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Stakeholder Pressures as Determinants of CSR Strategic Choice: Why do Firms Choose Symbolic Versus Substantive Self-Regulatory Codes of Conduct?

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Abstract

To encourage corporations to contribute positively to the environment in which they operate, voluntary self-regulatory codes (SRC) have been enacted and refined over the past 15 years. Two of the most prominent are the United Nations Global Compact and the Global Reporting Initiative. In this paper, we explore the impact of different stakeholders’ pressures on the selection of strategic choices to join SRCs. Our results show that corporations react differently to different sets of stakeholder pressures and that the SRC selection depends on the type and intensiveness of the stakeholder pressures as well as the resources at hand to respond to those pressures. Our contribution offers a more specific and finely variegated analysis of firm-stakeholder interactions.

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Notes

  1. Berchicci and King (2007) use the term self-regulatory institutions or SRI to identify voluntary codes of conduct regarding social or environmental practices. The SRI nomenclature, however, also refers to “socially responsible investment.” Therefore, we favor the abbreviations SRC/SRCs over that of SRI to avoid confusion.

  2. Their use of the words “Environment” or “Environmental” imply external pressures and have no relationship to SD or sustainability.

  3. A search good is that for which its quality can be observed (e.g., an orange).

  4. A credence good is that for which the “true” value cannot be evaluated even after consumption (e.g., higher education).

  5. They use the different acronym EMS (not SRI/SRC), which stands for Environmental Management System.

  6. Perez-Batres et al. (2012) show there is such an effect for large public international firms but not for large public local firms operating in Mexico.

  7. See Kell 2005; Vormedal 2005; Cetindamar and Husoy 2007; and specially Runhaar and Lafferty 2009 for an explanation on the UNGC.

  8. See the GRI website at https://www.globalreporting.org/reporting/latest-guidelines/g3-guidelines/Pages/default.aspx.

  9. We did not include the Human Rights category due to its lack of variability.

  10. The study by Pérez-Batres et al. (2012) in turn constructed this ranking by following Gamper-Rabindran (2006) and Mani and Wheeler (1999) insights.

  11. Within the KLD research literature, the ratings are treated and referred to interchangeably as a proxy for Corporate Social Performance or stakeholder pressures. In this study, we conceptualize them as stakeholder pressures.

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Acknowledgments

This research is part of a project on International Business and Sustainable Development, which has been funded by a grant from the Title VIb Program of the United States Department of Education for the period 2008–2011 (Award # P153A080011).

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Authors and Affiliations

  1. Department of Management, College of Business Administration, Central Michigan University, Mount Pleasant, MI, 48859, USA

    Luis A. Perez-Batres, Van V. Miller & Michael J. Pisani

  2. Villanova University School of Business, 800 Lancaster Ave., Villanova, PA, 19085, USA

    Jonathan P. Doh

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Appendix: The KLD Ratings

Appendix: The KLD Ratings

The KLDFootnote 11 Corporation provides a dataset (of the same name) that reports on the CSP of approximately 3,000 large American firms, selected on the basis of market capitalization. KLD is generally recognized as the most authoritative tool for measuring CSP (Berman et al. 1999; Deckop et al. 2006; Hillman and Keim 2001; Waddock and Graves 1997). Although KLD includes multiple rating tools, the element most often used to measure CSP includes ratings on environmental, social, and governance performance. According to KLD, 80 indicators are utilized to report on seven major Qualitative Issue Areas (within the CSP context): Community, Corporate Governance, Diversity, Employee Relations, Environment, Human Rights, and Product. Relying on a proprietary research process, KLD annually scores or rates each corporation on multiple indicators, which are aggregated in an annual data set (presented in a spreadsheet format) and made available for purchase.

For Waddock and Graves (1997), KLD analysts rely initially on responses to an annual survey completed by each company’s investor relations office. KLD’s independent assessments and ratings are also shaped by analysts’ readings/interpretations of corporate documents and by communications from the corporations themselves. In addition, the analysts draw relevant information from numerous other sources—trade publications, EPA newsletters, academic journals, published surveys, and legal or regulatory notices of penalties and fines.

The KLD data has been criticized on a number of criterion. Of relevance to our paper, Strike et al. (2006) proposed that many firms simultaneously engage in socially responsible and socially irresponsible behavior, making a net assessment of firm-level CSR especially difficult to gauge. Moreover, Chatterji et al. (2009) consider the matter in their discussion of the common practice whereby Qualitative Issue concern ratings are subtracted from Qualitative Issue strength ratings, yielding a single Qualitative Issue score. To avoid this practice, we treat strengths and concerns separately in our framework and analyses (Sharfman 1996; Strike et al. 2006).

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Perez-Batres, L.A., Doh, J.P., Miller, V.V. et al. Stakeholder Pressures as Determinants of CSR Strategic Choice: Why do Firms Choose Symbolic Versus Substantive Self-Regulatory Codes of Conduct?. J Bus Ethics 110, 157–172 (2012). https://doi.org/10.1007/s10551-012-1419-y

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