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How Corporate Social

Responsibility Pays Off
Lee Burke and Jeanne M. Logsdon

in recent years
Proponents of corporate social responsibility
have put pressure on firms to examine their phil(CSR) are convinced th~t it 'pays off' for the firm
anthropy and other social responsibility activities.
as well as for the organization's stakeholders and
Cutbacks have occurred in many organizations
society. This paper examines social responsibility
because the rationales for continuing or upgrading
programmes which create strategic benefits for
these programmes have not been clearly articulated.
firms. Five strategy dimensions are identified
However, a fundamental belief among its business
which help to assess the value created for the firm
supporters and business-and-society scholars is that
by CSR programmes: centfality,specificity,
corporate social responsibility 'pays off' for the firm
pro8ctivity, voluntarism and visibifity. Guidelines
as well as for the firm's stakeholders and society in
for managers to incorporat~ these dimensions
general. But the failure to find strong empirical supinto a strategic analysis of their social
port for the relationship between socially responsible
responsibility are presented to encourage more
behaviour and financial performance 1 ,2 has been
support for these mutually beneficial
troubling. Rightly or wrongly, this lack of a clearcut
programmes. Copyright 1996 Elsevier Science
empirical relationship between social responsibility
Ltd
and the bottom line is perceived by some executives
and students as evidence that it is irrelevant for successful corporate performance, perhaps even antiizations with good reputations for CSR have enthetical to it.
This article approaches the issue of linking cor- countered financial difficulties, we believe that the
porate social responsibility (CSR) to the economic explanation for this decline lies not in their CSR
interests of the firm from a different perspective. activities but rather in their competitive environRather than focusing only on direct correlations ments and business decisions. A strategic reoribetween CSR programmes and short-term profits, the entation of the firm's CSR philosophy can support
thrust of our approach is to examine the ways in its financial interests as well as other stakeholders'
which CSR programmes can create strategic benefits interests in the firm. How to reorient CSR toward a
for the organization even when they are not readily more strategic perspective is the key to inspiring more
measurable as separable contributions to the bottom CSR activities, thus serving stakeholder and societal
line. The question that is addressed here is: under interests more fully.
what conditions does a firm jointly serve its own strategic business interests and the societal interests of
A Tradeoff Between CSR and Profit?
its stakeholders?
This is an important question for managers and for
Historical Perspectives
stakeholders because without a clearcut understanding of strategic benefits that may accrue to the The perception that CSR entails a zero-sum tradeoff
organization, it is more likely that top management with corporate economic interests is strongly identwill not invest in CSR practices which contribute to ified with neo-classical economics. Even many
the long-term success of the firm. While a few organ- defenders of CSR accept the zero-sum formulation,

TOUGHER COMPETITIVE CONDITIONS

Pergamon
PH: 80024-6301(96)00041-6

Long Range Planning, Vol. 29, No.4, pp. 495 to 502, 1996
Copyright 1996 Elsevier Science Ltd
Printed in Great Britain. All rights reserved
0024-6301/96 $15.00+0.00

______________________________

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while at the same time embracing the social obligations of business. The classic literature in business
and society asserted that while CSR might entail
short-term costs, it paid off for the firm in the long
run. 3,4 These scholars argued that firms would benefit
from greater social legitimacy with less government
regulation, and that a better society was simply good
for long-term profitability. A complementary, though
slightly different view held that CSR was appropriate
for underwriting public goods which no single firm
had a market incentive to provide. 5
The next stage in the academic debate over social
responsibility focused on clarifying and quantifying
the benefits from CSR. Empirical analyses of the
relationship between CSR and profitability began to
appear in the mid-1970s, but did not result in consen1
SUS. ,2 These studies have generally used a single measure of social performance (such as an external
reputational index, content analysis of corporate
annual reports or peer ratings) which was correlated
with various measures of company economic performance. Researchers have usually acknowledged
the weaknesses of these single CSR measures, but
point out the extraordinary difficulty of gathering data
about the wide range of CSR behaviours for a sufficient number of firms to perform statistical analyses.
More recently, some have argued that fundamental
definitional problems with the CSR construct itself,
in addition to measurement problems, make the
efforts to find statistical associations between CSR
and profits highly problematic. 6
While CSR researchers struggled with these issues,
the field of strategic management was grappling with
its own definitional problems. Just what exactly was
business strategy? Some theorists defined strategy as
the goals, mission, and objectives of the firm. 7,8 Others
focused on strategy as plan,9 pattern/ D.11 process 12 and
positioning for competitive advantage. 13 ,14 Within the
classic strategy literature, discussions of the firm's
external environment expanded beyond the traditional economic or market context. Strategy theorists such as Andrews 1D identified the relationship
between corporate strategy and "the economic and
noneconomic contribution [the firm] intends to make
to its shareholders, employees, customers, and communities" (p. 13, emphasis added). Ansofp5 articulated the need for firms to develop societal strategies.
As a result, environmental scanning and monitoring
systems gained importance as elements of an effective
information
gathering
system
for
strategy
formulation. 16 ,17 Attempts to integrate the concepts of
CSR and corporate strategy have included the stakeholder model of strategic management and the
inclusion of social demands as strategic issues. 18 ,19
The integration of corporate social policy within the
traditional strategy model was also furthered by the
recognition that social response policies should be
"strategically related to the economic interests of the
How Corporate Social Responsibility Pays Off

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _

firm" (Carroll and Hoy, p. 55).20 The concept of strategic CSR builds on these efforts by demonstrating
several fundamental ways in which CSR activities can
be tightly linked to the strategy of the firm.

Strategic Corporate Social

Responsibility
Corporate social responsibility (policy, programme or
process) is strategic when it yields substantial business-related benefits to the firm, in particular by supporting core business activities and thus contributing
to the firm's effectiveness in accomplishing its
mission. While empirical studies to date have focused
primarily on the link between CSR and financial performance (especially, short-term profits), we propose
a more comprehensive basis for identifying the
relationships between CSR and the firm's strategic
interests. This broader set of criteria or dimensions
attempts to capture the full range of strategic behaviour and opportunities for business to benefit from
CSR. These dimensions are not intended to
encompass all CSR activity. Much observed CSR
behaviour remains nonstrategic, however valuable it
is for stakeholders and society. Our attempt here is to
develop better measures for assessing when and in
what ways CSR activities jointly serve economic and
societal interests.
We have identified five dimensions of corporate
strategy which are both critical to the success of the
firm and useful in relating CSR policies, programmes
and processes to value creation by the firm. Value
creation is commonly viewed as the most critical
objective for the firm and its strategic decisionmaking process. In assessing the probable contributions of CSR activities to value creation, the five
dimensions of strategic CSR are: centrality, specificity, proactivity, volunt\lrism and visibility. Figure 1
shows the development of these dimensions of value
creation and their linkages to definitions of strategy
found in the academic literature.

Centrality
Centrality is a measure of the closeness of fit between
a CSR policy or programme and the firm's mission
and objectives. 21 Centrality is a critical issue in most
definitions of strategy as goals or objectives. It provides direction and feedback for the organization by
revealing whether given actions or decisions are consistent with the mission, goals and objectives of the
firm. Actions or programmes having high centrality
are expected to receive priority within the organization and to yield future benefits, ultimately translated into profits for the organization. For example,
in the product development area, funds spent by a
pharmaceutical firm on new drug research and testing
have very high centrality. By contrast, the internal

--------------------------------~~~---------------------------------

Competitive advantage
(Rumelt, Porter)

Plan
(Quinn)

Proactivity
Degree to which the program
is planned in anticipation of
emerging social trends and in
the absence of crisis

The scope for discretionary

decision-making and the lack
of externally imposed
compliance requirements

Visibility
Observable, recognizable
credit by internal and/or
external stakeholders for the
firm

FIGURE

1. How strategy is linked to corporate social responsibility.

auditing function, while important for the ultimate health and security of firms, generally has low
centrality.
With respect to strategic CSR, programmes or policies which are related closely to the organization's
mission or tightly linked to its accomplishment have
much higher centrality than traditional broad-based
corporate philanthropy programmes. For example,
the design, testing and manufacture of air bags for
automobiles-a socially responsible product-was
highly central to TRW, as was the correction of safety
problems with this product. Similarly, political
activities in support of mandatory automobile safety
equipment have high centrality for a manufacturer of
such equipment. But even philanthropy decisions can
have a high degree of centrality. Merck's investment
in developing and distributing the river blindness
drug, Mectizan, is widely regarded as strategically

astute as well as humanitarian. The 18 million Third

World victims of this disease have clearly benefited
from Merck's contribution, and Merck itself benefits
because of its enhanced reputation in the industrialized world, including increased reputational
leverage with medical professionals and government
regulators. The company also benefits in terms of
employee morale, productivity and retention by supporting the ethical motivations of the research staff.

Specificity
Specificity refers to the firm's ability to capture or
internalize the benefits of a CSR programme, rather
than simply creating collective goods which can be
shared by others in the industry, community or
society at largeY,14 Externalities (whether positive or
negative) and public goods are by definition nonspecific. By contrast, investments in research and
Long Range Planning Vol. 29

August 1996

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_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _

development leading to patentable products are changes requiring more skilled or differently skilled
highly specific.
labour will be better prepared to shift to new techMany CSR behaviours, including many phil- nologies and will encounter less resistance in doing
anthropic contributions, create nonspecific public so. Motorola has excelled in providing remedial edugoods that are broadly available to a local or national cation and specialized training for employees so that
community. For example, corporate donations to the Total Quality Management and other improvement
San Francisco Symphony benefit Bay Area sym- programmes could be implemented more effectively
phony-goers and others in the community who feel by a more qualified workforce.
pride in or value the excellence of the local classical
An example of pro activity in the CSR context is a
music scene. Neither of these benefits is specific to the manufacturer monitoring emerging social trends and
donating firm since there is no exclusive enjoyment regulatory initiatives regarding pollution control. A
granted to the firm (although some of the firm's company whose active investigation identifies new
employees may hold symphony tickets). Similarly, smokestack technologies to meet forthcoming or prosmokestack scrubbers or waste water treatment facili- spective regulations at a low cost would clearly gain
ties create public benefits (or avoid the creation of a long-term competitive advantage over its competinegative pollution externalities) which are available tors. But even more proactive is the firm which fosters
to the entire community. The firm discharging 'clean' pollution reduction throughout the organization
smoke or 'pure' water benefits only to the extent that because it has anticipated that pollution-related costs
it shares in the enjoyment of a healthier environment will increase over the long term, For example, 3M
and avoids censure or fines associated with failure to Company developed the Pollution Prevention Pays
meet federal pollution enforcement standards. For a (3P) programme in 1975 and had reduced pollutants
firm that exceeds existing standards for waste treat- by over 575,000tons by the early 1990s. The 3P Plus
ment, the benefit stream produced by pollution programmme was recently introduced to provide an
reductions beyond minimal compliance levels is even more holistic approach to pollution prevenpublic, i.e. nonspecific to the firm. One might argue tion. 23 Similarly, a consumer products firm pursuing
that the firm may be motivated by the desire to save an environmental marketing strategy would be better
on future compliance costs. If so, the CSR behaviour positioned to roll out environmentally friendly packmay be strategic in terms of proactivity, another of aging in a timely fashion for the 'green' decade of the
the dimensions of strategic CSR.
1990s, as Procter & Gamble has done. By contrast,
Contrast this with the case of a firm investing in cutting back on R&D aimed at finding substitutes
cogeneration technology which recaptures heat dis- for CFCs in the early 1980s may have hurt DuPont's
charged through smokestacks and converts it to dominance of that market niche more than the cutenergy which substitutes electrical power purchased backs helped the immediate bottom line.
from the local utility. In this case, the benefits of
cogeneration are highly specific to the firm in the form Voluntarism
of energy costs saved. The benefit spillover to the Voluntarism indicates the scope of discretionary
public is the firm's contribution to aggregate energy decision-making by the firm and the absence of
conservation. Cause-related marketing programmes externally imposed compliance requirements. Voloffer similar specific benefits to the sponsoring firm untarism is closely linked to proactivity, especially
as well as to recipient nonprofit organizations.
to the extent that it presumes the absence of regulatory
or other mandates. In general, philanthropic conProactivity
tributions are assumed to be voluntary-although
Proactivity reflects the degree to which behaviour is executives are often subject to social network presplanned in anticipation of emerging economic, tech- sure to contribute to favourite charities. 24
nological, social or political trends and in the absence
Firms regularly engage in voluntary behaviours in
of crisis conditions. Pro activity has long been ident- their core business functions, e.g. in decisions regardified by business strategists as an important charac- ing product line and new product introductions. In
teristic of planning and scanning systems. 9 ,10,22 In general, normal business activities are considered
turbulent environments firms must constantly scan voluntary in the sense that firms maintain high levels
their environments to anticipate changes likely to of control and discretion over day-to-day operations.
affect the firm. Such changes can range from new In the CSR domain, the firm which exceeds minimum
market opportunities to emerging social issues or standards for quality or safety, such as an airline
threats.
which exceeds FAA inspection and maintenance
The firm that recognizes critical changes early will requirements, exhibits voluntarism. These activities
be better positioned to take advantage of oppor- offer both strategic and social responsibility payoffs.
tunities or to counter threats. For example, a firm In many cases additional mandates come into play
which introduces an employee education and retrain- only when such voluntary behaviour ceases, often in
ing programme in advance of coming technological the face of short-run financial pressures. For example,
How Corporate Social Responsibility Pays Off

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_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

the perceived decline in US airline performance in

the late 1980s with respect to on-time arrivals and
baggage handling led to new requirements for airlines
to publicly report performance in these areas.

side world. They may also produce economic benefits

for the firm by improving productivity, morale or loyalty, thus making it easier for the firm to attract and
retain the best employees.

Visibility

Value Creation as Strategic Outcome

The ultimate measure of strategic benefits from CSR
activities is the value they create for the firm. Value
creation refers to the readily measurable stream of
economic benefits that the firm expects to receive.
This dimension also most closely approximates the
attempts by earlier researchers to find relationships
between social responsibility and economic performance. Firms create or attempt to create value in
their ongoing business activities through investments
in new technology, new products, brand awareness,
production facilities, training and customer service.
To the extent that some of these also constitute or are
integrated with CSR objectives or goals, these CSR
programmes are among the most likely to create
demonstrable economic benefits to the firm. Figure 2
provides a number of examples of potentially strategic CSR activities and the benefits which they offer
to firms.
Once the concept of strategic CSR is accepted by
executives as feasible, the next step is to develop
methods of analysis and guidelines to capitalize on
these opportunities.

Visibility denotes both the observability of a business

activity and the firm's ability to gain recognition from
internal and external stakeholders. Visibility can
have both positive and negative consequences for
firms. Positive forms of visibility involving normal
business activities include favourable media
mentions, strong earnings announcements, stock
price run-ups (not associated with impending hostile
takeovers) and successful new product launches.
Instances of negative visibility include government
investigations of contract fraud, the indictment or
sentencing of company officials, the discovery of
dangerous side effects from otherwise beneficent
drugs, cases of poisoning and other forms of commercial terrorism, or the disclosure of toxic contamination in waste disposal sites.
Visibility for CSR activities is less likely to be negative, although the CSR behaviour and resulting publicity may arise from initially negative events. For
example, the discovery of toxic shock syndrome and
its link to tampon use were certainly negative events.
But Procter & Gamble's response, in the form of its
recall of Rely tampons, generated significant positive
visibility for the company and, by extension,
enhanced the perceived reliability of its many other
products. 25 Similarly, Johnson & Johnson's rapid and
complete response to the Tylenol poisonings underscored the firm's concern for its customers and
brought high visibility to its long-standing corporate
code of conduct. An unanticipated consequence of
the Tylenol episode is that Johnson & Johnson'S code
is now the most widely known corporate code among
business students, often used in business-and-society
courses as a model for all firms.
Clearly these two well-known cases illustrate voluntary CSR responses which resulted in positive visibility in the wake of negative initial events. This
contrasts with Exxon's experience with the Valdez oil
spill. In that case, negative visibility resulting from
the initial event increased when the expected
response capability failed to materialize. Exxon's
treatment of, and information releases about, the
extent and nature of the oil spill further reinforced
the already negative publicity surrounding the initial
event.
Visibility, unlike most of the other dimensions, may
be particularly relevant with respect to the firm's
internal constituency-its employees. For example,
creative and extensive employee benefit programmes,
such as comprehensive health care, on-site day care
and continuing educational benefits, are likely to be
highly visible within the firm, even if not to the out-

Implications for Management

Practice and Research
Increasing competitive pressures have caused executives to examine the nature and extent of their firms'
CSR activities. At the same time, governmental capabilities for solving social problems have been called
into question, and in many cases society is looking to
the business sector for assistance in identifying and
implementing remedies. Meanwhile, many of these
social problems are becoming more acute. It is critical
for executives to consider the consequences of these
trends. They do not bode well for communities or for
firms.
One answer is strategic corporate social responsibility. By becoming more aware ofthe benefits to both
the firm and its stakeholders, managers can make better decisions about CSR activities. For example, in
a community suffering from a high drop-out rate in
secondary schools, managers can design and
implement many effective programmes for keeping
at-risk teenagers in school. Many ofthese programmes
are not very costly to firms, particularly when they
encourage employees to volunteer. In addition, there
are often payoffs to firms which employ and sell products or services within these communities.
If we recognize the long-term investment characteristics of CSR (as opposed to thinking of CSR merely
Long Range Planning Vol. 29

August 1996

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Product or service
related
characteristics,
innovations or
processes

Political activity
(PAC, lobby or
information,
independent or
industry)

Environment
management
(health,
safety, pollution)

Employee benefits
(direct or indirect)

Philanthropic
contributions
(S, product, time)

New business
opportunities if prepositioned to take
advantage of new
rules

Patent or innovation
edge in product or
process development

Product reformulations
e.g. 'green'
Patent or innovation
improved design,
edge first-to-market
e.g. fuel efficiency
brand loyalty
new products,
airbaas

Favourable change in
economic or social
regulations

Process innovation
esp. re pollution

New products
e.g. 'green'

Health/wellnness
Day care
Flex-time

omputer donations to Accustom new users

to firm's products vs
mfrs.
competitors'
Engineering research
fellowships

r"hOOIS by comp"'e,

Environmental
scanning to create
edge in design or
product ideas

Pre-positioning for
changes in
regulations

Learning curve
advantages

Higher employee
loyalty

New or uncommon
benefits

Proactivity

Visibility

Customer loyalty

Value created

II Future purchasers

II

II

Positive relations
with regulators

First-to-market
or leadership
benefits

Public relations
and/or marketing
advantage

II. emergency
Edge in meeting
needs

New product on
new markets

New product or
geographic market
opportunities

New products or
markets

Internal:
II Productivity gains
Employee loyalty ~
mployee loyalty
and morale
and morale

Communlty
. support I

Voluntarism

II

e
e

Ul

----------------------------------~~~---------------------------------as current period expenditures), then normal business decision rules would select CSR activities which
1. yield the highest total payoffs in terms of collective
benefits to the firm and its stakeholders and 2. fall
within the range indicated for strategic CSR. To identify such projects, the firm should incorporate CSR
planning and investment within its corporate planning function. Specifically, the firm should carry out
the following analysis:
o Identify the stakeholders which are critically
important for achieving the firm's mission, goals
or strategic objectives.
o Determine the socially valuable CSR policies, programmes and projects which address the needs
and interests of these stakeholders.
o Assess the opportunities offered by these CSR projects to enhance the firm's attainment of strategic
objectives or to solve significant problems and
threats facing the firm. (Centrality.)
o Assess the degree to which these CSR projects
offer benefits which can be captured and/or internalized by the firm as opposed to all firms in the
industry or society at large. (Specificity.)
o Anticipate future changes in the firm's environment and changes in the needs of its key stakeholders which could be addressed through
proactive CSR policies and activities. (Proactivity.)
o Determine the baseline of mandated requirements
in order to identify the opportunities for voluntary
acti vities. (Vol un tarism.)

Identify opportunities to create positive visibility

with key internal or external stakeholders from
CSR activities. (Visibility.)
Measure and compare the value or potential value
expected from various CSR projects. (Value
creation.)

To the academic community, the concept of strategic

CSR provides an opportunity to measure the benefits
of CSR in a broader context than simple correlations
between philanthropic contributions and profits.
Recent literature in the business-and-society field
implicitly or explicitly takes a more strategic orientation to various components of CSR. 26,27 Greater precision in specifying the attributes of strategic CSR will
help future researchers to identify the broad range of
business activities which represent CSR behaviour.
In this vein, work needs to be done on 1. creating
sound measures of strategic CSR for empirical
research; 2. exploring the linkage between CSR and
the alliance behaviours of firms; 3. examining the role
of industry leaders in establishing norms for CSR and
in innovating strategic CSR. A comprehensive framework should help managers to identify opportunities
for and justify greater attention to CSR behaviour
which can be linked to the strategic interests of the
firm.
Several of these ideas appeared in a paper with Martha Reiner
which was presented at the International Association for Business
and Society 2nd annual conference in Sundance, UT.

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Lee Burke. is an Assistant Protessorinthe

Department of Strategic Management and
PUblic Poticyat George
Washington
University, Washington, DC,
USA.

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Jeanne Logsdon is an
in
the
Department of
Organizational Studies
at theljniversitv of
New Mexico,Albuquerque, NM, USA.
~$sociateProfe$~or

How Corporate Social Responsibility Pays Off