Harnessing the economy of social responsibility: The impact of firm size on corporate social performance

Citation

(2019), "Harnessing the economy of social responsibility: The impact of firm size on corporate social performance", Annals in Social Responsibility, Vol. 5 No. 2, pp. 51-52. https://doi.org/10.1108/ASR-08-2019-051

The nature of company operations across all industries places a social responsibility upon each enterprise, as well as government-led obligations, to give back to the communities they impact and encounter. A research paper by Foo Nin Ho et al. (2019) aims to clarify the relationship between a firm’s size and their corporate social performance (CSP). This involves exploring how firm size influences the four sub-components of CSP, namely environmental management, strategic governance, human capital and stakeholder management. Database data were used on 380 public companies, which span a range of industries in 19 countries across the USA, Asia and Europe to add robustness to the results.

Unpacking corporate social performance

As companies evolve within their commercial marketplaces, so do society’s expectations of the contributory role of these entities, and logically the level of financial contribution expected from larger companies is more significant. Corporate social responsibility (CSR) refers to the way in which companies mitigate the effects of their actions on the physical and societal environment, by investing back into those environments to pacify a range of stakeholders. Extending out of this concept, CSP is therefore a measure of how well a company executes its CSR activity in response to social issues. CSP actions may be a result of ethical or legal decisions made about CSR. Examples of CSP measures are the level of charitable giving a company does, and how polluting its activities are.

From the results of previous research, the benefits of companies engaging in CSR and CSP include them enjoying the upside of environmental management practices being viewed positively by investors, which can have the effect of increasing shareholder commitment to the company. CSR activity also acts as an indirect talent attraction mechanism, since job applicants have the desire to be associated with a well-respected company that operates with integrity. Elements such as these contribute to a company positioning itself to gain greater competitive advantage and market share than its competitors. Indeed, CSR is a linear way of boosting a firm’s reputation and also gives small companies an opportunity to gain positive publicity by providing journalists with a social angle to report from.

The effect of firm size on CSP

The overall result of the study is that firm size significantly affects CSP in a positive way. This headline result is unpacked into the following four variables that directly influence CSP, the trajectory of which is in line with the general result above:

1. Environmental management – this refers to activities such as risk assessing the impact of the company’s operation on the physical environment, and also health and safety measures. The results show that firm size does positively influence environmental management.

2. Strategic governance – this refers to activities like performance monitoring and a company strategically scanning their market for opportunities thrown up by outside regulation. The results show that firm size does positively influence strategic governance.

3. Human capital – this refers to how a company manages and internally transfers knowledge, builds a culture and to how it recruits talent. The results show that firm size does positively influence human capital.

4. Stakeholder management – this refers to maintaining relationships with customers, communities, governments and regulators, both in the context of how the company operates and the products and services it offers. The results show that firm size does positively influence stakeholder management.

Larger firms are well positioned to leverage and reap the benefits of bigger economies of scale in the four above areas, which supplies them with a competitive advantage over smaller or less well organized competitors. In relation to an enterprise’s financial performance, the study’s prediction that an increase in CSP would manifest where the financial performance is strong was supported by the results. This happens because the financial strength provides confidence to proactively invest in the future of the business through CSR-type activates, which in turn boosts CSP.

Driving advantage through social responsibility

Particularly for firms at the larger end of the spectrum, the study highlights how society’s expectations of them to give back to a greater extent produce a trend toward greater CSR activity, which positively drives a higher level of CSP. Larger firms with more resources can build competitive advantages over other companies operating in their market by distinguishing themselves through bona fide CSR engagement. Once such an advantage is gained, it can then compound due to economies of scale as a company continues to grow.

The confirmation by the study that a greater firm size positively affects CSP is evidence of the theoretical benefits of CSP investment being delivered on the ground. These benefits can manifest in a multitude of ways, such as through efficient production, a strong reputation among stakeholders reducing the risk of regulatory fines, and positive environmental management practices enabling recruitment costs to be saved when job applicants proactively seek employment at a firm due to their socially positive brand impact.

Commentary

The review is based on “Nature and relationship between corporate social performance and firm size: a cross-national study” by Ho et al. (2019). This research paper concentrates on the relationship between a firm’s size and its CSP. The results reveal that firm size significantly affects CSP in a positive way, because firm size in turn positively influences CSP’s constituent elements of environmental management, strategic governance, human capital and stakeholder management.