Report from the Research Frontier: July 2019

New findings: CSR draws employees; DJSWI visibility attracts long-term investment; and non-financial metrics motivate responsible action.

Every month, researchers publish dozens of articles on business sustainability. NBS highlights insights at the frontier of knowledge. See all monthly highlights.

CSR Can Help You Keep Employees — and Secrets

Employee know-how is a key source of competitive advantage. But employees with access to trade secrets are the most likely ones to move to rival firms or new ventures.

Companies use financial incentives and legal actions (non-compete agreements, nondisclosure agreements) to prevent such “knowledge leakage.” But increasing Corporate Social Responsibility (CSR) is also a way to keep employees at a company — and make them less likely to share firm information even if they go.

“Companies can use CSR to prevent employees from ‘walking’ and ‘talking,’” researcher Caroline Flammer told NBS. In fact, it appears that companies are already using CSR in this way. In new research, Flammer and her colleague Aleksandra Kacperczyk found that when US states stopped allowing companies to legally prevent employees from moving to rival firms, companies in those states increased CSR by 13-19 per cent.

Moreover, experimental results show that CSR is an effective tool for keeping company secrets: when a company engages in CSR — related to employees or environment and community — former employees are more likely to keep its secrets, and to explain their action as based on loyalty, integrity, and trust.

Article: Flammer, C., & Kacperczyk, A. 2019. Corporate social responsibility as a defense against knowledge spillovers: Evidence from the inevitable disclosure doctrine. Strategic Management Journal.

CSR Visibility Draws Long-Term Investors – But Doesn’t Boost Stock

Companies listed on the Dow Jones Sustainability World Index (DJSWI) are seen as world leaders. What financial benefits does that recognition bring?

It’s a mixed picture, report researcher Rodolphe Durand and colleagues. They studied companies listed on the DJSWI between 2005 and 2015, and compared them to firms with similar CSR performance that are not on the DJSWI. They didn’t find that the DJWSI listing boosted stock prices or trading volume.

But DJSWI membership does have some benefits. Firms that remain on the DJSWI see a small but positive increase in stock held by long-term investors (an increase, on average, of $112 million). Listing also leads to increased attention by financial analysts; researchers found that firms added in 2015 drew an average of 29 per cent more analysts over the next year than the comparison firms.

“Increased market attention and long-term shareholding matter a great deal to strategists at the helm of many companies” Durand told NBS. “Both factors help them develop more impactful and longer-term strategies.”

These benefits to companies increased during the time frame studied by the researchers, suggesting that CSR visibility is becoming increasingly important for financial markets.

Article: Durand, R., Paugam, L., & Stolowy, H. 2019. Do investors actually value sustainability indices? Replication, development, and new evidence on CSR visibility. Strategic Management Journal.

Use Non-Financial Metrics to Motivate CSR

How can companies encourage managers to implement a corporate social responsibility (CSR) strategy? Using a non-financial measure can be the best way to motivate CSR, report researchers Jason Kuang, Wei Jiang and Adam Vitalis.

CSR goals can be measured in financial terms (e.g. dollar investment) or non-financial terms (e.g. number of trees planted or pounds of food donated). Among people who already see CSR positively, non-financial metrics lead to more CSR action than do financial metrics, the researchers found. The non-financial measures may let these people envision the benefits of action they already support — thus activating a personal norm and increasing their commitment. (Pairing financial and non-financial metrics doesn’t diminish that support.)

“For companies that want to motivate managers’ CSR action, including non-financial metrics can provide an extra boost,” Kuang told NBS.

For people who don’t already see CSR positively, financial and non-financial metrics have the same impact on action, the researchers found.

The researchers based their finding on experiments with college students and executive education participants. All were asked to act as managers responsible for decisions about tree planting, but variously asked: “how much do you want to spend planting trees?” and/ or “how many trees do you want to plant?”

Article: Church, B.K., W. Jiang, X. Kuang, and A. Vitalis. Forthcoming. A dollar for a tree or a tree for a dollar? The behavioral effects of measurement basis on managers’ CSR investment decision. The Accounting Review.