variables may appear on the right-hand side as observed
variables in other equations. Conditional means that the individual model equa-
tions can vary by observation.
270 Appendix 2

Furthermore, cross plots between dependent and the independent variables

and box plots were used to identify heteroscedasticity and the occurrence of
problematic outliers in our researches, respectively. We also tested for multicol-
linearity of the independent variables by examining the variance inflation factor
(VIF) (Hair et al., 1998). For each variable we checked that the variance inflation
factor was smaller than five. Given the fact that our sample is very large, normality
does not pose problems.

Control Variables
In the regression analysis, we controlled for various external, internal company,
and respondent factors (see Table A2.7). External control variables include sec-
tor, country or region, position in the chain, and intensity of price competition.3
Obviously, the type of sector in which the company operates will have a major
impact on the type of CSR issues that a company will focus on. The nature of
the business in terms of production processes or products determines the extent
of social and environmental externalities that a firm creates (Brown et al., 2010).
For example, companies in the construction sector take particular care of the
safety and health aspect of CSR because of the nature of the building process. For
chemical industries environmental issues are very important. For textiles, child
labour and other social issues in the supply chain are a focal point (Graafland,
2002). Also the incentive to pursue an active CSR policy may differ for different
sectors, as the reputation mechanism varies among sectors. Brammer and Pave-
lin (2006) found that environmental performance affects reputation positively in
none but the chemicals, consumer products, resources, and transportation sec-
tors. Three of these sectors are commonly identified as industries with salient
environmental issues. Furthermore, they did not find any influence of employee
performance on reputation, except for the resources sector. In most chapters,
eight sectors were distinguished, based on the Global Industry Classification
Standard (GICS). In other chapters, we used the sector division reported in Table
A2.3. Furthermore, we used dummies for the 12 countries as control variables,
or, alternatively, five dummies for the region in which the company operates.
Country/region is included because CSR is affected (but not determined) by
the culture and wider institutional environment of the company (Matten and
Moon, 2008). For the five regional dummy variables, we used the categoriza-
tion developed by Albareda et al. (2007) and Moon et al. (2012) that is based
on different types of capitalism and CSR policies of governments (Anglo-Saxon
Europe (UK), Scandinavia (Denmark, Finland, Sweden), Continental Europe
(Austria, Germany, France, the Netherlands), Central Europe (Hungary, Poland),
and Mediterranean Europe (Italy, Spain)). Next, environmental outcomes may
be dependent on the enterprise’s position in the chain. Companies that operate
in business-to-consumer (B2C) relations rather than business-to-business (B2B)
relations may be more sensitive to public reputation (Hendry, 2006). The closer
 Appendix 2 271

TABLE A2.7 Descriptive statistics of control variablesa

Mean SD Mean SD

External controls
Regional Scandinavia 0.14 0.35 Sector Materials 0.16 0.37
Continental 0.31 0.46 Energy 0.03 0.18
Europe
Central 0.13 0.34 Industrials 0.17 0.37
Europe
Mediterranean 0.39 0.49 Consumer staple 0.04 0.19
Europe
UK 0.03 0.16 Consumer 0.17 0.38
discretionary
Other B2C (6) 2.03 1.07 Financials 0.03 0.16
GDP per 3.16 0.43 IT & com 0.03 0.18
capita (ln) Other sectors 0.37 0.48
Internal controls
Age (116) <25 years 0.11 0.13 high skilled 0.25 0.28
25–50 years 0.67 0.23
>50 years 0.22 0.21 Other Tenure (88) 13.31 9.23
Skill low skilled 0.33 0.32 Company size (ln) 3.51 1.82
(115) (113)
medium 0.42 0.29 Company age (ln) 3.33 0.65
skilled
Respondent controls
Function Director- 0.33 0.47 Other function 0.29 0.45
(1) owner
Director 0.19 0.39
Manager 0.19 0.40 Other Age of respondent 2.76 0.91
(2)
a The numbers in brackets refer to the numbers of the survey questions reported in Appendix 1.
Country and sector, and company age are taken from the KOMPASS data source. The descriptives
per chapter vary due to sample differences caused by differences in availability of data per survey
question.

a particular firm is to consumers in the supply chain, the more likely consum-
ers would be familiar with that firm and the more likely NGOs could mobilize
consumers to influence the firm. Finally, the intensity of price competition was
controlled for. The more competitive the market environment, the lower profit-
ability and, according to slack resource theory (Waddock and Graves, 1997), the
less resources a company has available for investing in CSR.
For internal company factors, we used age structure, skill structure, tenure,
company size, and company age. The age structure (measured by the share of
young, middle-aged, and old employees), skill structure (low, medium, and high
skilled), and tenure were included as control variables, since these have been
shown to affect managerial beliefs, values, and actions and therefore might also
TABLE A2.8 Estimation results of control variablesa

272
External factors Internal factors CSR implementation

Appendix 2
Pcom Tcom NGO CA TH ExtMot InnMot IntrMot FBO WM EO FO EFS EFE TRE RelIn ISO14 IntIn

Scandinavia −0.21 0.06 0.37 −0.09 0.09 −0.09 −0.10 0.09 −0.15 −0.09 −0.05 −0.09 −0.21
Continental −0.31 0.09 0.46 0.08 −0.18 0.12 0.13 −0.09 0.04 −0.13 −0.10 −0.06 −0.14 −0.11
Europe
Central Europe −0.11 0.05 0.13 0.03 −0.21 −0.06 0.06 0.15 0.06 −0.10 0.05 −0.12 −0.14
Mediterranean −0.10 0.74 −0.16 0.15 0.13 −0.10 −0.12 −0.21 −0.18
Europe
Materials 0.02 0.08 0.08 −0.06 −0.03 −0.03
Energy 0.02 0.03 0.03 0.03 0.03 0.03 0.06 0.02 0.03 0.04 0.07
Industrials 0.08 0.04 −0.04 −0.12 0.03 −0.03
Consumer 0.03 0.04 0.02
staples
Consumer 0.07 0.04 0.07 0.03 −0.03
discretionary
Financials −0.03 −0.03 −0.05 −0.03 −0.04 −0.06 −0.03 −0.05
IT −0.03 0.04 −0.05 −0.02 −0.03 −0.03
Medium skilled 0.03 0.04 0.05 −0.06 0.05 0.06 0.07
High skilled −0.11 0.03 −0.12
0.09 0.11 0.13 −0.16 0.09 0.08 0.13 0.04 −0.05 0.06 0.03
Young 0.05 0.04 0.06 0.05 0.05 0.07
Medium Aged 0.04 0.03 0.05 0.03 0.03 0.05
Tenure −0.05 0.04 0.08 0.03
B2C −0.07 −0.04 0.08 0.03 0.03 0.03 0.07 0.04 0.04 −0.02 0.03 −0.08
Director-owner 0.05 0.06 −0.09 0.05 −0.05 0.09 0.23 0.07 0.08
Director 0.04 0.03 0.04 0.04 0.03 0.07 0.05 0.03 0.08 0.04 0.03 0.03
Manager 0.08 0.03 0.06 0.06 0.04 0.07 0.05
Company age −0.07 0.05 0.06 0.05 0.05
(ln)
Age respondent −0.04 0.05 0.03 0.04 0.08 −0.03 0.04 −0.03
Inverse Mill’s −0.06 −0.06 0.07 0.04 −0.06 −0.06 −0.03 −0.08 0.11 0.13 −0.13 −0.14 −0.09 0.04
ratio
a The reference dummy for region, sector, skill level, age, and function are for the UK, other, low-skilled, old and other function, respectively. Standardized coefficients.
Normal: p < 0.05; Italics: p < 0.01; Bold: p < 0.001. For the meaning of the symbols, see Table 19.6 in Chapter 19.

Appendix 2 273
274 Appendix 2

TABLE A2.9 Indirect and total effectsa

Indirect effects Total effectsb

EFS EFE TRE RelIn ISO14 IntIn EFS EFE TRE RelIn ISO14 IntIn

Scandinavia 0.08 0.04 0.02 0.05 0.02 −0.08 −0.05 0.02 −0.09 −0.19
Continental 0.11 0.07 0.03 0.10 0.03 −0.03 0.03 0.04 −0.14 −0.08
Europe
Central 0.04 0.01 0.04 −0.01 0.09 0.01 0.03 −0.14 −0.13
Europe
Mediterra- 0.12 0.06 0.04 0.07 −0.01 0.02 0.06 0.04 −0.04 −0.21 −0.16
nean
Europe
Materials 0.01 0.01 0.01 -0.02 0.01 0.01 0.01
Energy 0.02 0.02 0.01 0.02 0.01 0.01 0.02 0.04 0.05 0.02 0.07 0.01
Industrials −0.01 −0.00 −0.01 0.01 −0.01 −0.01 −0.03 −0.00 −0.01 0.01 −0.01
Consumer 0.01 0.01 0.00 0.00 −0.00 0.01 0.01 0.02 0.00 −0.00
staples
Consumer 0.01 0.01 0.00 0.00 −0.03 0.01 0.00 0.00
discretio-
nary
Financials −0.01 −0.01 −0.00 −0.00 −0.00 −0.01 −0.05 −0.06 −0.00 −0.03 −0.05 −0.01
IT 0.01 −0.00 −0.00 −0.00 0.01 −0.05 −0.00 −0.04 −0.03
Medium 0.02 0.01 0.01 0.02 0.01 0.01 0.10 0.01 0.01 0.02 0.01 0.01
skilled
High skilled 0.06 0.03 0.01 0.04 0.04 0.10 0.01 0.11 0.09
Young 0.02 0.02 0.01 0.02 0.01 0.02 0.02 0.02 0.01 0.07 0.01 0.06
Medium 0.02 0.01 0.01 0.01 0.00 0.01 0.05 0.01 0.01 0.01 0.00
Aged
Tenure 0.01 0.01 0.00 0.01 −0.00 0.01 0.01 0.00 0.01 0.00
B2C 0.03 0.02 0.01 0.03 0.02 0.03 0.06 –0.08 0.02
Director- 0.04 0.02 −0.01 –0.01 0.04 0.02 0.09 –0.01 –0.01
owner
Director 0.03 0.02 0.01 0.01 0.06 0.02 0.09 0.05 0.03 0.04
Manager 0.01 0.01 0.01 0.00 0.01 0.01 0.06 0.04 0.07 0.05
Company 0.01 0.01 0.01 0.02 0.01 0.01 0.01 0.01 0.01 0.02 0.01 0.01
age (ln)
Age respon- 0.02 0.01 0.01 0.01 0.05 0.01
dent
Inverse 0.04 0.03 –0.01 –0.09 –0.14 –0.16 0.03
Mill’s
ratio

a Standardized coefficients. Normal: p < 0.05; Italics: p < 0.01; Bold: p < 0.001.
b The total effects are equal to the direct effects on CSR implementation reported in Table 19.5 plus
the indirect effects reported in the left part of Table 19.6.
 Appendix 2 275

affect environmental performance (Marginson and McAulay, 2008). Mannix and

Loewenstein (1994) found that tenure affects investment choices in a manner
consistent with managerial opportunism. The prospect of leaving one’s present
firm leads to a greater focus on short-term pay-offs. Furthermore, many studies
found that CSR is positively related to company size (e.g. Graafland et al., 2003;
Laforet, 2008; Yong et al., 2011; McGuire et al., 2012). Based on interviews
with staff members of NGOs, Hendry (2006) showed that the magnitude of the
consequences that particular firms were having on the natural environment was
an important factor in deciding to target particular firms or industries. Besides,
enterprise size can also directly affect market benefits and CSR. Larger enter-
prises can spread the costs of CSR over a substantial larger turnover. Firm size is
measured by the (natural logarithm of the) number of employees (in FTEs).
At the respondent level, the function and the age of the respondent are con-
trolled for, as directors may be more informed and able to answer the survey ques-
tions than a manager at a lower level in the organization may. Mazereeuw (2010)
found that CSR in Dutch SMEs is positively related to the age of executives.
This contrasts with the finding of Luthar et al. (1997) that younger executives
are significantly more likely to believe that good business ethics lead to successful
business outcomes.
Table A2.8 reports the estimation results for the control variables for the inte-
grative model presented in Chapter 19. The effects of regional dummies are
mixed. Particularly, the UK differs from other regions. Whereas the intensity of
price competition and extrinsic motivation are higher for the UK, NGO moni-
toring, collective agreements, and intrinsic motivation are lower. Overall, the
indirect effects are lower for the UK than for other regions, but this is compen-
sated by higher direct effects on the implementation of CSR (see Table A2.9). At
the sectoral level, companies from the energy sector are most actively engaging
with CSR, whereas companies from the finance sector show the lowest CSR
implementation. Furthermore, CSR implementation increases with the skill level
and decreases with the age level of employees. Finally, CSR is highest for compa-
nies that exist for a long period and tends to increase with tenure, position in the
chain, and age of the respondent.

Notes
1 The survey in 2011 was financed by the FP7 program of the European Union. The
survey in 2014 was possible due to a grant from ING.
2 The total number of companies in the 12 countries equals 16091,476 (Source: EU,
http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performance-
review/index_en. htm# h2-1).
3 In some chapters, also market position (survey question 120) was used as control variable.
INDEX

altruism 58 – 59 equal opportunities 186, 213

ethical culture 212
business culture 87 – 91, 93 expectancy theory 107 – 108, 110, 132
external networks 28 – 29; measurement
capitalism 164 – 165 31; value for SMEs 29 – 30
collective agreements 184 – 187 extrinsic motive 55 – 58, 154, 165
competing values framework 87; human
relations model 88; internal process family business ownership 66 – 76;
model 88; open systems model 88 – 91, definition 67
93; rational goal model 88 formal or standardized management
competition: competition policy 215; instruments 18, 26; reasons 19
price competition 97 – 100, 104 – 105;
technological competition 108, gender equality 77 – 79, 186
110 – 111, 113 – 115, 118 – 120, 122 gender quota 213
corporate social performance 2 gender socialization theory 78 – 79, 158
corporate social responsibility: definition government regulation 58, 60, 128,
1; explicit CSR 186, 191; five 152 – 153, 155 – 156, 160 – 162;
dimensions 1 – 2; implicit CSR 186, 191 regulation motive 133 – 134
critical mass theory 79, 82 – 83
CSR and innovation: effects of CSR on institution 59, 123, 176 – 177, 198;
innovation 36 – 37; innovation motive definition 6, 13; formal institution
108, 110 – 111, 113 – 114; virtuous circle 13; informal institution 13; normative
35, 41 – 42 institution 13; regulative institution 13
CSR and profitability: business case 5, institutional theory 26, 38, 59, 110, 123,
56 – 58; virtuous circle 2 130, 167
intrinsic motive 55, 58 – 59, 64, 116,
decoupling of instruments and impacts 4, 118 – 120, 140 – 145, 148, 153 – 156, 162,
25, 27, 102, 169 168 – 169, 173
ISO 14001 certification 20, 22, 26 – 28,
economic freedom 165, 167 – 169, 178 33 – 34, 122
environmental management systems
(EMS) 17, 25 – 27, 29 – 30 Kantian ethics 58
 Index 277

labour unions 184, 191; union resource-based view 57, 100, 131
representation theory 186 resource dependency theory 131
long-term orientation 36, 98 – 101, 177,
179 – 180 self regulation 60, 216
short termism 99 – 101, 119
mediation models 6 – 7 slack resource theory 105, 271
moderation models 6 – 7 small and medium sized enterprises
moral duty 55, 58, 119 – 120, 144 – 145 (SMEs): definition 3; differences with
motivation crowding theory 116, 118, large companies 3, 17 – 18, 36, 56,
144 – 145, 149 – 150, 155 – 156 59 – 61, 77, 128 – 131, 201
social capital 61, 68, 167
national culture (Hofstede) 176 – 180; social licence 44, 127 – 131, 136 – 138
individualism 178 – 179; long-term social movement theory 44 – 45
orientation 179 – 180; masculinity 179; social role theory 78 – 79, 187
power distance 90, 178 – 179, 199; socioemotional wealth (SEW) 66 – 71
uncertainty avoidance 90, 179, 199 stakeholder dialogue 133, 212
neoclassical economic theory 99 symbolic csr 27, 50
non-governmental organizations (NGOs)
43 – 45, 130 – 133, 141 – 143 targets 20, 23 – 24, 72
theory of reasoned actions 109
organizational culture 87 – 91, 93
upper echelon theory 154
price competition 97 – 100, 105
welfare state 164
relational management instruments 79 – 80 women in management 77 – 79,
reputational liability effect 43 – 44, 50 – 51 82 – 84, 186