Volume 19, Number 2
Where does corporate social responsibility come from? New research from Bryan Hong suggests that it doesn't always start with the CEO.
In recent years the idea of corporate social responsibility has been widely embraced. Although research has provided conflicting evidence of a clear link with financial performance, many managers feel that CSR is simply good business.
Despite the increasing interest in CSR, there are still significant differences in socially responsible behaviour across firms, and even across time within the same firm. Many people assume that these differences can be explained by the people at the top. But there is little direct evidence to support the notion that top managers, like the CEO, should take either the credit or the blame. In fact, there is surprisingly little in the existing literature showing where CSR actually comes from.
In a recent study, Ivey Professor Bryan Hong, with coauthor Dylan Minor at the Kellogg School of Management, examined how much top executives influence CSR. Typically, conducting studies of this type is very difficult because it is often impossible to know if managers are truly responsible for changes in CSR behaviour, or if other factors, such as a firm's culture, actually drive the changes. To address this challenge, Hong and Minor developed a unique methodology to identify changes that were clearly attributable to individual managers. "We were able to separate the individual effect of a top manager from everything else that's going on in the firm," says Hong. "That's one of the big contributions of our paper."
To conduct the study they focused on the top five executives in the firm, from a data set of several hundred large U.S.-based public companies. To measure changes in CSR, they focused on environmental CSR outcomes, and used two different measures of environmental social performance: social performance ratings provided by a leading CSR rating agency, Kinder Lydenberg and Domini, and U.S. EPA regulatory violations.
Their study showed that top managers have much less impact on CSR than might be expected. They found that the majority of managers have little or no effect on socially responsible practices, either positively or negatively. However, they found that a significant minority of top managers actually do make a difference. "Our findings suggest that firm-specific factors are usually a more important influence on CSR than the people at the top," says Hong.
In the study they controlled for particular firm-specific factors that have already been shown to influence CSR. For example, some industries are more committed than others. Larger firms tend to have higher CSR profiles, as do firms who have very large advertising expenditures. "We ruled out all of these factors, and we still found that there's something else really important going on within the firm that we weren't able to observe- independent of top management."
This finding raises lines of inquiry for future research. For example, how important is the role of firm culture? "Our research focuses on managers, so it doesn't specifically identify firm culture as a driver of CSR," says Hong. "But it may be one possibility to explain the difference."
Another question arising out of Hong's research is why most top managers have little impact on CSR. "It's possible that they care, but they just can't make a difference," says Hong. "Or it's also possible that most managers just don't really care."
Hong is now looking to answer another important question: Who is in the group of top managers that actually make a difference? "We know that leadership does matter at some level," he says. "Do managers who care about these things and are able to make changes look different from those who do not? Do managers who have a positive influence on CSR look different from managers who have a negative influence? That's where we're headed in our research now."
Hong's study has important implications for board members who are looking to improve the CSR profile of a firm. "Board members should pause if they think that simply hiring another CEO will make things better," he says. "In addition to getting a new person at the top, boards should think about addressing other factors, such as culture and reputation."
All the trends suggest that corporate social responsibility is an idea that will continue to grow. Hong is hoping that his research will help other researchers answer fundamental questions about what makes it happen. "The main message of our research is that CSR doesn't all live or die by the CEO," he says. "We're now trying to understand what other forces inside firms really drive social performance."