CSRUsing a strategic Corporate Social Responsibility (CSR) where profit is still maximized can be advantageous. Three positive effects of CSR are noticeable: consumers’ willingness to pay increase, more productive employees and risk is reduced.

CRS could be described as companies exceeding laws and regulations in different areas like environmental issues, working environment and human rights. Increased CSR and profit maximization are not in contrast, on the contrary; companies could with these actions gain a good reputation or goodwill capital. It could also affect the prizing of a commodity, wages or labor productivity and capital cost. Customers are more inclined to pay a higher price for a commodity from a business that takes Corporate Social Responsibility, employees accept lower wages or work more productively due to a warm-glow feeling of pride for doing good and, the company can be seen as a low risk company by banks and other important financial institutions.

Strategic and altruistic CSR

Altruistic CSR implies sacrifying profit for the common good whilst strategic CSR is an investment like any other but with a focus on increased social responsibility. Altruistic CSR could prove difficult since shareholders have a right to receive compensation as risk holders. Strategic CSR is more common and often good for business. Aside from a higher commodity price, lower/higher employee wages/productivity and lower risk, it has been shown that the company can motivate CSR to anticipate or preempt future, expensive regulations. Also, more profitable firms can use CSR to set a high industry standard which imposes higher costs on competitors with lower profitability and thus, potentially, force them out of business. CSR can also help avoid conflict with activists and stakeholder groups as well as avoid bad publicity.

CSR is not always preferable though. All is well if CSR can increase welfare due to a regulation being insufficient or not present at all. However, if a company invests in CSR in an area where there is already an efficient policy in place, the costs are somewhat wasted and would come to better use elsewhere. The costs for CSR does not fall on the company which is an anonymous corporation, it falls on consumers, employees, owners, and other members of the society.

CERE member Tommy Lundgren was recently awarded the Nordea Scientific Award for his research within CSR. Learn more about his research “CSR ur ett nationalekonomiskt perspektiv” SNS Analys Nr 24, 2015 (only in Swedish).

Photo a still from filmed award ceremony