Corporate social responsibility and its impact on the corporate decision-making process for university undergraduate research fellows

Abstract

This study seeks to answer the question, "How does corporate social responsibility (CSR) influence corporate decision making?" It does so in two steps. The first step is the building of a theoretical framework in order to understand the many, vastly different academic theories on CSR. The framework that exists groups thoughts on CSR into three categories, which are as follows: normative stakeholder theory, shareholder wealth maximization theory, and strategic stakeholder theory. Proponents of "normative stakeholder theory" argue that, as a product of society, the corporation should be held accountable to the demands of society, as seen through their various stakeholders. Believers of "shareholder wealth maximization theory" argue that societal utility is maximized as each unit of society seeks to maximize his or her own utility and, therefore, believe that the principles of CSR dictate that the corporation should be held accountable solely to its shareholders, which are the fundamental owners of the corporation. "Strategic stakeholder theory" is a metaphoric bridge between its two counterparts. Strategic stakeholder theory recognizes that a tradeoff exists for the firm between the immediate wishes of all stakeholders. For the long-term profitability of the firm, strategic stakeholder theory recognizes that both financial and non-financial stakeholders must be acknowledged. The recognition of this tradeoff leads to the second half of this study. The second part of this study picks up the debate on the relationship between CSR and firm financial performance. It is argued that this relationship is the underlying assumption that separates shareholder wealth maximization theory, which believes that a firm benefits society by seeking its own ends, and normative stakeholder theory, which believes that a firm does not benefit society by seeking profits. To add to the base of knowledge on this topic, a difference of means test is performed on companies that are in the DSI 400, a socially responsive stock index, against companies that are not in the DSI 400. A significant difference was discovered in the attributes measured. It is concluded that the DSI 400 serves as a valid proxy for CSR and further research using the DSI 400 is encouraged.