A Behavioral Model of Corporate Social Responsibility

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A Behavioral Model of Corporate Social
Responsibility

• Shinji Teraji
• Yamaguchi University
• IAREP/SABE 2008 Conference

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Corporate Social Responsibility (CSR)

• CSR is a concept whereby companies
• integrate social and environmental
• concerns in their business operations and
• in their interaction with their stakeholders
• on a voluntary basis (Commission of the
• European Communities, 2001, p.6).

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Friedman or

• Milton Friedman (1970) wrote that
• the social responsibility of a business
• was to increase its profits.
• Managers are obliged by contract to
• shareholder value.

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Freeman

• Freeman (1984) encourages
• consideration of external stakeholders
• beyond direct profit maximization.
• It can be beneficial for the company to
• engage in certain CSR activities that
• stakeholders perceive to be important.

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The Behavioral Theory of the Firm

• A core idea in the behavioral theory
• of the firm (Leibenstein, 1986) is the
• importance of organizational slack.
• The behavioral theory of the firm has
• the potential to incorporate morality as
• a critical component of the underlying
• motivating structure.

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Consumers

• Consumers are one group particularly
• sensitive to a companys social
• performance.
• Consumers perceptions of a company as socially
  oriented are associated with a higher level of
  trust in that company and its products.

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Manager

• The manager has a key role in the
• CSR strategy, using the corporate
• resources to achieve its goals.
• The manager may reflect consumers
• attitudes that are influenced by social
• preferences.

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Setting (1)

• CSR is discussed as collaboration
• between the manager and the consumers
• in the social environment.
• The model analyzes two dimensions of
• endogenous preferences the consumers
• taste for CSR and the managers taste
• for CSR.

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Setting (2)

• A public good can be provided by the
• firm in the form of CSR (Besley and Ghatak,
• 2007).
• The manager perceives social satisfaction
• from the companys image or the expectations
• of consumers.
• The motivation underlying CSR activities is
• modeled in terms of social satisfaction that the
• manager perceives.

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Consumers Utility Function

• U ln((1-a)w) a g.
• The consumer valuates the social expenditures g
  by a fraction a.
• The fraction a is considered as the consumers
  taste for CSR.
• The consumers taste for the private good
  becomes (1-a)w.

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Managers Utility Function

• V ln((1-ß)p) ß(h g - g)
• The fraction ß is considered as the
• managers taste for CSR.
• The manager perceives social satisfaction
• h from one unit of the public good.
• By choosing g, the manager contributes
• to the private provision of a public good.

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Theoretical results (1)

• Companies operating at the high level of
• social satisfaction (h gt1) focus on meeting
• the expectations of moral consumers (a gt 0).
• Managers then facilitate the ethical
• development to be motivated beyond their
• self-interest (ß gt 0).
• More of the public good is provided ( g gt 0)
• when consumers are more likely to value
• corporate social performance.

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Theoretical results (2)

• Companies operating at the low level of social
  satisfaction (0 lt h lt 1) are not taking moral
  issues into account (ß 0), and their decisions
  are perceived to be immoral by consumers (a 0).
  
• No public good is then provided by companies as
  part of their business strategy ( g 0).

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Summary

• CSR is identified with the private provision
• of a public good in the model.
• The model analyzes two dimensions of
• preferences the consumers taste for CSR (a)
• and the managers taste for CSR (ß).
• The managers taste for CSR is influenced
• by the consumers taste for CSR, and vice
• versa.

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Thank You.