An economic case for CSR: The comparative efficiency of for‐profit firms in meeting consumer demand for social goods

Aseem Kaul and Jiao Luo

Strategic Management Journal, 2018, vol. 39, issue 6, 1650-1677

Abstract: Research Summary We develop a formal model of CSR, with both a for‐profit and a non‐profit organization providing social goods to needy recipients and competing for resources from consumers. We show that CSR results in financial benefit if it is either related to the firm's core business, or non‐overlapping with non‐profit efforts, but only leads to social benefit if both conditions apply, with these relationships being moderated by the firm's core business capabilities. Our article thus makes a case for CSR based on the comparative efficiency of for‐profits in providing social goods relative to non‐profits, while also highlighting the potential divergence between the financial and social impact of CSR. In addition, it offers new insights into the heterogeneity of CSR, and the role of non‐profits and hybrids. Managerial Summary Firms that undertake socially responsible actions are often rewarded for these actions by supporters of social causes, enabling the firms to make additional profits from CSR. Whether CSR is socially beneficial, however, depends on how the firm compares to a non‐profit serving the same cause. CSR activities that are non‐overlapping with existing non‐profit efforts, and that are closely related to the firm's core business, are likely to most strongly benefit society, especially when undertaken by high‐performing firms. Where this is not the case, CSR adds little social value and may even be harmful. Managers seeking to maximize both firm profits and social welfare through CSR should thus ask themselves: What is my firm's unique advantage in serving this cause relative to alternative providers, for example, non‐profits?

Date: 2018
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