Signalling Responsibility? Applying Signalling Theory to the ISO 26000 Standard for Social Responsibility

Abstract

Many global challenges cannot be addressed by one single actor alone. Achieving sustainability requires governance by state and non-state market actors to jointly realise public values and corporate goals. As a form of public–private governance, voluntary standards involving governments, non-governmental organisations and companies have gained much traction in recent years and have been in the limelight of public authorities and policymakers. From a firm perspective, sustainability standards can be a way to demonstrate that they engage in corporate social responsibility (CSR) in a credible way. To capitalise on their CSR activities, firms need to ensure their stakeholders are able to recognise and assess their CSR quality. However, because the relative observability of CSR is low and since CSR is a contested concept, information asymmetries in firm–stakeholder relationships arise. Adopting CSR standards and using these as signalling devices is a strategy for firms to reduce these information asymmetries, by revealing their true CSR quality. Against this background, this article investigates the voluntary ISO 26000 standard for social responsibility as a form of public-private governance and contends that, despite its objectives, this standard suffers from severe signalling problems. Applying signalling theory to the ISO 26000 standard, this article takes a critical stance towards this standard and argues that firms adhering to this standard may actually emit signals that compromise rather than enhance stakeholders’ ability to identify and interpret firms’ underlying CSR quality. Consequently, the article discusses the findings in the context of public-private governance, suggests a specification of signalling theory and identifies avenues for future research.

How market value relates to corporate philanthropy and its assurance. The moderating effect of the business sector

“…In our research, we consider different ways of managing corporate philanthropy and assure it as a signal (Connelly et al, ; Groening & Kanuri, ; Haski‐Leventhal & Foot, ; Moratis, ). These signals convey the ideas of transparency, professionalism, best practices, good governance, and consistency (Siddique & Sciulli, ).…”

“…Stakeholders, among whom investors are of major importance, often require companies to retain independent, external assurance of their activities (Adams & Evans, ; Braam & Peeters, ; Sethi, Martell, & Demir, ), thus ensuring quality and compliance with accepted standards (Cnaan, Jones, Dickin, & Salomon, ; Luffarelli & Awaysheh, ; Martínez‐Ferrero & García‐Sánchez, ). Compliance with standards lends credibility to firms' commitment to social issues (Moratis, ; Shafer & Lucianetti, ). In this respect, studies have concluded that assured reports enhance companies' credibility and reliability, and hence stakeholders' confidence in them (Carey, Simnett, & Tanewski, ; De Beelde & Tuybens, ; Kolk & Perego, ).…”

“…Corporate philanthropy can be considered as an effective signal (Zerbini, 2017) if it: is intentionally disclosed (Spence, 1973), has a volunteer character, is perceived as a signal of trust, cooperation, and concern for stakeholders ( Groening & Kanuri, 2018;Jo & Harjoto, 2011) and is considered as a proactive action that improves its image and reputation and improves the company's relationship with stakeholders, having an ultimate effect on financial performance (Bae et al, 2018;Moratis, 2018). In this sense, investors value corporate philanthropy policy as a signal of the future creation of value and future firm profit (Moratis, 2018) or associate concern for the community with a potentially greater commitment to stakeholders, including shareholders (Qian, Gao, & Tsang, 2015). This perception could have a positive effect on the market.…”

“…By contrast, the existence of a formal structure for corporate philanthropy should ensure the coherence of philanthropic policies and their integration into the firm's overall strategy (Brammer, Millington, & Pavelin, 2006;Marquis & Lee, 2013;Waniak-Michalak & Michalak, 2016) as well their being considered a signal of consistency (Ferreira, 2017;Moratis, 2018). A foundation is a legal entity independent of the firm that favours transparency (Bereskin et al, 2016;Liang & Renneboog, 2017), which is a feature of a signal (Weigelt & Camerer, 1998).…”

“…Corporate philanthropy is then analysed as a strategic issue. Corporate philanthropy acts as a signal to investors of trust, cooperation, and concern for stakeholders (Bae, Masud, & Kim, ; Ferreira, ; Groening & Kanuri, ; Jo & Harjoto, ) or a signal of a positive image and reputation (Moratis, ) that could improve the company's financial performance (Bae et al, ; Moratis, ), create value in the medium and long terms and consequently increase the market value (Muhammad, Scrimgeour, Reddy, & Abidin, ; Vveinhardt & Zygmantaite, ).…”