Corporate responsibility activities and economic performance: why and how they are connected

This paper examines the link between corporate responsibility and economic performance. It focuses on corporate responsibility activities, which are both the source of the economic impacts and the target of management decision-making. Different corporate responsibility activities produce different outputs, which matters not only from the environmental or social perspective, but also for the relationship of these activities with economic performance.

There are three distinct outputs of corporate responsibility activities:

• learning – regular learning when the firm acquires knowledge or capabilities that are available elsewhere but not yet in the firm; and innovative learning when the firm develops something new
• reputation – the image stakeholders have of the firm and its corporate responsibility outcomes
• corporate responsibility outcomes – improvements in the social or environmental impacts of the firm

• the relationship between corporate responsibility outcomes and economic performance follows an inverted U shaped form meaning that producing corporate responsibility outcomes is profitable for a firm up to the turning point of the inverted U
• any further investments in producing corporate responsibility outcomes would decrease profit but fewer investments would leave profitable opportunities unused
• the inverted U curve is case specific so what is profitable for one firm may not be profitable for another
• determining the optimal level of corporate responsibility outcomes for a profit maximising firm is an issue for competitive strategy as no universal solution fits all situations
• the optimal level of corporate responsibility outcomes for a profit-maximising firm requires constant monitoring of stakeholder preferences, technological solutions, and regulatory developments
• obtaining the best possible economic impact from the production of corporate responsibility outcomes depends on the quality of management