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We outline a supply and demand model of corporate social responsibility (CSR). Based on this framework, we hypothesize that a firm's level of CSR will depend on its size. level of diversification, research and development, advertising, government sales, consumer income, labor market conditions, and stage in the industry life cycle. From these hypotheses, we conclude that there is an "ideal" level of CSR, which managers can determine via cost-benefit analysis, and that there is a neutral relationship between CSR and financial performance.
Managers continually encounter demands from multiple stakeholder groups to devote resources to corporate social responsibility (CSR). These pressures emerge from customers, employees, suppliers, community groups, governments, and some stockholders, especially institutional shareholders. With so many conflicting goals and objectives, the definition of CSR is not always clear. Here we define CSR as actions that appear to further some social good, beyond the interests of the firm and that which is required by law. This definition underscores that, to us, CSR means going beyond obeying the law. Thus, a company that avoids discriminating against women and minorities is not engaging in a socially responsible act; it is merely abiding by the law.
Some examples of CSR actions include going beyond legal requirements in adopting progressive human resource management programs, developing non-animal testing procedures, recycling, abating pollution, supporting local businesses, and embodying products with social attributes or characteristics. We limit the scope of our analysis to satisfying the burgeoning demand for CSR through the creation of product attributes that directly support social responsibility (e.g., pesticide-free produce) or that signal the firm's commitment to CSR (e.g., dolphin-free-tuna labels).
Many managers have responded to heightened stakeholder interest in CSR in a very positive way, by devoting additional resources to promote CSR. A primary reason for positive responses is the recognition of the relevance of multiple stakeholders (Donaldson & Preston, 1995; Mitchell, Agle, & Wood, 1997). Other managers have a less progressive view of stakeholder relevance. They eschew attempts to satisfy demand for CSR, because they believe that such efforts are inconsistent with profit maximization and the interests of shareholders, whom they perceive to be the most important stakeholder.
This divergence in response has stimulated an important debate regarding the relationship between CSR and financial performance. It...