Strategic Corporate Social Responsibility: Effects on Business Performance

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CHAPTER 1: INTRODUCTION 
1.1 BACKGROUND 
Corporate Social Responsibility (CSR) has gained legitimacy only in the last few 
years, despite being a long-lasting concept. Just few years ago, in 2005, The 
Economist criticised CSR, which was labelled as “based on a faulty… analysis of 
the capitalist system”; the article cited Adam Smith’s Wealth of Nations, 
according to which the capitalist system is pivoted on the search for profit (The 
Economist, 2005). Moreover, an article in The Guardian stated that the concept 
had not been reaching companies’ staff, who regarded CSR as a mere PR exercise 
(Pandya, 2004). 
However, The Economist’s opinion on CSR changed in few years. In 2008, CSR 
was described as mainstream and unavoidable for large companies; this because 
of public pressures and because of concerns about the environment caused by the 
model of development brought by globalisation (The Economist, 2008). 
Moreover, in a Financial Times article, Moore (2012) strongly sustained the 
necessity to include social projects as parts of MBA required curricula, in order to 
educate students in the subject. 
Despite the upsurge in the importance of CSR, which is nowadays believed to 
create shareholder value, it is difficult to assess this value in univocal terms, and 
this is why many CFOs still do not consider CSR investments when evaluating the 
attractiveness of business projects (McKinsey & Company, 2009). 
This does not change the fact that considering CSR has become by now essential; 
however, what many companies have not yet understood is that CSR should not 
be viewed only in terms of compliance, but also in terms of an opportunity to 
improve business performance. Indeed, many researchers have been trying to 
demonstrate how CSR can be advantageous for companies as well as for society. 
Moreover, the fast growth of emerging economies, like the BRIC countries, since 
the beginning of the globalisation process brings a problem of resource scarcity 
and, hence, of sustainability of the current economic model of development. Not 
only does this cause concerns about power sources and climate change, but it also
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raises concerns about workers’ rights in countries whose legislative systems are 
not yet strengthened (Blowfield and Murray, 2011). 
1.2 PURPOSE OF THE RESEARCH 
The research aims at gaining an insight in the field of CSR, to understand whether 
companies should engage in socially responsible investments. In particular, one of 
the main questions is whether being accountable to society rather than just to 
shareholders is a company’s duty. The first vision proposed by The Economist 
considers companies in the Smith’s view of ‘just profit-maximisers’; instead, the 
second vision considers companies as bearer of other responsibilities than just the 
economical one. The question is whether the two visions can coexist, so that 
companies are profit-maximisers and socially responsible at the same time. This 
would legitimate the engagement in CSR, bringing benefits to society as well as to 
companies. 
Hence, this research attempts to discover whether there is a relationship between 
CSR and Business performance, i.e. whether investments in CSR can bring 
economic benefits to companies; in this case, companies should regard CSR as an 
opportunity rather than a constraint. 
In the first part, there will be a revision of the extant literature; in particular, there 
will be a focus on ethical consumption, a movement that is likely to have 
influenced the upsurge of social responsibility in the last few years, and an 
analysis of the different visions concerning the obligation and/or the convenience 
of engaging in CSR. In the second part, there will be the analysis of the Nike case 
study, as the apparel company is a leader in social investments, to find out 
whether the correlation between CSR and Business performance actually 
manifests.
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2.3 THEORETICAL FRAMEWORK 
A large amount of research concerning the correlation between CSR and Business 
performance has been conducted during the years. Indeed, according to Blowfield 
and Murray (2011), the demonstration of a positive correlation would legitimate 
CSR to fully enter in the core of companies business. Moreover, this hypothesised 
positive relationship would pacify the theories according to which the pursue of 
social goals hampers the achievement of business goals. 
However, despite the agreement about the existence of this positive relationship 
among many theorists and managers, the correlation among the two kinds of 
performance is difficult to demonstrate univocally, because the relationship  
encompasses many dimensions and because the benefits deriving from engaging 
in CSR usually display themselves in terms of intangible benefits rather than in 
monetary terms. 
The Framework that will be used to assess this correlation is adapted from 
Blowfield and Murray (2011). 
The Dimensions of Corporate Responsibility whose performance will be assessed 
are: 
- Environmental performance: this dimension regards companies’ 
sustainability, with regard to waste management, materials used, gas 
emissions, recycling activities, etc.; 
- Social performance: this dimension encompasses labour issues, e.g. 
workers rights and child labour, and the impact on communities, e.g. 
philanthropic activities; 
- Accountability and Transparency: this dimension concerns the 
reporting guidelines for corporate disclosure and the inclusion of CSR in 
the corporate governance framework; 
- Stakeholder engagement: this dimension concerns the consideration of 
stakeholders, like governments, NGOs, customers, suppliers, etc., in the 
formulation of the CSR strategy.
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The Measures of Business Performance on which CSR is supposed to impact will 
be: 
- Revenues: this dimension is considered because it is a direct measure of 
companies sales; 
- Shareholder value: this dimension includes changes in the stock price and 
measures of shareholders’ return on their investment, namely Return on 
Equity and Return on Invested Capital; 
- Brand Value: this dimension conveys a monetary understanding of how 
companies are considered by the public; 
- Operational Efficiency and Innovation: these dimensions concern 
companies’ ability to reduce the costs of their activities in order to 
maximise productivity and deliver innovative products; 
- Human capital: this dimension concerns companies’ ability to attract and 
retain employees, assuring them a comfortable working environment; 
- Licence to Operate and Reputation: this dimensions encompass all the 
previous ones and concerns the general consideration that public opinion 
has about companies.
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CHAPTER 3: METHODOLOGY 
The research assumes the form of an explanatory study; according to Saunders et 
al. (2009), explanatory studies attempt to “establish causal relationships between 
variables”. Indeed, the main objective of this research is to determine whether a 
relationship exists between CSR performance and Business performance (not only 
in monetary terms, but also in terms of intangible benefits). The relationship will 
not be analysed in terms of statistical correlation, but a qualitative analysis of the 
data will be preferred. 
Given the purpose of the study, it seemed reasonable to carry out the research 
using the case study strategy. Indeed, as Saunders et al. (2009) noticed, case study 
is a suitable option for explanatory studies, and it is also useful to make the 
research more concrete and place it in a specified context, of which, as Morris and 
Wood (1991) noted, it will let us gain a rich understanding. 
The case study strategy can take the form of single or multiple case study: 
although Yin (2003) argued that the latter is better than the former as it could 
convey multiple perspectives and could let us generalize findings, it seemed 
appropriate to use only the case of Nike. Indeed, Nike is the perfect example of a 
company that has embedded CSR in its corporate strategy, in order to gain 
competitive advantage. Moreover, Nike represents the perfect example of a 
criticized company that managed to transform its CSR approach from defensive to 
offensive, as it started to regard it as an opportunity instead of a constraint. 
The approach to the research will be deductive: as stated by Robson (2002), this 
approach consists in the formulation of a hypothesis regarding a causal 
relationship between variables after a consideration of the existing literature, 
hypothesis that will then be tested; the outcome of the test will confirm or reject 
the hypothesis, leading, in some cases, to a modification of the theory. The 
hypothesis underlying the study is that, in the modern competitive apparel market, 
investments in CSR can constitute elements of differentiation for an apparel brand 
and can thus improve Business performance. As already said, this hypothesis will 
be tested on the case of Nike, to determine if this causal relationship actually 
exists.
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However, the use of only one company will limit the possible generalization of 
the findings. 
The research will use both quantitative and qualitative data. 
The former will be data contained in Nike’s CR Reports  from FY01 to FY11 and 
in Nike’s Annual Reports until FY12. In particular, these data will regard Nike’s 
investments in CSR and measures of Financial performance. Moreover, there will 
be other supporting data from external sources, like the evolution of Nike Brand 
value. 
The latter will be data drawn from Nike’s CR Reports and Annual Reports as well 
as from external sources, like companies rankings and newspapers’ articles. 
The use of both quantitative and qualitative data seemed appropriate, given the 
impossibility of basing the analysis of a subject like CSR only on numerical data. 
Moreover, it seemed appropriate to add external sources of data to the analysis, to 
convey a view of how Nike is considered by public opinion. 
The research will be based on secondary data. This kind of data has some 
advantages and disadvantages. One of the main disadvantages, according to 
Denscombe (2007), is that secondary data may have been collected for another 
purpose from that of the research, making them inappropriate and unsuitable to 
answer the research questions; this is not our case, as the research objectives 
appear consistent with the data used. On the other hand, there are many 
advantages, among which the saving in resources and time (Ghauri and 
Gronhaung 2006) and the higher quality and reliability of secondary data 
compared with the reliability of primary data. Moreover, the data used in this 
research could not have been collected as primary data. 
Finally, the study assumes the form of a longitudinal research instead of cross-
sectional (Saunders et al., 2009, defined the second ‘a snapshot’ while the first ‘a 
series of snapshots’), because it seemed appropriate to study one company over a 
longer period of time, as it is widely believed that CSR investments manifest their 
effects in the long term.