Companies want to achieve a sustainable competitive advantage. Caroline Flammer’s work shows how corporate social responsibility (CSR) can help.
Identifying the Impact of CSR
Caroline Flammer, a professor at Boston University, identified the impacts on company performance when a company passes a shareholder resolution in favor of CSR. She found that passing such a resolution results in multiple economic benefits for a company, and that certain types of CSR are particularly likely to have performance impacts.
Dr. Flammer finds that companies see particular performance benefits from CSR actions related to labor and environmental issues. Her recommendation: “to see a performance impact from CSR, clear areas to emphasize are improving employee satisfaction and environmental performance.”
Her work recently received honourable mention for the 2016 Research Impact on Practice Award, sponsored by NBS and the Academy of Management. The award recognizes research with important implications for managers. Her work also received the Moskowitz Prize for best paper in socially responsible investing, among other awards.
An Innovative Approach to Research
In medicine, the gold standard for testing a drug is a randomized trial, where some patients are randomly assigned to a treatment group, while others are randomly assigned to a placebo group. The drug can be evaluated by comparing outcomes between both groups.
Flammer took a similar approach to studying the impact on a company of passing a shareholder resolution. She looked at “close call” resolutions, where resolution passes by 50.1% or fails by 49.9%. These vote outcomes are so close that it is like a randomized assignment of companies to CSR.
Flammer found that the companies that adopted these CSR resolutions saw a 0.92% increase in shareholder value on the day of the vote and continuing in the following days. Return on Assets (ROA) also increases, over 12-24 months, and remains higher.
Not All CSR is Equal
These close-call shareholder resolutions tend to be about specific kinds of CSR. Compared to all shareholder proposals, CSR resolutions related to labor and environmental issues are more likely to provide performance benefits. Specifically, they seek to reduce labour discrimination and increase fairness, reduce environmental hazards (e.g., toxic wastes and emissions), or improve environmental reporting. These performance benefits tend to be higher in business-to-consumer industries, where customers are more sensitive to CSR.
Flammer’s research suggests that these shareholder resolutions achieve their performance impact through increased sales growth and labor productivity.
New Discoveries of CSR’s Competitive Value
There’s more to learn about how to gain value from CSR, and Flammer’s ongoing research continues to provide insights and guidance. For example: she is studying a new corporate governance tool, CSR contracting (also known as “pay-for-social/environmental-performance”) CSR contracting ties executive compensation to whether the executive meets certain social criteria, such as emission reduction targets and good relations with local communities.
Flammer’s initial findings are that implementing CSR contracting increases firm value, social and environmental performance, and green technology innovation. “CSR contracting improves relationships with stakeholders who are key for long-term value creation but have little voice and less pressing claims,” Flammer says.
For Flammer, the question of how to achieve a sustainable competitive advantage continues to expand. New directions often come from her interaction with managers. “When I go to conferences and interact with managers, investors, stakeholder activists, and board of directors, I hear their concerns and unanswered questions. This provides avenues for future research.”
Questions for Dr. Flammer?
Please comment below if you would like Dr. Flammer’s perspective on some aspect of her research findings, or if you would like to share your views.