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Corporate Social Responsibility, Industry, and Strategy MARC ORLITZKY AND JIE SHEN UniSA Business School Although many typologies of corporate social responsibility (CSR) exist (see, e.g., Carroll, 1999; Frederick, 1994; Matten & Moon, 2008; Rupp, Ganapathi, Aguilera, & Williams, 2006; Shen & Zhu, 2011), Aguinis and Glavas’s (2013) reconceptualization is an important contribution because it shifts the focus to such micro issues as organizational behavior routines and other psychological foundations of CSR. Thus, this conceptualization may provide assistance with the strategic implementation and integration of CSR (see also prior work by Orlitzky, 2005; Porter & Kramer, 2006). Yet, the implications of industry contingencies and business strategy for their typology also warrant reexamination. Industry and Other Contingency Factors Some scholars may object that this reconceptualization is overly restrictive as only very few organizations are able to link CSR with their core competencies. For example, many organizations have started to promote environmental protection

Correspondence concerning this article should be addressed to Marc Orlitzky. E-mail: [email protected] Address: UniSA Business School, GPO Box 2471, Adelaide SA 5001, Australia

and green behaviors in the workplace. Green human resource management (HRM) considers environmental employee behaviors in organizational decisions about promotions, training, performance management, and rewards (Ones & Dilchert, 2012). Typically affecting many employees, green HRM can be embedded in organizations’ routines and operations. However, in most cases, ‘‘green HRM’’ or, more broadly, ‘‘socially responsible HRM’’ (Orlitzky & Swanson, 2006) remains unconnected to a firm’s strategic intent. Although green or socially responsible HRM may certainly enhance an organization’s environmental or social performance and employee morale, it does not seem to meet all of Aguinis and Glavas’s criteria of embedded CSR: (a) connection with an organization’s core competencies; (b) alignment with an organization’s strategy; and (c) integration in an organization’s routines and operations. Even more important, whether embedded CSR can be integrated in a firm’s daily operations largely depends on the organization’s industry as well as temporal contingencies. Aguinis and Glavas’s three organizational examples—GE, IBM, and Intel—are able to connect CSR to their core competencies and integrate CSR within strategies, routines, and operations because environmentally friendly products

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form an ever-growing and integral element of their business models. Arguably, many other organizations, such as those in the service sector, education, and manufacturing, can link CSR with core competencies and employee routines only with great difficulty. Furthermore, some ad hoc one-off CSR activities, such as philanthropic activities after large-scale natural disasters (e.g., earthquakes and floods), can be helpful for boosting an organization’s external reputation (Porter & Kramer, 2002), although they are not necessarily integrated with overall strategies and daily operations. Hence, philanthropy and volunteering, which are regarded by Aguinis and Glavas as peripheral CSR, may under certain circumstances be considered important to an organization at a particular point in time. Therefore, from a broader perspective, one may disagree with Aguinis and Glavas’s claim that, if ‘‘one’s job is not connected to social responsibility, employees might find a lack of congruence and authenticity, which could result in less identification with the organization.’’ From a psychological perspective, this is undoubtedly true (see also Mathieu & Zajac, 1990); from a strategic-instrumental perspective, however, the implications for economic value creation are not quite as straightforward, as we will argue below. Aguinis and Glavas’s argument for the strategic importance of embedded CSR would certainly ring truer to us if the economic value of a good strategy primarily and always depended on employees’ perceived meaningfulness in and at work. Apart from this internal, best-practice HR view of economic value, one may object to the authors’ claim that embedded CSR activities ”generate business revenue directly” (Aguinis & Glavas). Undoubtedly, there are many firms, such as sewage treatment firms, solar power producers, and pharmaceutical firms, for which improving the natural environment or public health can be made part of their mission. Yet, the plausible question could also be raised whether these firms should really be called ‘‘socially responsible’’ because of their

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particular business models. Instead, these firms may just be strategic or technological innovators (Kim & Mauborgne, 2005; McWilliams & Siegel, 2000). Various stakeholders may not consider the business of making profitable green products to be genuine (i.e., ‘‘authentic’’ or ‘‘meaningful’’), noninstrumental CSR. Conversely, should we really regard all tobacco firms as socially irresponsible? Furthermore, direct financial benefits from embedded CSR may never materialize because only a small minority of consumers may be willing, or able, to pay a premium for products of socially responsible firms, which have to recoup these investments in embedded CSR1 in some way (Oberseder, Schlegelmilch, & Gruber, 2011). So, although Aguinis and Glavas appropriately emphasized the context-specificity of embedded CSR, their industry-specific CSR typology inadvertently seems to blur the line between CSR and economic-instrumental strategy, which in turn obscures the real meaning of CSR (Frank, 1996; Friedman, 2005). CSR, Interest Group Pressure, and Business Risk Aguinis and Glavas could also have addressed the potential lack of value congruence between the firm and its broader community in greater depth. Organizations face increasing pressure to respond to a multitude of interest group demands. Often, an organization’s capabilities in CSR may be incongruent with the expectations of some stakeholder groups. For example, a chemical plant may have been supporting rural education for a long time, while integrating it within its routines, operations, and HR policies. At the same time, such CSR activities may not be well received by internal and external stakeholders, who 1. It should be noted that embedded CSR can typically be presumed to be more expensive than peripheral CSR—not only in terms of direct costs but also opportunity costs because the integration of CSR with business strategy commits firm resources to a path of action that may be hard to reverse (see below).

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expect the firm to do more about the water pollution it causes. So, even when CSR is embedded, it may fail to lead to competitive advantage because the values of the broader community may not align with the firm’s CSR strategy and top managers’ or firm owners’ values. Therefore, external normative alignment (see also Porter & Kramer, 2011) may ultimately be more important for organizational success than the kind of internal alignment emphasized by Aguinis and Glavas. Irrespective of the issue of internal or external value alignment, the costs associated with embedding CSR can be so high that they put an entire firm at risk. There are numerous counterexamples of embedded CSR leading to major organizational performance problems; due to space constraints, two examples should suffice here. After a fire had destroyed a Malden Mills textile plant in an economically depressed community, the company’s CEO Aaron Feuerstein decided to rebuild the factory at a cost greater than the insurance settlement (Nohria, Piper, & Gurtler, 2006). Driven by a sense of loyalty to and care for his employees, which was deeply embedded in the organization’s culture and daily operations, Feuerstein opposed cost-saving automation of manufacturing processes at the rebuilt factory and installed relatively expensive labor-intensive work processes. Malden Mills paid a steep price for its strong commitment to its local community: after a few years, the company had to file for Chapter 11 bankruptcy, and Feuerstein and his family ultimately lost control of the firm (Nohria et al., 2006). Another example of a company that incurred considerable business risk by embedding CSR was Levi Strauss under the leadership of Bob Haas. According to Munk (1999), CSR at Levi Strauss distracted executives from making tough strategic-economic decisions in line with quickly evolving competitive demands and cost benefit analysis. Under Haas’s leadership, Levi Strauss developed a culture that emphasized community, social bonds, and stakeholder dialogue (Munk, 1999). At the same time,

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internal efficiency, which tends to require more hierarchical and autocratic decision making than that engendered by CSR (Donaldson, 2001; Orlitzky & Swanson, 2006), also declined precipitously after the firm started to implement Haas’s ‘‘vision to recreate capitalism in his humanistic image of utopia’’ (Gilad, 2004, p. 49). Hence, embedded CSR may sometimes increase organizational costs more than its counterbalancing and largely uncertain economic benefits. This would lead to the expectation that business risk is exacerbated, rather than reduced, by embedding CSR; the embeddedness implies that CSR becomes part of the ‘‘genetic’’ fabric of the firm. In turn, if firms are firmly committed to a course of ‘‘socially responsible’’ action, changing course—necessitated, for instance, by a change in competitive circumstances—will necessarily become more difficult; when the commitment has moral-normative connotations and an associated social-desirability bias, then changing course may, in fact, become nearly impossible. It is not farfetched to regard embedded CSR as a possible precursor to the detrimental dynamics of escalating commitment (Staw, 1976). CSR and Strategy Making More broadly, CSR often contradicts a fundamental strategic imperative, which is to recognize economic priorities and then make clear action choices (Rumelt, 2011). Embedded CSR is inherently concerned with continuously balancing a multitude of stakeholder group needs in managerial decision making. However, it remains unclear how such a stakeholder approach can provide the cognitive focus on strategic priorities when ‘‘all choices are made in the interest of all key stakeholders’’ (Aguinis & Glavas; italics added for emphasis). That is, in embedded CSR the necessary trade-offs between competing values (see before) as well as the associated opportunity costs (including delays in action because more stakeholder dialogues are deemed necessary before managers can make a decision) remain largely unacknowledged,

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as they do in so many other varieties of stakeholder thinking (Hendry, 2001; Jensen, 2002; Rodgers, 2005). One of the key elements of a good strategy, though, is the clear diagnosis of the crucial strategic challenge at this particular moment in an organization’s history, given the firm’s current context (Rumelt, 2011) rather than a widening of the cognitive lens to all kinds of special interest groups pressuring the organization to act, or not act, in the way they prefer or desire. Another key feature of good strategy is the firm’s differentiation from competitors, that is, organizational uniqueness (Porter, 1996; Rumelt, 2011). At the same time, the current trend in the CSR movement is toward ever greater standardization and indeed globalization of CSR operating codes (Levy & Kaplan, 2008; Pedersen & Andersen, 2006). This prompts many organizations, especially large multinationals, to imitate one another’s CSR initiatives in a competitive race for legitimacy in the eyes of a multitude of stakeholder groups. As is widely acknowledged, though, organizational activities, resources, or capabilities cannot lead to sustainable competitive advantage if they are not distinct and rare (Barney, 1991; Porter, 1996). The increasing standardization of CSR codes (e.g., in the form of ISO 26000 guidelines) has the effect of embedding CSR while simultaneously leading to greater industry homogeneity in terms of CSR practices. The counterproductive effect of this convergence, which fails to provide the firm-specific ingredients of competitive advantage, could have been highlighted more clearly in the context of embedded CSR. Conclusion In this commentary, we raised a few questions regarding the utility of the distinction between embedded and peripheral CSR. In keeping with Aguinis and Glavas’s emphasis on the context dependence of one of their types (embedded CSR), we pointed out that their entire dichotomy is in fact context dependent. This makes the application

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of their typology quite ambiguous. More broadly, we noted how the stakeholder thinking inherent in embedded CSR is likely to contradict some fundamental principles of good strategizing, which is centered on (unique) value creation (Porter & Kramer, 2011). Aguinis and Glavas appropriately emphasized the importance of context in embedded CSR, but it is not only the internal (HRM) context that determines organizational effectiveness. In many ways, creation of value for customers is, for instance, much more important for corporate success. Before industrial–organizational psychologists jump on yet another bandwagon of management fads and fashions (Abrahamson, 1996; Dunnette, 1966), the full implications of that enthusiastically and widely embraced concept should first be deliberated and evaluated rationally and objectively (see, e.g., Hasnas, 1998; Marcoux, 2003; Orts & Strudler, 2010). Like all social phenomena (Hazlitt, 1952; Merton, 1936), CSR—whether embedded or not—comes with a range of negative long-term unintended consequences (Davis, 1973; Friedman, 1970; Levitt, 1958). It may, for example, contribute to boom–bust cycles and, thus, destabilize financial markets (Orlitzky, in press), which would not be in the long-term interest of business or economies at large. References Abrahamson, E. (1996). Management fashion. Academy of Management Review , 21(1), 254–285. Aguinis, H., & Glavas, A. (2013). Embedded versus peripheral corporate social responsibility: Psychological foundations. Industrial and Organizational Psychology: Perspectives on Science and Practice , 6(4), 314–332. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management , 17 , 771–792. Carroll, A. B. (1999). Corporate social responsibility: Evolution of a definitional construct. Business and Society , 38(3), 268–295. Davis, K. (1973). The case for and against business assumptions of social responsibilities. Academy of Management Journal , 16(2), 312–317. Donaldson, L. (2001). The contingency theory of organizations. Thousand Oaks, CA: Sage. Dunnette, M. D. (1966). Fads, fashions, and folderol in psychology. American Psychologist , 21, 343–352.

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