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Corporate social and financial performance

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While companies’ charitable activities often get favorable publicity, studies on the relationship between corporate social responsibility and financial performance haven’t allowed broad conclusions to be drawn.

A 2003 study in Organization Studies, “Corporate Social and Financial Performance: A Meta-Analysis,” looked at 52 studies on a range of industries and activities, and overall found a positive association between corporate responsibility and financial performance.

The researchers, who were based at the University of New South Wales, University of Sydney and University of Iowa, conclude that:

  • The relationship between corporate social responsibility and financial performance was universally positive, varying between highly positive and moderately positive.
  • Socially responsible practices such as minority hiring and managerial principles had a greater effect on financial performance than environmental responsibility.
  • Social responsibility and financial performance affect each other in a “virtuous cycle”: successful firms spend more because they can, but such spending helps them become more successful.
  • Because markets do not penalize companies for being socially responsible, it is compatible with maximizing shareholder value and thus can be pursued by managers.

While the authors found that there is a “halo effect” — successful firms can be seen as being more socially responsible than less successful ones even if they’re not — it does not distort the results of the study. In conclusion, they write: “Corporate virtue in the form of social and, to a lesser extent, environmental responsibility is rewarding in more ways than one.”

Tags: economy, metastudy

    Writer: | Last updated: May 19, 2009

    Citation: Orlitsky, Marc; et al. "Corporate Social and Financial Performance: A Meta-Analysis". Organization Studies, March 2003, Vol. 24, No. 3. 403-441. doi: 10.1177/0170840603024003910.

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    Analysis assignments

    Read the issue-related New York Times article titled "Companies Add Chief Sustainability Officers."

    1. If you were to rewrite the article based on knowledge of the study, what key changes would you make?

    Read the full study titled "Corporate Social and Financial Performance: A Meta-Analysis" (PDF).

    1. Summarize the study in fewer than 40 words.
    2. Express the study's key term(s) in language a lay audience can understand.
    3. Evaluate the study's limitations. (For example: Do the results conflict with those of other reliable studies? Are there weaknesses in the study's data or research design?)

    Newswriting assignments

    1. Write a lead (or headline or nut graph) based on the study.
    2. Spend 60 minutes exploring the issue by accessing sources of information other than the study. Write a lead (or headline or nut graph) based on the study but informed by the new information. Does the new information significantly change what one would write based on the study alone?
    3. Interview two sources with a stake in or knowledge of the issue. Be prepared to provide them with a short summary of the study in order to get their response to it. Write a 400-word article about the study incorporating material from the interviews.
    4. Spend additional time exploring the issue and then write a 1,200-word background article, focusing on major aspects of the issue.