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CSR Strategies in Response to Competitive Pressures

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Abstract

Is corporate social responsibility (CSR) a tool for strategic positioning? While CSR is sometimes used as part of a differentiation strategy, this article analyzes which specific CSR strategies arise in response to competitive pressures. The results suggest that competitive pressures lead firms to increase their positive social actions without necessarily decreasing their social weaknesses. This positive impact varies with specific dimensions of CSR and industry specificities: (1) Competition improves social performance toward core stakeholders to a greater extent than social performance toward peripheral stakeholders. (2) This effect is more pronounced in B2C industries than in other industries. (3) Competition leads firms in “dirty” industries to ignore environmental initiatives.

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Notes

  1. We use the terms “competition” and “competitive pressure” interchangeably in this article.

  2. www.msci.com.

  3. Waddock and Graves's (1997) weighting of corporate social performance is as follows: employee relations: 0.168; product: 0.154; community relations: 0.148; environment: 0.142; treatment of women and minorities: 0.136; nuclear power: 0.089; military contracts: 0.086; South Africa: 0.076.

  4. The list of B2C four-digit SIC industries in the manufacturing sector, also used by Flammer (2015), is as follows: 2000–2399; 2500–2599; 2700–2799; 2830–2869; 3000–3219; 3420–3429; 3523; 3600–3669; 3700–3719; 375; 3850–3879; 3880–3999. The classification of B2C industries is obtained from Lev et al. (2010).

  5. “Measuring Product Market Competition” section and “Appendix 2” explains how segment data are used to compute a firm-level indicator of competitive pressure, and why this reduces the persistence issue.

  6. Tables 4 and 5 were additionally computed with first difference variables in order to further address endogeneity. The corresponding results do not show any significant results, and this is explained by the fact that CSR is sticky and do not vary much over time: Firms do not change drastically their CSR policies from one year to another.

Abbreviations

ACSR:

Aggregate corporate social responsibility

B2C:

Business-to-consumer

BLS:

Bureau of labor statistics

CSP:

Corporate social performance

CSR:

Corporate social responsibility

fHHI:

fitted HHI

HHI:

Herfindahl–Hirschmann Index

KLD:

Kinder Lydenberg Domini

MSCI:

Morgan Stanley Capital International

NGO:

Nongovernmental Organization

OLS:

Ordinary least squares

R&D:

Research and Development

ROA:

Return on assets

RSE:

Robust standard errors

S&P500:

Standard and poor’s 500

SIC:

Standard industrial classification

wACSR:

weighted ACSR

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Acknowledgments

The authors thank Nihat Aktas, Helen Bollaert, Kais Bouslah, Eric de Bodt, Pascal Grandin, Abdelmajid Hmaittane, Gel Imad'Eddine, Frédéric Lobez, and Dhoha Trabelsi for their very helpful comments; Gunther Cappelle-Blancart, Aurélien Petit, and the participants of the "Frontiers of Finance" conference at the University of Paris Panthéon Sorbonne; Vanina Forget, Lars Hassel, Sébastien Pouget, Bert Scholtens, and the participants of the PRI-CBERN PhD symposium 2012 at the University of Toronto; and Céline Louche, Jean-Pascal Gond, and the participants of the CSR research seminar at the Brussels Vlerick Business School. The authors also thank the participants of the Vlerick Brown Bag Seminar Series for their valuable suggestions. The initial development of this research idea was positively influenced by the “pitching template” created by Faff (2015a, 2015b). (Faff, R., 2015a. A Simple Template for Pitching Research, Accounting & Finance. 5(2), 311-336; Faff, R., 2015b. Pitching Research. Available at SSRN: http://ssrn.com/abstract=2462059 or http://dx.doi.org/10.2139/ssrn.2462059). All errors are our own. We gratefully acknowledge support from the Social Sciences and Humanities Research Council of Canada (SSHRC).

Author information

Authors and Affiliations

  1. Vlerick Business School - KU Leuven, Brussels, Belgium

    Marion Dupire

  2. CRSDD-ESG-UQAM; AICRI, Montreal, Canada

    Bouchra M’Zali

Authors
  1. Marion Dupire
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Correspondence to Marion Dupire.

Appendices

Appendix 1: KLD Social Ratings—List of Items

Qualitative issue area

Strength items

Concern items

Community

Charitable giving

Investment controversies

 

Innovative giving

Negative economic impact

 

Support for housing

Tax disputes

 

Support for education (from 1994)

Other concern

 

Non-US charitable giving

 
 

Volunteer programs (from 2005)

 
 

Other strength

 

Corporate governance

Limited compensation

High compensation

 

Ownership strength

Ownership concern

 

Transparency strength

Accounting concern (from 2005)

 

Political accountability strength (from 2005)

Transparency concern (from 2005)

 

Public policy strength

Political accountability concern (from 2005)

 

Other strength

Public policy concern

  

Other concern

Diversity

CEO

Controversies

 

Promotion

Non-representation

 

Board of directors

Other concern

 

Work–life benefits

 
 

Women and minority contracting

 
 

Employment of the disabled

 
 

Gay and lesbian policies (from 1995)

 
 

Other strength

 

Employee relations

Union relations

Union relations

 

No-layoff policy (through 1994)

Health and safety concern

 

Cash profit sharing

Workforce reductions

 

Employee involvement

Retirement benefits concern

 

Retirement benefits strength

Other concern

 

Health and safety strength

 
 

Other strength

 

Environment

Beneficial products and services

Hazardous waste

 

Pollution prevention

Regulatory problems

 

Recycling

Ozone depleting chemicals

 

Clean energy

Substantial emissions

 

Property, plant, equipment (through 1995)

Agriculture chemicals

 

Management systems strength

Climate change (from 1999)

 

Other strength

Other concern

Human rights

Positive Record in S. Africa (1994–1995)

South Africa (1991–1994)

 

Indigenous people relations strength (from 2000)

Northern Ireland (1991–1994)

 

Labor rights strength (from 2002)

Burma concern (from 1995)

 

Other strength

Mexico (1995–2002)

  

Labor rights concern (from 1998)

  

Indigenous people relations concern (from 2000)

  

Other concern

Product quality and safety

Quality

Product safety

 

R&D innovation

Marketing contracting concern

 

Benefits to economically disadvantaged

Antitrust

 

Other strength

Other concern

Appendix 2: Endogeneity and Lagged Variables

The relationship between competition and CSR might be endogenous. This appendix examines the degree to which endogeneity is sufficiently addressed in the text. We are interested in how CSR strategies evolve in response to competitive pressure, but competitive pressure itself could be influenced by CSR strategies. That is, even though CSR may intensify or introduce existing competition, this is not the effect on which we focus.

Two of the empirical manipulations relate to the treatment of endogeneity: the use of lagged independent variables on one side and the computation of a firm-level indicator of concentration based on segment data. Lagged independent variables are common responses to threats of endogeneity, but this technique is valid only if the variable is not too persistent over time. If an observation in t is very close to an observation in t − 1, lagging the variable is useless.

However, we reduce the persistence of the fitted HHI variable by computing a firm-level fitted HHI. In doing so, we account for the fact that a firm may operate on multiple segments and that the share of sales in each segment likely varies over time. Taking the concentration of the main industry to which a firm belongs to as a proxy for competitive pressure at the firm-level would ignore its activity in other segments. Therefore, it makes sense to account for the concentration ratio of each segment in which the firm is operating. And since the share of sales in each segment varies over time, the firm-level indicator becomes less sticky over time, reducing the persistence issue. Thus, to reduce the persistence issue, we compute an indicator that combines the concentration of each segment in which the firm is operating. The related computation details are provided in “Measuring Product Market Competition” section.

To move from an industry- to a firm-level indicator of industry concentration, we must acknowledge that one firm can operate on several industries. In such cases, Compustat defines separate segments to which a SIC code can be assigned. The share of sales in each segment recorded for one firm indicates segment weights. Applying these weights to each segment’s fitted HHI reveals the firm-level fitted HHI.

The fitted HHI thus has two sources of variation over time: either industry segments’ concentrations evolve or segment weights differ. The persistence of industry concentration might be high, but adding one time-varying dimension (segment weights) reduces the persistence of the variable. Thus, we regress the fitted HHI on lagged fitted HHI for, successively, industry- and firm-level fitted HHI. Table 8 provides the results of both regressions. Because we are dealing with panel data, we use a random effects estimator with standard errors clustered at the firm level.

Table 8 Persistence of industry- and firm-level fitted HHI
Full size table

The coefficient for the lagged fitted HHI diminished from .989 to .897 when we moved to the firm level. The R-square also declined (from .939 to .842), so the explanatory power of the lagged values was lower when we break the fitted HHI down to the firm level. A coefficient of 0.897 is still high and indicates that even after controlling for segment data, our indicator is relatively sticky over time. However, this likely reflects the reality: Competitive pressure generally does not change drastically from 1 year to another.

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Dupire, M., M’Zali, B. CSR Strategies in Response to Competitive Pressures. J Bus Ethics 148, 603–623 (2018). https://doi.org/10.1007/s10551-015-2981-x

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