Financial performance of socially responsible investing (SRI): what have we learned? A meta‐analysis

With a meta‐analysis of 85 studies and 190 experiments, the authors test the relationship between socially responsible investing (SRI) and financial performance to determine whether including corporate social responsibility and ethical concerns in portfolio management is more profitable than conventional investment policies. The study also analyses the influence of researcher methodologies with respect to several dimensions of SRI (markets, financial performance measures, investment horizons, SRI thematic approaches, family investments and journal impact) on the effects identified. The results indicate that the consideration of corporate social responsibility in stock market portfolios is neither a weakness nor a strength compared with conventional investments; the heterogeneous results in prior studies largely reflect the SRI dimensions under study (e.g. thematic approach, investment horizon and data comparison method).     

The Politics of Shareholder Activism in Nigeria

Shareholder activism has become a force for good in the extant corporate governance literature. In this article, we present a case study of Nigeria to show how shareholder activism, as a corporate governance mechanism, can constitute a space for unhealthy politics and turbulent politicking, which is a reflection of the country’s brand of politics. As a result, we point out some translational challenges, and suggest more caution, in the diffusion of corporate governance practices across different institutional environments. We contribute to the literature on corporate governance in Africa, whilst creating an understanding of the political embeddedness of shareholder activism in different institutional contexts—i.e. a step closer to a political theorising of shareholder activism.     

What is the CSR’s Focus in Healthcare?

The concept of corporate social responsibility (CSR) has been the subject of several academic contributions, but in the health sector the development of an interest in this subject is very recent. Although many practices in healthcare are already socially responsible, progressing from a series of socially responsible behaviours to a socially responsible organization entails a more consolidated awareness of the health sector’s mission and the needs of its participants. In this paper, we will review the different studies published that address the relationship between the healthcare sector’s corporate responsibility and society, with the aims of individuating the prevailing foci that are emerging and categorizing the proposed contributions according to these foci: social responsibility and organization; social responsibility and social impact; social responsibility and competitiveness. Finally, the paper finishes with a personal definition of CSR and its correlated ethical roots.     

Proactive CSR: An Empirical Analysis of the Role of its Economic, Social and Environmental Dimensions on the Association between Capabilities and Performance

Proactive corporate social responsibility (CSR) involves business practices adopted voluntarily by firms that go beyond regulatory requirements in order to actively support sustainable economic, social and environmental development, and thereby contribute broadly and positively to society. This empirical study examines the role of the economic, social and environmental dimensions of proactive CSR on the association between three specific capabilities—shared vision, stakeholder management and strategic proactivity—and financial performance in small and medium enterprises (SMEs). Using quantitative data collected from a sample of 171 Australian SMEs in the machinery and equipment manufacturing sector and employing structural equation modelling, we find that the adoption of practices in each CSR dimension by SMEs is influenced slightly differently by each capability, and affects financial performance differentially. The study also demonstrates the importance of the interaction between the three dimensions of proactive CSR in positively moderating the deployment of each individual CSR dimension to generate financial performance. Paying primary attention to the economic dimension of proactive CSR and selectively focusing on social and environmental elements of proactive CSR that drive and support the economic dimension are of key importance to sustainable long-term financial success for SMEs.     

On the corporate social responsibility perceptions of equity analysts

The importance of communicating corporate social responsibility (CSR) not only to socially responsible investors but also to the mainstream of the financial community is gaining importance in a more competitive capital market environment. This article looks at how equity analysts at the German stock exchange in Frankfurt – individuals who are not particularly involved in socially responsible investment (SRI) research – perceive economic, legal, ethical and philanthropic responsibility strategies. The evidence obtained in our interviews suggests that responsibility issues are increasingly becoming part of mainstream investment analysis. However, for them to play a larger part in the future, investor relations personnel must frame responsibility strategies in a way that is more consistent with the financial community's perspective. In particular, the impact of CSR measures on strategic development, competitive anticipation and creating trust with stakeholders are key in leveraging CSR in financial communications.     

The Maturing of Socially Responsible Investment: A Review of the Developing Link with Corporate Social Responsibility

This paper reviews the development of socially responsible investment (SRI) over recent years and highlights the prospects for an increasingly strong connection with the practice of corporate social responsibility. The paper argues that not only has SRI grown significantly, it has also matured. In particular, it has become an investment philosophy adopted by a growing proportion of large investment institutions. This shift in SRI from margin to mainstream and the position in which institutional investors find themselves is leading to a new form of SRI shareholder pressure. Although this bears some resemblance to lobbying campaigns which might take advantage of shareholder rights, we seek to distinguish it as an important phenomenon in its own right — one to which corporate executives are likely to be paying increasing attention in the years to come. We further argue that this approach potentially meets some of the earlier ethical criticisms of certain forms of SRI but, ironically, probably owes its existence to those pioneering approaches. We conclude with some suggestions for further research to inform discussion of the issues highlighted in the paper.     

Non-Governmental Organizations, Shareholder Activism, and Socially Responsible Investments: Ethical, Strategic, and Governance Implications

In this article, we document the growing influence of non-governmental organizations (NGOs) in the realm of socially responsible investing (SRI). Drawing from ethical and economic perspectives on stakeholder management and agency theory, we develop a framework to understand how and when NGOs will be most influential in shaping the ethical and social responsibility orientations of business using the emergence of SRI as the primary influencing vehicle. We find that NGOs have opportunities to influence corporate conduct via direct, indirect, and interactive influences on the investment community, and that the overall influence of NGOs as major actors in socially responsible investment is growing, with attendant consequences for corporate strategy, governance, and social performance.     

Capabilities, Proactive CSR and Financial Performance in SMEs: Empirical Evidence from an Australian Manufacturing Industry Sector

Proactive corporate social responsibility (CSR) involves business strategies and practices adopted voluntarily by firms that go beyond regulatory requirements in order to manage their social responsibilities, and thereby contribute broadly and positively to society. Proactive CSR has been less researched in small and medium enterprises (SMEs) compared to large firms; and, whether SMEs are ideally placed to gain competitive advantage through such activity therefore remains a point of debate. This study examines empirically the association between three specified capabilities (shared vision, stakeholder management and strategic proactivity), proactive CSR and financial performance in SMEs. Using quantitative data collected from a sample of 171 SMEs in the machinery and equipment sector of the Australian manufacturing industry, we find that all specified capabilities are positively associated with adoption of proactive CSR by SMEs, and that proactive CSR is, in turn, associated with an improvement in firm financial performance. Evidence of a fully mediating role for proactive CSR on the association between capabilities and financial performance presented in this study aligns with RBV theory that suggests adoption of value-creating strategies that make the most effective use of a firm’s capabilities is essential to financial success. The study contributes to the CSR literature by demonstrating a case for SMEs being able to maximise financial returns whilst proactively making progress towards CSR.     

Corporate social responsibility of financial organizations in the social economy: a case study on savings banks

The implementation of corporate social responsibility policies in firm management processes is becoming increasingly relevant. In the particular case of the financial sector, the incorporation of these policies often has huge repercussions as their role as intermediaries means that firms depend on them for investment which, in turn, affects the way firms perform. Within the financial sector, those organizations form part of the social economy—credit cooperatives and savings banks—are a very particular case as one of the principles on which they are based is their social nature. In this study, we examine the social responsibility situation in these financial organizations, focusing on the case of savings banks. We provide information that will help us better understand the real state of Spanish savings banks with respect to these two areas of social responsibility: The “Obra Social” (or charitable activities) and the incorporation of social and environmental criteria in their business policies.     

Fund Loyalty Among Socially Responsible Investors: The Importance of the Economic and Ethical Domains

The corporate social responsibility literature has emphasized the importance of both economic and ethical domains of corporate behavior. Analyzing unprecedented survey data from investors in a socially responsible (SR) mutual fund, this article considers how economic and ethical concerns shape shareholder investment behavior. In particular, this article analyzes levels of investor fund loyalty, defined as the continued investment in a mutual fund despite the belief that one is earning a lower return on investment. Building upon existing research that shows SR fund assets are more stable than conventional fund assets, this article leverages within respondent comparisons to clarify that dual investors (i.e., those who invest in both SR and conventional funds) are more loyal to their SR fund than to their conventional fund. This suggests that a corporation’s ethical behavior attracts more patient investment capital, an important consideration for any corporation that is deciding to what degree it should engage in corporate social responsibility. In addition, this article empirically demonstrates that economic motivations reduce SR fund loyalty and that ethical motivations induce SR fund loyalty. This evidence that ethical motivation is associated with fund loyalty advances research on morality in the market by yielding empirical evidence to a largely theoretical debate.     

Does Institutional Blockholder Short‐Termism Lead to Managerial Myopia? Evidence from Income Smoothing

We examine institutional blockholders’ influence on income‐smoothing practices in the Korean market, which provides an interesting setting where family‐oriented chaebols dictate the corporate landscape and impede shareholder activism. The empirical results reveal that institutional shareholders with a short‐term (long‐term) investment horizon facilitate (constrain) managerial myopia. This positive (negative) association is most evident among firms with domestic institutional investors. Therefore, we argue that the presence of domestic institutional investors with transient investment goals incentivizes firms’ management to smooth out earnings.     

The Proactive Corporation: Its Nature and Causes

We argue that the stakeholder perspective on corporate social responsibility is in the process of being enlarged. Due to the process of institutional isomorphism, corporations are increasingly adopting organizational features designed to promote proactivity over mere reactivity in their stakeholder relationships. We identify two sources of pressure promoting the emergence of the proactive corporation -- stakeholder activism and the recognition of the social embeddedness of the economy. The final section describes four organizational design dimensions being installed by the more proactive corporations today -- cooperation, participation, negotiation, and direct anticipation.     

Ideology and the Balanced Scorecard: An Empirical Exploration of the Tension Between Shareholder Value Maximization and Corporate Social Responsibility

In a society where the ideology of shareholder value maximization (SVM) prevails, how do evaluators make appraisal and bonus decisions when corporate social responsibility (CSR) measures and financial measures in the balanced scorecard (BSC) point in different directions? To explore this question, we conducted two studies to develop and test a conceptual framework. Participants were asked to evaluate the performance of two managers, using a case we wrote about a commercial bank. We found that (1) evaluators are more willing to drop CSR performance measures than financial measures from the evaluations; (2) perceived CSR relevance is influenced by where evaluators stand in regard to CSR (“stakeholder view” in the “Perceptions of the Role of Ethics and Social Responsibility” or PRESOR scale) and also by where evaluators believe shareholders stand (shareholder support); and (3) there is a financial bias in appraisal and bonus decisions when CSR measures are used in the BSC, consistent with SVM ideology. We conclude by discussing the implications of the influence of SVM ideology on the use of CSR measures in terms of business research, practice, and education.     

Do Corporations Invest Enough in Environmental Responsibility?

Proponents of corporate environmental responsibility argue that corporations shortchange shareholders by investing too little in environmental responsibility. They claim that corporations can improve their financial performance by increasing their investment in environmental responsibility. Opponents of corporate social responsibility argue that corporations shortchange shareholders by investing too much in environmental responsibility. They claim that corporations can improve their financial performance by reducing their investment in environmental responsibility. Yet, others claim that corporations serve their shareholders well by investing just enough in social responsibility, not too little and not too much. If so, corporations increase their investment in environmental responsibility when an increase improves financial performance and reduce their investment in environmental responsibility when a decrease improves financial performance. Our evidence is consistent with this last claim. We find that the behavior of corporations is consistent with the claim that they act in the interest of shareholders, increasing or decreasing their investment in environmental responsibility as necessary to improve their financial performance.     

The Benefit Corporation and Corporate Social Responsibility

In the wake of the most recent financial crisis, corporations have been criticized as being self-interested and unmindful of their relationship to society. Indeed, the blame is sometimes placed on the corporate legal form, which can exacerbate the tension between duties to shareholders and interests of stakeholders. In comparison, the Benefit Corporation (BC) is a new legal business entity that is obligated to pursue public benefit in addition to the responsibility to return profits to shareholders. It is legally a for-profit, socially obligated, corporate form of business, with all the traditional corporate characteristics combined with societal responsibilities. Considering the history and perception of shareholder primacy in United States law, it is argued that this new business structure is an ethical step toward empowering socially committed commercial entities. The contribution of this research is to provide a fundamental base of knowledge about the new legal form of business, the BC, upon which further study may rely. First, the legal history of the corporation is briefly reviewed in order to provide context to the relationship of the corporate form to society, including exploration of the premise that shareholder wealth maximization is its best and only purpose. Second, the BC is described in detail, and state statutes are compared. Third, the BC is placed within the context of corporate social responsibility. Finally, opportunities for future research are discussed.     

Changing the Odds: A Study of Corporate Social Principles and Practices in Addressing Problem Gambling

This paper documents a quantitative study into socially responsible principles and practices adopted in registered clubs in New South Wales Australia to manage one of their social impacts – problem gambling. The survey utilised an adapted version of Aupperle's (1982) corporate social responsibility instrument to measure the priority given to economic, legal, ethical and discretionary principles in club machine gambling operations. The survey also assessed support for certain management practices in responsible gambling. The results indicate that the participating club managers prioritise economic, legal, ethical and discretionary principles respectively, and that these are statistically related to practices they have implemented and support in responsible gambling. The managers most favoured secondary harm minimisation practices, followed by reactive primary intervention. Less favoured were proactive primary intervention and discretionary practices. These principles and practices contrast markedly with those advocated by key stakeholder groups, as expressed in semi-structured interviews and submissions to the NSW Gaming Inquiry. Non-industry stakeholders favoured a more balanced set of principles and a more holistic set of management practices in responsible gambling. The results also provide validation of Aupperle's (1982) instrument when applied to corporate management of a single social impact and for Carroll's (1979, 1991) construct of corporate social responsibility.     

Perceptions of Intentional Wrongdoing and Peer Reporting Behavior Among Registered Nurses

Researchers and practitioners have devoted considerable attention to firms' policies regarding discretionary disclosures. Prior studies argue that firms increase demand for their debt and equity issues and, thus, lower their cost of capital, by providing more informative disclosures. However, empirical research has generally not been able to document significant benefits from increased disclosure.This paper proposes an alternative explanation – firms disclose because it is the socially responsible thing to do. We argue that companies have incentives to engage in stakeholder management by undertaking socially responsible activities and that providing extensive and informative disclosures is one such practice.We examine the relationship between firms' disclosures and measures of social responsibility. We use ratings provided by the Council on Economic Priorities as proxies for the degree of social responsibility adopted by the sample firms. Disclosure rankings provided by the annual Association for Investment Management and Research Corporate Information Committee Reports (AIMR Reports) are used to measure disclosure level.Our results indicate that there is a positive relationship between disclosure level and corporate social responsibility. That is, firms that engage in socially responsive activities provide more informative and/or extensive disclosures than do companies that are less focused on advancing social goals. In addition, we find that socially responsible firms are more likely to provide this increased disclosure through better investor relations practices. These results support our contention that increased disclosure is a form of socially responsible behavior.     

Corporate Governance in Asia: A Survey

Corporate governance has received much attention in recent years, partly due to the Asian financial crisis. We review the literature on corporate governance issues in Asia to develop region‐specific and general lessons. Much attention has been given to poor corporate sector performance, but most studies do not suggest that Asian firms were badly run. The literature does confirm the limited protection of minority rights in Asia, allowing controlling shareholders to expropriate minority shareholders. Agency problems have been exacerbated by low corporate transparency, associated with rent‐seeking and relationship‐based transactions, extensive group structures and diversification, and risky financial structures. The controlling shareholder bears some of agency costs in the form of share price discounts and expenditures on monitoring, bonding and reputation building. The Asian financial crisis further showed that conventional and alternative corporate governance mechanisms can have limited effectiveness in systems with weak institutions and poor property rights. Overall, the understanding of the determinants of firm organizational structures, corporate governance practices and outcomes remains limited, however.     

CSR Disclosure Items Used as Fairness Heuristics in the Investment Decision

The growth in demand for corporate social responsibility (CSR) information raises the question of how various CSR disclosure items are used by investors, an important stakeholder group driven by instrumental, moral, and relational motives. Prior research examines the instrumental motive to maximize individual shareholder wealth and the moral motive to actualize personal stewardship interests. We contribute to the literature by examining investors’ relational motive to realize positive stakeholder relationships within and between organizations and communities. The relational motive arises when investors look at a company’s treatment of other stakeholder groups as a heuristic to form a perception of how fairly they will also be treated by that company in the future, and thus invest in the company they perceive as fair. Fair treatment in the future matters to the investor who purchases stock from the company or via the capital markets in exchange for becoming a shareholder and thus a residual claimant of the company. As such, the investor expects future cash flows from holding and/or reselling the stock and expects to be treated fairly by the company in the future. We propose that investors, use as a fairness heuristic, CSR disclosure items—CSR investment level or CSR assurance—that represent the company’s commitment to its stakeholders, and that the resulting fairness perception affects the extent to which the CSR disclosure items influence their investment decision. Using responses from 113 investors in an online experiment, we find that fairness perceptions are higher when CSR investment is above (versus below) the industry average, and that fairness perceptions partially mediate the impact of the CSR investment level on investment amount allocations. We do not find that the presence (versus absence) of CSR assurance is used by investors as a fairness heuristic. Our results are robust to controlling for preferences for financial performance and hence investors’ instrumental motive, and to controlling for individual environmental attitudes, and hence investors’ moral motive. Implications for future research and public policy are discussed.     

Risky business: Taking a stand on social issues

When company executives take a stand on social issues, the repercussions can be significant. Not only does the company run the risk of alienating employees, but taking a stand on a controversial issue can impact the company's image and ultimately consumer purchasing behaviors. However, research on corporate social responsibility generally supports the notion that when companies get involved in societal issues, it can positively influence bottom-line financial performance. This article evaluates the advantages and disadvantages of taking a corporate stand on sensitive social issues and suggests guidelines that leaders should consider to increase the probability of success. Specifically, we found that oftentimes it is not the stand a leader takes but rather how that leader takes that stand. Moreover, we encourage business leaders to consider the delicate balance between fiduciary responsibility and social activism, to use a strategic approach, and to understand the legal repercussions before taking a stand on a social issue.