Rethinking the Corporate Financial–Social Performance Relationship: Examining the Complex, Multistakeholder Notion of Corporate Social Performance

Abstract

The corporate financial performance (CFP)-corporate social performance (CSP) relationship has been investigated many times over the past few decades, yet the notion of CSP has generally been understood to be a single, monolithic aspect of corporate strategy. This article examines the common CFP-CSP understanding in three distinct ways: (1) by extending the evaluation of CSP as a complex, multistakeholder notion; (2) by analyzing CSP's relationship with the firm's financial performance at a given point in time as a lead (independent) variable in the relationship and as a lag (dependent) variable in the relationship; and (3) for both positive and negative stakeholder relationships. The results indicate that the employee emerges as the stakeholder group James Weber is a Professor of Business

Revisiting the Corporate Social and Financial Performance Link: A Contingency Approach

“…What does not hurt a firm during prosperous times may turn out very costly during market downturns. This is consistent with Weber and Gladstone's () finding of some negative correlations between environment and consumer oriented CSP and ROA 3 years later. In the pharmaceutical industry, investing in pro‐employee or shareholder oriented corporate governance initiatives provides a possible example of wasteful CSP, since these issues are irrelevant to the success of pharmaceutical companies, which depend primarily on the development of blockbuster drugs and the support of doctors.…”

“…The study confirms a broad interpretation of the business case for CSR, as firms can justify CSR that goes beyond cost and risk reduction to competitive advantage and mutual value creation by working with key stakeholders (Barnett ; Carroll and Shabana ; Mellahi et al ; Weber and Gladstone ), but only when it is consistent with its industry and other situational contingencies. An insight from this study for both scholars and corporations is that there is real value when stakeholder facing CSP is integrated with a firm's strategy in helping firm performance in the face of market downturns.…”

“…NROA comes closest to assessing viability and successful performance of the firm, as without profit, and efficient use of assets, the firm would not be in a position to grow, or even survive long‐term. Likewise, Weber and Gladstone () found ROA as a financial performance measure most associated with CSP. Profitability measures are preferred because they measure the effectiveness of business activities (Carroll and Shabana ).…”

“…This is interpreted in accordance with the strategic stakeholder approach: firms obtain different degrees of financial benefits from serving different stakeholders (Inoue and Lee ). Weber and Gladstone () also applied separate KLD dimensions pertaining to different stakeholders, finding some empirical evidence for fruitful stakeholder strategies, especially involving employees and somewhat for consumers, but not for community stakeholder groups, nor the environment.…”

“…Prior CSR may constitute a mechanism of insurance against adverse conditions, a logic consistent with Porter and Kramer's () view that strategic CSR investments in stakeholder relationships produce a broad array of internal and external competitive advantages. Strong employee relations, for instance, can produce higher productivity (Huselid ; Weber and Gladstone ) and could enable flexibility to adapt labor‐related expenses to withstand a decline in demand. An awareness of mutual dependency originating from durable supplier relationships can produce joint efforts to maintain competitiveness.…”