corporate social performance: creating resources to help organizations excel

Corporate Social Performance: CreatingResources to Help Organizations Excel

BRYAN DENNIS ,ROBERT S . D ’ INT INO ,

JEFFERY D . HOUGHTON ,CHRISTOPHER P . NECK ,

AND T RISH BOYLES

The most commonly employed theories of corpo-rate social performance (CSP) tend to ignore firm-level processes and structures as sources of com-petitive advantage. But, by taking a resource-basedview (RBV), and by enhancing a firm’s capability toengage in socially responsible activities, it can poten-tially create its own competitive advantages. We ex-amine four major components of CSP—communityrelations, the environment, diversity, and employeerelations. And we show that the ability of a firm todevelop its knowledge and skills—as well as policiesand implementation plans and procedures—in eachof these areas is a potential resource that may infact provide competitive advantages and higher or-ganizational performance, bringing benefits to bothsociety and the firm.

The community dimension evaluates the firm’s per-formance in relationship to philanthropic giving andcommunity support. The environmental aspect con-siders such firm stewardship activities as pollutionprevention, global warming, and recycling. The di-versity component measures CSP considering suchfactors as board member diversity and a firm’s hir-ing, evaluation, training, and promotion policiesconcerning women and minorities. The employeerelations dimension examines such socially responsi-ble human resource practices as innovative employeeinvolvement programs and profit sharing. Together,these capabilities can provide tangible and intangibleresources that can provide the firm with competitiveadvantages. © 2008 Wiley Periodicals, Inc.

Our reason for being: Build the best product, dono unnecessary harm, use business to inspire andimplement solutions to the environmental crisis.

Patagonia’s Mission Statement—Yvon Chouinard,founder

Corporate social responsibility has been describedby Barnett as “any discretionary corporate activ-ity intended to further social welfare.” The busi-ness case for responsible social activities suggeststhat positive social actions can improve stakeholderperceptions of a firm’s products and services andthus increase the firm’s financial performance. Cor-porate social performance (CSP) describes the pro-posed relationship between corporate social respon-sibility activities and firm-level corporate financialmeasures.

Researchers often disagree regarding the theoreticalfoundations of corporate social performance andfew of these conceptual frameworks consider thefirm’s processes and CSP structures as means forgaining a competitive advantage. In our work wehave found that a firm’s CSP capabilities are re-sources that can, if strategically and effectively devel-oped and managed, provide the firm with a competi-tive advantage leading to higher performance levels.

We base our work on the resource-based view (RBV)that, beginning with Wernerfelt’s 1984 landmarkarticle, has provided researchers with a conceptualframework to more clearly understand organiza-tional structures and activities. According to Bar-ney, firms can enjoy a competitive advantage bydeveloping resources that are rare, valuable, andinimitable—the last implying both a resource thatis hard to copy and difficult to substitute. Althoughan organization’s physical resources are usually eas-ily identified, other, intangible assets are often moredifficult to describe and quantify. This challenge,however, does not diminish the status of these in-tangible assets as resources that can provide the firmwith a competitive advantage. Previous research hasfocused on the importance of firm-level intangibles

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c© 2008 Wiley Per iodicals , Inc .Publ ished onl ine in Wi ley InterScience (www.interscience.wi ley .com)Global Business and Organizat ional Excel lence • DOI : 10.1002/ joe .20192 • January/February 2008

such as culture and “know-how” that may providethe firm with various competitive advantages.

And so we suggest that a firm’s capability to engagein socially responsible activities can also create com-petitive advantages to the extent that these activitiesrepresent resources that are rare, valuable, and inim-itable. Within the organization’s environment, thefirm develops relationships with such diverse stake-holders as employees, suppliers, customers, govern-ments, community organizations, and the naturalenvironment. These relationships are often idiosyn-cratic to the firm. As such, these relationships canbecome firm-specific resources that are rare, valu-able, and not readily duplicated or substituted.

For example, it may be difficult for other firms to du-plicate the rare and valuable socially responsible re-lationships with its various stakeholders created bythe outdoor clothing and climbing gear firm Patago-nia. The world-wide reputation of Toyota for build-ing high-quality, innovative hybrid automobiles isanother example that includes the creation of inim-itable resources.

Corporations care deeply about who they are fromthe perspective of how their customers or clientsand the broader public view their corporate namebrand. For many famous firms, their brand namehas become an important resource incorporatingone or more of the qualities of rareness, value, andinimitability. Firm brand names are incredibly valu-able and as such, must be invested in, protected, en-hanced, and sustained. For example, consider publicperceptions of the following brand names: Apple,BP, Chanel, Coca-Cola, Hermes, IKEA, or Sony. Allprovide valuable and inimitable resources for theirparent firms. For the automobile manufacturing in-dustry, consider valuable premium names such asBentley, BMW, Cadillac, Citroen, Ferrari, or Rolls-Royce. In the consumer marketplace these specificbrands provide rare, valuable, and inimitable firm-level resources that can improve financial perfor-mance.

Below, we will first present a discussion of the the-oretical foundations of relevant research in Corpo-rate Social Performance. Next, we will provide abrief overview of previous resource-based theoryresearch emphasizing organizational assets as re-sources that can provide firm competitive advan-tages. We will then examine the four components ofCSP—community relations, the environment, diver-sity, and employee relations in greater detail, defin-ing and providing examples for each component andbriefly discussing previous research findings. We willgo on to propose that the ability of the firm to de-velop its skills in each of these areas is a resource thatmay in fact provide competitive advantages. We willconclude with the argument that CSP can be framedas a mutually beneficial activity for both society andthe firm. In conclusion, we will suggest that a firm’sability to effectively engage in CSP activities can be-come a valuable resource with the potential to leadto higher organizational performance.

The relationship of corporate firms to their broadlydefined communities and the responsibilities offirms to contribute and sustain their social and en-vironmental worlds are the topics of corporate socialresponsibility.

Corporate Social PerformanceThe relationship of corporate firms to their broadlydefined communities and the responsibilities of firmsto contribute and sustain their social and environ-mental worlds are the topics of corporate socialresponsibility. While corporate social responsibilityrepresents the concept that firms have an obligationto engage in activities that enhance the broad socialand environmental worlds, corporate social perfor-mance is a construct that measures the extent towhich firms are acting (or not acting) in a sociallyresponsible manner. Over the past two decades, cor-porate social performance (CSP) has received a greatdeal of attention from both academic researchersand practitioners.

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For example, researchers have examined the re-lationships between CSP and several differentconstructs such as profit, size, and environmentalperformance. This research stream has providedsomewhat mixed findings. Research results havebeen mixed to confirm or disconfirm that corporatesocial performance and firm financial performanceare positively related. The two most studied firm-level corporate financial measures are future cashflows and changes in firm market value (or a proxyfor privately held firms). Research results over 30years have reported variability in the CSP relation-ship so that, as Barnett states, “We cannot clearlyconclude whether a one-dollar investment in socialinitiatives returns more or less than one dollar inbenefit to the shareholder.”

It is generally agreed that CSP is a multi-dimensional construct, and the Kinder, Ly-denberg and Domini (KLD) Socrates database(http://www.kld.com/research/socrates) has oftenbeen used as proxy measure of corporate social per-formance in academic research. We will examinefour of the dimensions developed by KLD that havehistorically been used for CSP research: community,the environment, diversity, and employee relations:(1) The community dimension evaluates the firm’sperformance in relationship to philanthropic giv-ing and community support. (2) The environmen-tal aspect considers such firm stewardship activitiesas pollution prevention, global warming, and recy-cling. (3) The diversity component measures CSPconsidering such factors as board member diversityand a firm’s hiring, evaluation, training, and promo-tion policies concerning women and minorities. (4)The employee relations dimension is evaluated byexamining such socially responsible human resourcepractices as innovative employee involvement pro-grams and profit sharing.

We will consider firm CSP as such a multi-dimensional concept. Specifically, we consider thefirm’s community, environmental, diversity, and em-ployee relations CSP capabilities as firm-level tan-

gible and intangible resources that may providethe firm with competitive advantages. Furthermore,while previous researchers have focused primar-ily on finance and accounting indicators of perfor-mance, we will propose how the firm may benefitfrom different performance measurements to the ex-tent that such performance is related to each of thefour CSP dimensions.

While previous researchers have focused primarily onfinance and accounting indicators of performance,we will propose how the firm may benefit from dif-ferent performance measurements to the extent thatsuch performance is related to each of the four CSPdimensions.

The Resource-Based ViewIn the early 1980s, the industrial-organization (IO)view of the firm received a great deal of attentionfrom organization and management researchers.This paradigm considers the firm’s environment tobe the primary determinant of firm success. In con-trast, Wernerfelt built upon the theory of the firmfoundation initiated by Penrose by considering thefirm’s internal assets as resources that can providethe firm with a competitive advantage. The ability ofthe firm to manage, develop, and capitalize on theseunique internal assets is seen to lead to difficult-to-copy resource “bundles” that can lead to higherperformance through competitive advantages.

The resources of the firm that can provide com-petitive advantages may take on several differentforms. According to Wernerfelt, resources can in-clude “anything that might be thought of as astrength or weakness of a given firm.” Barney morespecifically defined a firm’s resources as “. . . the tan-gible and intangible assets a firm uses to choose andimplement its strategies.” As a means of obtaininghigher rents, these resources may confer competitive

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advantages to the firm to the extent that they arerare, valuable, and inimitable.

The firm’s resource base includes all inputs, notjust those conventional “hard assets” that are usedin the production of goods and services. These re-sources can be intangible or tangible, human, finan-cial, physical, or natural. However, although tangi-ble assets are important factors in the production ofabove-average firm rents, they often can be boughtand sold in the marketplace and therefore cannotbe relied upon to provide the firm with a compet-itive advantage. In contrast, the firm’s intangibleresources, such as culture and knowledge, are of-ten unique and exclusive. Likewise, the firm’s capa-bilities, which are largely idiosyncratic and may bedifficult to duplicate or to substitute, are generallyconsidered a primary resource for the production ofcompetitive advantages.

The firm’s resource base includes all inputs, not justthose conventional “hard assets” that are used inthe production of goods and services.

Organizational capabilities involve the ability of thefirm to deploy and coordinate heterogeneous re-sources. A number of different specific capabilitieshave been identified as types of organizational ca-pabilities that can produce competitive advantages:for example, culture, reputation, and image. Thereare several conditions necessary for the firm to en-joy competitive advantages from the effective uti-lization of its capabilities. Capabilities must be rareand valuable, enabling the firm to exploit opportu-nities within the marketplace. In addition, they mustnot be easily purchased or duplicated by other firmswithin the competitive environment.

For example, Patagonia’s brand is clearly associatedwith eco-friendly or “green” environmental prac-tices. The resources behind the firm’s brand capa-

bility may include (but are not limited to) a strongorganizational culture that rewards the developmentof eco-friendly products, vast employee knowledgeof effective environmental management practices,or tight relationships with progressive, green con-sumers. The capability of the firm to develop itsbrand, as a product of the firm’s numerous re-sources, is rare, as not many firms have such a stronggreen reputation. Further, the brand is clearly valu-able, as many consumers use green criteria in theirpurchasing decisions. However, the inimitability ofPatagonia’s capability is the key component behindthe firm’s successful brand. If other firms were ableto easily duplicate the firm’s capability to developsuch a strong brand, the firm would not be enjoy-ing its competitive advantage of being able to attractenvironmentally conscious consumers.

Patagonia’s capability to develop a green brand, likemany other CSP capabilities, is difficult to imitatefor three reasons. First, its capabilities are the re-sult of unique historical conditions. No firm cancompletely recreate the organizational history thathas played a key role in the creation of Patagonia’sbrand. Second, capabilities are causally ambiguous;Patagonia’s competitors are unable to exactly deter-mine which resources and capabilities would needto be duplicated to match their success. Third, ca-pabilities are the result of a high degree of socialcomplexity; the dynamic and complex social inter-actions between the firm’s management, employees,suppliers, and buyers that have led to Patagonia’scapability to develop an effective brand cannot bereproduced. One of our observations in this article isthat researchers may discover a positive relationshipbetween stakeholder firm perception and CSP, as il-lustrated by Patagonia’s brand, and firm financialvalue.

Now we will more fully develop the concept thatthe firm’s corporate social performance capabilitiesin the four specific categories of (1) community, (2)environmental, (3) diversity, and (4) employee re-lations can be conceived as firm-specific resources


that can create rare, valuable and inimitable com-petitive advantages leading to higher organizationalperformance.

CommunityThe first component of the firm’s CSP is its com-munity relations capabilities. These community re-lations can take on many different forms, some ofwhich may create conflict with the organization.For example, the firm may have negative interac-tions with local governments, unions, activist groupsand the media. However, this capability can be seento represent the firm’s actions to develop positive,philanthropic relationships with community orga-nizations. Firms often engage in community part-nerships as a means for improving their societal re-lationships. These programs entail the cooperationof the firm and a charitable organization in a rela-tionship that is not unlike that of a joint venture.The firm contributes human and financial resourcesto the charitable organization, which then appliesthese resources toward the betterment of society.This type of relationship generally results in a win-win situation. Not only does the charitable orga-nization benefit from the receipt of much neededcorporate funds and firm employee assistance, butthe relationship often helps the firm improve its cor-porate image and increase its market for its productsor services.

The firm may utilize this resource by sponsoring a lo-cal charity, participating in such community projectsas Habitat for Humanity, or supporting educationand the arts by means of corporate contributions offunds and employee time. The importance of recog-nizing differences among various community groupsis critical for implementing effective firm commu-nity activities. Not only can these activities create asense of goodwill toward the firm and its products orservices, these activities may also modify the firm’senvironment in a positive way by providing com-munity allies. Effective community relations such asthese can create a buffer between the firm and its

stakeholders that may reduce the ability of certainenvironmental actors to punish the firm.

The importance of recognizing differences amongvarious community groups is critical for implement-ing effective firm community activities.

For example, American Express financially supportsmany of the world’s museums and cathedrals. In re-turn, the firm plans to benefit from increased tourismand related sales of the firm’s travel-oriented prod-ucts and services. In addition to indirect benefitssuch as these, developing charitable relationshipswith external stakeholders may also result in directbenefits for the firm. Beyond the obvious tax advan-tages, the firm’s profits may be enhanced throughincreased sales as a result of corporate philanthropyand community activities. Firm motives can includeinstrumental, relational, and moral dimensions.

The Bank of America Corporation uses giving witha combined moral and instrumental rationale as ameans to benefit both the firm and social causes.In 2004, the firm created the Neighborhood Ex-cellence Initiative to assist non-profit groups in 30geographic areas in which the firm does business.This program is designed to provide more than $15million to non-profit groups, high school students,and other individuals to improve neighborhoods byfighting crime, improving public education, and de-veloping low-cost housing. According to the com-pany’s president of charitable investments, the effortis one of “enlightened self-interest,” as the programnot only benefits the public, but also enhances thefirm’s image because the firm’s customers will asso-ciate the Bank of America brand with this charitableprogram.

The Merck Corporation, one of the world’s largestcorporate givers, has also developed a strategic pol-icy of implementing giving programs that are tied to


the firm’s overall business goals. When making de-cisions as to how to allocate giving funds, the firm’sphilosophy is to give to causes that not only are likelyto be recognized by society as worthy, but will alsoenhance the firm’s corporate identity and corporatebrand.

Community can also be viewed quite broadly as en-compassing the entire globe, thus extending commu-nity relations nationally and internationally. For ex-ample, a study of 400 firms in France, Netherlands,the U.K., and the U.S. looked at the firm’s publicstatements about their beliefs in corporate social re-sponsibility to better understand their motives forsocially responsible activities.

As a component of corporate social performance,the firm’s capability to effectively interact with com-munity organizations at the national and local lev-els may result in competitive advantages and higherorganizational performance by means of enhancedimage, increased goodwill, and improved branding.Thus, we propose that the capability of the firm toengage in philanthropic community-based activitiesmay lead to higher performance levels.

As a component of corporate social performance, thefirm’s capability to effectively interact with commu-nity organizations at the national and local levelsmay result in competitive advantages and higherorganizational performance by means of enhancedimage, increased goodwill, and improved branding.

P1: The ability of the firm to develop effective rela-tionships with community stakeholders is positivelyrelated to organizational performance.

EnvironmentThe ability of the firm to manage its environmentalimpact and relationships with environmental stake-holders is our second component of corporate so-

cial performance. Preventing pollution, reducing afirm’s carbon footprints, building “green” buildingsand factories, producing eco-friendly products, es-tablishing recycling programs, and developing alter-native fuels are examples of means through whicha firm can improve its relationship with the naturalenvironment. A firm that has the ability and willing-ness to effectively manage these environmental re-sources may enjoy competitive advantages throughreduced costs, lowered risks, enhanced reputations,heightened employee motivation, and greater gen-eral innovative actions. A firm can make a posi-tive impact on employees and community by talk-ing about its record of corporate social responsibilityand environmental sustainability.

In recent years, firms have been under tremendouspressure to properly manage their environmentalimpact. In the wake of well-known environmentalcatastrophes, such as the Exxon Valdez oil spill andthe Union Carbide incident in Bhopal, India, firmshave faced an onslaught of environmental legisla-tion. Environmental legislative changes have causedfirms to incorporate polices and structures that areintended to address and negate harmful environmen-tal impacts as both defensive and proactive actions.

There are two primary means through which firmsmanage their relationship with the natural environ-ment. Pollution control policies are intended to con-trol the firm’s existing level of emissions by usingpollution control equipment to properly trap, store,treat, and dispose of wastes. Sometimes referred toas “end of pipe” reduction programs, these proce-dures are often an expensive and reactive approachfor controlling environmental waste. Such policiesentail the use of existing technologies and processes,and do not significantly influence the firm’s pro-duction and delivery capabilities. Because the firmis investing in policies and assets that are readilyavailable to all their industry competitors, the pos-itive impact of these policies is limited to improve-ments in the physical resources of the firm. Addition-ally, insofar as these pollution control measures can


sometimes be relatively unsophisticated and readilyavailable to all competitors, the firm’s resource posi-tion is generally not significantly affected by adopt-ing them. Thus the firm may receive little or no com-petitive advantages from the incorporation of suchpolicies.

In contrast to pollution control measures, pollutionprevention policies are intended to reduce the totalemissions of the firm instead of just managing itsexisting levels of pollution.

In contrast to pollution control measures, pollu-tion prevention policies are intended to reduce thetotal emissions of the firm instead of just manag-ing its existing levels of pollution. Such programsmay include input materials substitution, produc-tion process innovation, or recycling. Because theseprograms may require the enlistment of firm spe-cific resources, such as employee involvement andcontinuous improvement, the firm’s resource base ismore likely to change and competitive advantagesare more likely to result. Research suggests that pol-lution prevention structures provide the firm withseveral advantages. Because these programs circum-vent the need for expensive “end-of-pipe” controlmeasures, they have excellent potential for provid-ing higher returns to the firm. For example, one firmfound that pollution control measures produced anegative return on investment of 16 percent, but itspollution prevention projects earn a return on invest-ment of better than 60 percent. So pollution preven-tion increases firm profitability. Additionally, whenpollution prevention measures result in a more effi-cient use of inputs, disposal and raw material costsare lessened. Lower emissions may also decrease therisk of liability and reduce the costs of governmen-tal compliance. Clearly, the incorporation of pol-lution prevention programs has great potential forproviding the firm with an improved resource baseto benefit financial performance.

Many firms are also incorporating recycling pro-grams as a means of reducing environmental dis-charges. It is fairly obvious that recycling policieswill decrease the firm’s environmental impact, butthey may also provide the firm with bottom-line ad-vantages. For example, one manufacturer reducedthe amount of water involved in its production pro-cess 53 percent by recycling all wastewater, result-ing in savings of approximately US$30,000 a year.Furthermore, the firm received several awards ofrecognition for their environmental concerns andpolicies. One study reported a beneficial linkage be-tween awards for environmental protection and firmmarket value. Recently, Toyota widely advertised itsaward of the U.S. Motor Trend 2007 Car of the Yearfor its new Camry Hybrid automobile.

Patagonia can serve as a model of combining firmemployee values and identity, environmental stew-ardship, and firm performance. Its management ex-plains, “For us at Patagonia, a love of wild andbeautiful places demands participation in the fight tosave them. . . . We know that our business activity—from lighting stores to dyeing shirts—creates pollu-tion as a by-product. So we work steadily to reducethose harms. We use recycled polyester in many ofour clothes and only organic rather than pesticide-intensive, cotton. . . . Staying true to our core valuesduring thirty-plus years in business has helped uscreate a company we’re proud to run and work for.And our focus on making the best products possiblehas brought us success in the marketplace.” Some ofPatagonia’s early leadership in innovative environ-mental practices include:

� The early development of the organic cotton mar-ket, which increased the company’s cotton sales25 percent in 1996

� The development of a process by which polyestercan be recycled, thus using 76 percent less energy

� Publication of the first catalog to be printed onrecycled paper


� Being the first California company to use renew-able power sources (wind and solar) in all of itsbuildings

Patagonia’s eco-friendly practices and appealingcorporate culture have provided the firm with a com-petitive advantage in the job market. In 2007, therewere 900 applications for every opening in the com-pany.

Patagonia’s eco-friendly practices and appealingcorporate culture have provided the firm with a com-petitive advantage in the job market.

At their senior executive level, corporations are be-ginning to institute a new environmental title of chiefsustainability officer, reflecting an emerging realiza-tion that “green” policies and actions can generateincreased profits as well as stakeholder praise. “En-vironmental vice presidents usually spend companymoney, but this new breed is helping companiesmake money,” was a recent quote from the headof the Pew Center on Global Climate Change. Oneeconomics professor recently observed that “whatstarted out as a compliance job has evolved into onethat guards the value of the brand,” suggesting thatthe link between positive proactive environmentalstewardship and a firm’s brand name is evolvingand strengthening.

Many firms have also began to modify their strate-gies to create more environmentally-friendly prod-ucts. Not only do the products reduce damage to theenvironment, but they may also improve the firm’sfinancial performance. In 2006, Wal-Mart modifiedthe packaging requirements for its Kid Connectionprivate-label. The firm estimates that this change willenable the firm to ship fewer containers at a savingsof US$2.4 million a year. Furthermore, the packag-ing change will save 3,800 trees and 1,000 barrels ofoil. In 2007, Boeing unveiled its newest plane—the

787 Dreamliner. By using environmentally friendlycomposite materials instead of aluminum, the fuelconsumption of the lighter aircraft will be 20 per-cent less than comparatively sized planes, and enginenoise will be reduced by 60 percent. As of 2007, thefirm has more than 500 pre-orders for the Dream-liner; the anticipated cost savings from this moreefficient aircraft has spurred buyer demand and the787 has become the fastest selling airplane of alltime. Both the Wal-Mart and Boeing examples il-lustrate how environmentally friendly products canhave a positive effect upon the firm’s overall perfor-mance.

As a component of corporate social performance,the firm’s ability to properly manage its environ-mental impact and relationships with external stake-holders can represent a valuable resource that pro-vides the firm with competitive advantages lead-ing to higher performance. Pollution control, pol-lution prevention, recycling programs, and the de-velopment of eco-friendly products are means bywhich the firm can effectively manage its overall en-vironmental relationship. In addition to these pro-grams, firms may develop alternative fuels (for ex-ample wind, geothermal, biomass, or solar power)or produce environmentally beneficial products andservices.

The overall capability of the firm to manage its en-vironmental impact, as a composite of all firm-levelknowledge, skills, policies, processes and structuresfor environmental management, can result in com-petitive advantages through higher organizationalperformance. For example, lower costs may arisedue to the savings the firm may obtain due to effec-tive recycling programs and/or reductions in pollu-tion. Revenue may be increased by the developmentof eco-friendly products and/or increased firm repu-tation and image.

P2: The capability of the firm to effectively man-age its environmental impact and relationships withenvironmental stakeholders is positively related toorganizational performance.


DiversityThe third component of corporate social perfor-mance is the firm’s capability to manage diversestakeholders, such as diverse employees, minoritybusinesses, and a diverse applicant pool. Diversityin employment and management generally focuseson issues of the firm’s employment acceptance ofgender, race, ethnic, and sexual orientation differ-ences. As firms continue to expand globally beyondtheir national borders, the ability of firms to effec-tively manage cultural diversity is likely to become akey component of effective human resource manage-ment. In today’s corporate climate, many firms mayhave underutilized human resources that may stemfrom the ineffective human resource managementof women and other minority groups. Particularlywhen employment markets tighten and qualified ap-plicants are increasingly scarce, a firm’s ability toattract and retain a diverse workforce becomes in-creasingly important.

As firms continue to expand globally beyond theirnational borders, the ability of firms to effectivelymanage cultural diversity is likely to become a keycomponent of effective human resource manage-ment.

Clearly, the growing number of women and otherminorities entering the global workplace continuesto challenge many nations’ previous traditional cor-porate “old-boy” networks. In response, firms areincreasingly adding women and minorities to theirboards of directors; engaging in aggressive humanresource management policies to encourage and em-brace diversity; and implementing flexible family-oriented benefit packages that address work andfamily concerns such as on-site childcare and flex-time. The firm’s capability to effectively manage di-versity by the incorporation of these structures is aresource that may provide the firm with competitiveadvantages.

Firms are increasingly incorporating diversity man-agement programs to promote the firm benefits ofemployee diversity. In contrast to affirmative ac-tion programs, which are largely enacted to com-ply with governmental or judicial dictates, diversityprograms are enacted to embrace differences withthe intent of maximizing talent utilization. Diver-sity programs may produce competitive advantagesduring the recruitment process by providing posi-tive signals to potential applicants, who, regardlessof race or gender, often view organizations with di-versity programs as more attractive than those withaffirmative action programs. As the global employeeapplicant pool becomes increasingly more diverse,these programs can provide the firm with a com-petitive advantage in attracting quality employees.Thus a firm’s ability to attract and retain a diverseworkforce may prove crucial for long-term organi-zational success.

The effective human resources management ofwomen and other minorities can provide the firmwith post-hire advantages as well. Culturally diverseteams have a broader variety of opinions and per-ceptions that can result in higher-quality decisions.By incorporating programs and policies that pro-mote diversity, the firm can enjoy enhanced creativ-ity and greater employee tolerance toward organiza-tional change. Team member diversity has also beenshown to facilitate team synergy and improved prob-lem solving. Several empirical studies have examinedthe relationship between diversity and performance.For example, Richard found that culturally diversefirms with business growth strategies experiencedhigher work productivity, return on equity, and mar-ket performance. Other researchers have found thata positive relationship exists between the percent-age of women managers and the firm’s return onsales, return on assets, return on equity and returnon investment.

International Business Machines Inc. (IBM) is an ex-ample of a firm that has successfully implemented adiversity program that has contributed positively to


the bottom line. In 1995, Lou Gerstner, then-CEO ofIBM, examined his top management team (predom-inantly white and male) and determined that it didnot reflect the firm’s customers or employee base. Asa result, Gerstner created a new diversity initiative.Due to this initiative, the number of IBM’s U.S.-bornminority executives has increased threefold and thenumber of female executives has increased fivefold.Consequently, the firm’s business with minority- andfemale-owned companies increased from $10 mil-lion in 1998 to more than $300 million in 2001.IBM’s diversity initiative has been successful becausethe firm demonstrated leadership support for diver-sity, engaged employees as partners in the process,integrated diversity with management practices, andlinked diversity to business goals.

Organizational performance may be measured by ex-amining such factors as increased decision-makingeffectiveness, improved relationships with diverseexternal stakeholders, and a stronger ability to at-tract diverse employees in a competitive job market.

Although previous research has provided insightinto specific components of effective diversity man-agement, the overall capability of the firm to managediversity has not yet been fully explored by re-searchers. Nevertheless, based on the existing ev-idence, we suggest that the firm’s capability tomanage diversity, as a composite of all diversity-related activities, will result in competitive advan-tages through higher performance. Organizationalperformance may be measured by examining suchfactors as increased decision-making effectiveness,improved relationships with diverse external stake-holders, and a stronger ability to attract diverse em-ployees in a competitive job market.

P3: The capability of the firm to effectively managerelationships with diverse stakeholders is positivelyrelated to organizational performance.

Employee RelationsOur fourth and final CSP dimension involves thefirm’s capability to manage its employee relationshipby the incorporation of effective and innovative hu-man resource practices. This may represent anothermeans for increasing the firm’s performance. Exam-ples include the incorporation of programs designedto increase employee involvement, such as open sug-gestion systems, profit sharing, and gainsharing. Akey theme running throughout employee relationsis the vital importance of employees believing thatthe firm is treating them fairly. As a component ofCSP, the firm’s ability to effectively and innovativelymanage its employee relationships by the implemen-tation of such programs is a resource that can pro-vide competitive advantages.

Organizational restructuring and reengineering arechanging the way companies manage their humanresource assets. Although in some instances thesechanges have improved productivity, product qual-ity, and customer service, these changes have alsoled to lower employee morale, loyalty, and orga-nizational commitment. In response to these prob-lems, firms have incorporated a variety of policiesdesigned to increase employee involvement and cre-ate a more satisfying workplace.

For example, the software firm SAS Institute Inc. hasbeen consistently listed in the top 20 of Fortune’s“100 Best Companies to Work for in America” andwas inaugurated into the list’s “Hall of Fame” in2005. The company’s innovative employee policieshave been further recognized by Working Motherand CBS’ 60 Minutes news program. Some of thefirm’s innovative HR policies include:

� Free on-site primary healthcare at the firm’s Cary,NC, headquarters

� On-site child care centers, 77,000 square footgym and various other work-life programs

� A health care program for retirees

As a result, the company’s employee turnover hasbeen among the lowest in the software industry.


According to Jim Goodknight, the CEO of SAS, thefirm does not engage in these programs for purelyaltruistic reasons. For example, when the companyevaluated the decision to offer on-site childcare,they determined that the savings on recruitment andtraining would be outweighed by the costs. Further-more, the company also receives benefit from theon-site primary health care facility, as employees areable to return to their desks and resume work in 30minutes, instead of the two hours lost if they went toan off-site facility. In the brutal software industry,SAS has enjoyed double-digit percentage increasesin yearly revenue for the majority of the company’shistory.

Many organizations have instituted profit-sharingprograms for the express purpose of increasing em-ployee involvement. Although these programs areoften reserved for top and middle-level managers,a number of firms are using them as a meansfor motivating and compensating some or all non-managerial employees. Gainsharing programs re-warding employees for productivity gains have alsobeen used to increase employee involvement, and ef-fective gainsharing programs may also benefit pro-duction workers with improved health and safetyconditions. These types of financial incentive pro-grams can provide benefits to the firm by reducingoverall labor costs, lowering absenteeism, enhanc-ing productivity, and improving quality. Other pro-grams reward employees with additional compen-sation for cost savings and improved performance.Because it is in the employees’ best interests to pro-mote the firm’s overall welfare, such programs oftenresult in increased motivation and commitment.

Within the scope of corporate social performance,effective and innovative human resource programsmay be designed with the intent of improving re-lationships with employee stakeholders. Thus, thefirm’s capability to enact such programs, to the ex-tent that such programs are effective and innovative,is a resource that can provide the firm with competi-tive advantages and enhanced performance. Organi-

zational performance may be measured by examin-ing such factors as increased employee involvementand job satisfaction.

Within the scope of corporate social performance,effective and innovative human resource programsmay be designed with the intent of improving rela-tionships with employee stakeholders.

P4: The capability of the firm to effectively and in-novatively manage employee stakeholders is posi-tively related to organizational performance.

Recommendations for International Executivesand ManagersBecause the practice of corporate social responsi-bility can benefit a firm’s profits and market value,global business corporate executives and managerscan benefit from applying various elements of it.Following are guidelines for getting started on newinitiatives:

� Learn new CSP ideas and best practices fromnational and international associations and net-works. Examples of these organizations include:the European Commission’s CSR Europe, the Eu-ropean Alliance for Corporate Social Responsi-bility, CSR Laboratories, Business for Social Re-sponsibility (BSR), the World Commission onEnvironment and Development, and the annualAmerican list of “100 Best Corporate Citizens”published by Business Ethics magazine.

� Plan and implement CSP projects as strategic cor-porate contributions to a combination of stake-holder, community, and firm performance.

� Design CSP endeavors as specific and focusedstakeholder or community contributions in con-trast to unfocused general philanthropy.

� Design and implement CSP endeavors that areconsistent with the identity and brand name of


your firm’s products or services. Effective CSPdepends on socially responsible actions that willbe perceived by your stakeholders as logical andconsistent with your firm’s brand identity.

� Implement CSP projects incrementally and buildin feedback loops to monitor both the impactand satisfaction of your specific stakeholders andcommunities to your activities and projects.

� Plan a long-term approach to CSP that communi-cates your firm’s strategy and intentions to youremployees and the entire range of your extendedstakeholder communities.

SummaryThe context of the resource-based view of corporatesocial performance highlights the capabilities of thefirm to engage in corporate social responsibility ac-tivities to produce new resources. These resourcescan become rare, valuable, and inimitable becausethey are often idiosyncratic to the firm and its uniqueset of stakeholders. If this resource creation can beaccomplished, no other competing firm, regardlessof its resources, can duplicate the relationships thatthe socially responsible firm develops with its diverseset of employees, other stakeholders, communities,and the natural environment.

Although the firm has a basic social obligation, re-gardless of profit or benefit to itself, to engage insocially responsible activities, corporate social per-formance can be a mutually beneficial activity thatresults in a classic “win-win” situation for the firmand for society. The firm receives competitive ad-vantages from the enlistment of socially responsiblepolicies and actions that may lead to higher perfor-mance for the firm. Furthermore, all stakeholdersincluding the firm’s employees, the community, andthe natural environment reap the ultimate benefitsof socially responsible firm policies and activities.

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Bryan Dennis is a professor in the Department of Manage-ment at Idaho State University in Pocatello, Idaho. RobertS. D’Intino is a professor in the Department of Managementat Rowan University in Glassboro, New Jersey. Jeffery D.Houghton is a professor in the Department of ManagementSciences at West Virginia University in Morgantown, West

Virginia. Christopher P. Neck is a professor in the Depart-ment of Management at Virginia Polytechnic Institute andState University in Blacksburg, Virginia. Trish Boyles is adoctoral student in the Department of Management at Vir-ginia Polytechnic Institute and State University in Blacksburg,Virginia.


corporate social performance: creating resources to help organizations excel

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