Differential economic impacts of corporate responsibility issues

Corporate responsibility covers a myriad of widely different issues ranging from child labour through health and safety to atmospheric emissions.There is no theory to suggest or reason to believe a priori that the relationship with economic performance would be identical across these widely varying issues. Knowledge on the differential economic impacts of different corporate responsibility issues is limited, and this paper examines the economic impacts of corporate responsibility from a content-specific perspective. It looks at whether there are differences in economic impacts between issues and whether some patterns may be discovered from these differences.

Corporate responsibility is defined in terms of the environmental and social performance outcomes of the firm. A distinction is made between situations where the corporate responsibility outcome itself is a causal factor for economic performance and situations where the corporate responsibility outcome and the economic outcome arise jointly from some other activity.

The paper focuses on the situation where the corporate responsibility outcome itself is a causal factor for economic performance and distinguishes between two further situations: one where the outcome directly affects the firm’s own production process, such as, in fisheries where irresponsible behaviour by the firm destroys the natural resource the firm depends on; and second where the corporate responsibility outcome is linked to the firm’s economic performance through the stakeholders of the firm, which is the main focus of the paper.

The paper finds that:

• the content of corporate responsibility matters for the economic implications
• different corporate responsibility issues have different economic impacts and there are systematic patterns in these differences according to whether the issue represents reducing a negative externality or generating a positive externality and whether the outcome of the issue benefits market or non-market stakeholders
• the implication for managers is that because economic impact may be different for different issues, it may not be useful to examine corporate responsibility solely in an aggregated manner in strategy design if corporate responsibility is regarded as instrumental to profit maximisation
• from a profit point of view it is more important for managers to satisfy market stakeholders than non-market stakeholders and to “do no harm” than to “do good”
• the most profitable corporate responsibility issues are those that reduce negative impacts towards market stakeholders and the least profitable corporate responsibility issues are those that generate positive impacts towards non-market stakeholders