The Extensiveness of Corporate Social and Environmental Commitment across Firms over Time

Abstract

Corporate social commitment (CSC) and corporate environmental commitment (CEC) are often combined under the general rubric of corporate social responsibility. Although the two sets of activities are similar, they are also very different. Both CSC and CEC respond to issues raised by stakeholders, but CEC tends to be more “technical”. This characteristic demands that CEC fit with the organization, which exposes greater economic opportunities than CSC. As a result, we argue that the extent to which these practices are implemented differs across firms over time. We analyze the extensiveness of implementation of CSC and CEC across 266 firms from 1991 to 2003, using latent growth curve modeling and one-way ANOVA. We find that firms moved towards at least a moderate level of CSC over time, but tended to bifurcate in the extent to which they implemented CEC practices, towards either the high or low end of the scale, over time. In this paper, we contribute to the institutional analysis of practice diffusion by examining how the characteristics of different kinds of practices shape the extensiveness of firm adoption patterns. As well, this research also speaks to corporate social responsibility researchers, pointing to the need to sometimes discriminate between social and environmental practices.

Keywords

corporate social responsibility institutional theory latent growth modeling practice implementation

Introduction

Corporate social responsibility (CSR) includes commitments to both social and environmental practices. Social practices range from philanthropic donations in the local community to tackling issues around diversity and executive compensation, whereas environmental practices require firms to reduce emissions or material inputs. Although both sets of practices are deeply social in nature, environmental practices, in particular, often require technical skills to implement.

Institutional pressures and processes have been shown to influence the adoption of both social and environmental practices (Bansal, 2005; Hoffman, 1999; Lounsbury, 2001), but the technical aspects of environmental practices result in differences in their implementation. First, technical attributes often require specific organizational resources and capabilities, such as innovations in materials use and processing, so the practice must fit technically with the organization (Ansari, Fiss, & Zajac, 2010). Second, the technical attributes often expose economic opportunities, so both institutional and economic accounts shape the implementation process (Bansal, 2005; Kennedy & Fiss, 2009; Lounsbury, 2007). In this paper, we argue that the technical attributes of practices affect the extent to which the practices are implemented over time across a population of firms.

In particular, we investigate the extensiveness of the implementation of corporate social commitment (CSC) and corporate environmental commitment (CEC), broadly defined as corporate efforts to manage social issues and environmental issues, respectively. We analyze the extensiveness of implementation of these practices among 266 firms over thirteen years—1991 to 2003—a period characterized by widespread diffusion of responsible social and environmental practices (Hoffman & Bansal, 2012). The research question guiding this project is: how do the technical and social characteristics of a practice affect the implementation of the practice across a population of firms over time?

This research offers important contributions to institutional theory. We show that firms will converge to at least a moderate level of commitment to the social aspects of CSR, primarily because of the institutional processes at play. We also show that firms tend to bifurcate or diverge in their commitment to the natural environment, primarily because of the need for technical fit, exhibiting greater variation across firms over time. Our analysis, therefore, contributes to the conversation on variation in the adaptation of practices among firms. Specifically, we speak to the differential impact of technical and social attributes on the extent to which practices are implemented (Ansari et al., 2010; Lounsbury, 2001).

The CSC and CEC context also allows us to contribute to research in CSR. Much prior work places social and environmental practices under the broader CSR rubric (e.g. Waddock & Graves, 1997); however, our findings suggest that social and environmental practices may not be implemented to the same extent by firms over time. The strong social orientation of CSC practices tends to align organizational and institutional environments, whereas the strong technical orientation of CEC is internally focused and does not drive the same level of convergence among firms. Therefore, our work suggests that CSR researchers should consider discriminating between CSC and CEC, especially when institutional and economic dynamics ground the theorizing.

Corporate Social Commitment and Environmental Commitment

We define CSC as the extent to which an organization allocates resources to a variety of policies and programs in order to provide social benefits to stakeholders, beyond its narrow economic obligations to shareholders. Our definition draws on the characterizations of CSR and similar concepts in previous research (e.g. Aguilera, Rupp, Williams, & Ganapathi, 2007; Barnett, 2007; Ullmann, 1985; Wood, 1991). Examples of CSC in action include philanthropy, diversity, employee relations, human rights, and product liability.

CEC differs from CSC in its focus on environmental benefits, as opposed to social benefits. We define CEC as the extent to which an organization allocates resources to various policies and programs in order to, in general, protect and preserve the natural environment, and, in particular, to minimize its own environmental footprint and that of its products (Bansal & Roth, 2000; Hart, 1997). Typical environmental issues covered by CEC include environmentally beneficial products and services, pollution prevention, recycling, clean energy, environmental management systems, and voluntary environmental programs.

CSC and CEC are girded by four core principles. First, both CSC and CEC aim to improve the social welfare of stakeholders or the quality of the natural environment beyond what is deemed profitable in the short run. CSC measures a firm’s efforts to meet “the needs, expectations, and demands” (Ullmann, 1985, p. 543) of four key groups of stakeholders, other than shareholders; namely, the local community, employees, customers, and those in need of social assistance. CEC, on the other hand, aims to reduce the negative environmental impacts of the firm’s operations and those of the goods and services it sells.

Second, CSC and CEC emphasize the active allocation of corporate resources for social and environmental purposes; for example, through philanthropic donations, investing in pollution prevention technology, changing labor practices, or improved monitoring of toxic releases. Given that CSC and CEC are grounded in corporate social responsibility, it is worthwhile highlighting that we are not including negative impacts, such as human rights violations and toxic spills. We have focused on commitments (positive practices), rather than responsibility (both positive and negative), because we are investigating the implementation of a practice as opposed to the absence of a practice that could cause harm.

Third, CSC and CEC involve a variety of policies, programs, and embedded operational processes that represent an organization’s concern for its stakeholders and the natural environment. These policies and programs range from broad initiatives, such as supporting the local community, communicating and engaging with stakeholders, and monitoring and reporting, to specific practices, such as employee profit sharing, youth training, and low-energy lighting. Strong commitment implies implementing a diverse set of activities intensively.

Fourth, these commitments emphasize enduring involvement; occasional, discrete, in-kind contributions reflect weak commitment. A single donation or the one-off clean-up of a toxic spill do not represent a strong commitment; by contrast, engaging with a community and eliminating toxic substances from production processes represent strong commitment.

CSC and CEC also differ along some important dimensions, which are listed in Table 1. These dimensions can by synthesized into an important fifth principle that applies only to CEC: CEC is grounded in the natural sciences. Technology is central to CEC because CEC focuses on material objects that can be measured and controlled, and so are subject to scientific pursuits (Bansal & Knox-Hayes, 2013). CEC activities—such as reducing emissions, waste, and depletion—require a firm to measure both the environmental emissions of its products and processes, and their impact on ecosystems.

Table 1.

Key Differences between CSC and CEC.

	Corporate Social Commitment	Corporate Environmental Commitment
Activities	Philanthropy, independent and transparent corporate governance, diversity, employee relations, human rights, and product quality	Environmentally beneficial products and services, pollution prevention, recycling, clean energy, environmental management systems, and voluntary environmental programs
Focus and elements	Ethics, morality, justice, norms, symbols, and subjective interpretations that are institutionally defined; often unquantifiable	Empirical evidence, technology, and science; often having quantified criteria and assessment
Foundation	People-focused and interests-based relationships; values and preferences socially constructed	Grounded in natural sciences and ecology
Goal	Do more good	Do less harm
Stakeholder composition	Stakeholders can be categorized representing different interests. Positions can be competing	Stakeholders tend to be environmental or community activists. Positions are often aligned
Regulations and standards	Numerous regulations (e.g. labor, safety). Relatively few standards.	Numerous regulations (e.g. water, air, land) and standards (e.g. ISO 14001)
Managerial approach	Each issue often lies within a specific department (e.g. human resources, public affairs).	Environmental management systems and innovations tend to be system-wide
Financial impact	Focus more on the long-term impact; both upside and downside can be important to the sustainability of a firm	Can see immediate financial impact; downside may be more important than upside, but not as important as the overall downside of CSC

CEC turns the firm’s attention inwards to its technical core, focusing on processes that stimulate technological advances and build operational efficiencies. CEC’s foundation in the natural sciences points to a system of relationships that can be technologically measured, monitored, confirmed, and controlled. Research, development, and innovation are especially important for CEC, considering ongoing scientific progress in environmental sciences, such as advances in green chemistry and energy-efficiency technologies.

Theory and Hypotheses

In this paper, we investigate the implementation of CSC and CEC among a sample population of firms. Not all CSC and CEC practices are implemented equally. Most organizations have a broad range of stakeholders with a diverse, socially constructed set of norms, values, beliefs, interests, and agendas. This diversity requires firms to identify and respond to various stakeholder needs to demonstrate strong CSC and CEC. However, not all practices are fully implemented, either because the practice may be contentiousness within the field (King & Pearce, 2010, Schneiberg & Lounsbury, 2008) or does not fit with the organization (Ansari et al., 2010, Schneiberg & Soule, 2005). Firms may actively resist the practice, decouple the activities associated with it, manage impressions, or actively try to shift stakeholder opinions (e.g. Bansal & Clelland, 2004; Elsbach, 1994; Fligstein & McAdam, 2011; Oliver, 1991; Schneiberg & Lounsbury, 2008). For example, Lounsbury (2001) discovered that the level of commitment to recycling programs, measured by program staffing, varied across a population of colleges and universities in the Great Lakes area. Some firms may undertake organization-wide changes and invest significantly in social and environmental issues, whereas others may implement the programs only ceremonially or limit the range of practices or areas within the organization in which the practices are adopted.

Ansari et al. (2010) developed two dimensions of practice implementation and adaptation: fidelity and extensiveness. Fidelity is the degree to which the firms’ practices accurately mirror the original meaning of the practice and extensiveness is the comprehensiveness of the principles implemented. Fidelity is very difficult to measure, given the ability of firms to deliberately obfuscate and manage impressions. Therefore, we focus our attention on the extensiveness of implementation of CSC and CEC by firms over time.

In the following sections, we introduce two hypotheses that argue that CSC and CEC exhibit different degrees of extensiveness over time, primarily because of the fifth principle described above: CEC is grounded in the natural sciences and requires technical fit with the organization. These differences in the extensiveness of implementation across our sample population of firms can help explain “organizational-level mechanisms of implementation that lead to the adaptation of practices” (Ansari et al. 2010, p. 67).

The extensiveness of corporate social commitment over time

We hypothesize that, over time, firms aim to demonstrate at least a moderate (i.e. middle to high) level of CSC. The primary mechanism is found in the social processes that ground corporate social commitment, which require organizational-level cultural and political fit with the wider institutional environment. We describe the arguments in more detail below.

Stakeholders and other field constituents, such as non-governmental organizations (NGOs), media, and regulators, create an institutional framework that determines what is normal, acceptable, or legitimate among organizations through an ongoing process of social construction, contention, and interpretation (Greenwood, Raynard, Kodeih, Micelotta, & Lounsbury, 2011; Schneiberg & Lounsbury, 2008; Schneiberg & Soule, 2005). In fact, institutional legitimacy has become one of the dominant factors that scholars use to explain corporate investments in social issues (Aguilera et al., 2007). CSC in firms has been driven by social activism (den Hond & de Bakker, 2007), public concern and regulatory forces (Banerjee, Iyer, & Kashyap, 2003), and institutional norms and the presence of NGOs (Campbell, 2007).

Firms that are deeply embedded in their community often exhibit corporate social commitment and foster interactions with other field members. CSR scholars have long recognized the importance of stakeholder management in determining appropriate firm actions (Freeman, 1984). Interactions between organizational stakeholders (e.g. employees, customers, the community, and shareholders) and field-level institutional actors (e.g. government, activists) create a bridge between the prescriptive and proscriptive norms of the firm and its field. For example, union representatives and community activists have protested Walmart’s record on workers’ rights, bribery, and oversight of foreign factories. These key stakeholders observe and attempt to preserve acceptable behavior, and try to align the organizational and institutional environments. As a result, most firms aim for at least moderate CSC to avoid the sanctions and boycotts that come with unacceptable behaviors.

In addition, there is a positive feedback mechanism that amplifies CSC within organizations. Programs that, for instance, encourage employees to volunteer in the local community or that match employee donations with company donations, help build interpersonal relationships, which in turn reinforce pro-social behavior (Adler & Kwon, 2002; Grant, 2007). CSC tends to elicit greater employee effort, persistence, and helping behavior, all of which create feelings of competence and self-worth among employees (Grant, Dutton, & Rosso, 2008). These feelings contribute to employee empowerment, which motivates employees to keep doing the things they find fulfilling, which in turn encourages CSC (Grant, 2007). Bansal (2005) shows that organizations are more willing to respond to an issue when the issue fits with the organization’s values and organizational members’ beliefs. In this way, the cultural and political aspects of the firm (i.e. its norms, values, interests, and agenda) start to align with the larger institutional environment, contributing to extensive implementation of practices (Ansari et al., 2010).

As well, we argue that firms do not want to display weak CSC because of the potential negative consequences of being seen as uncaring towards employees, the community, or other stakeholders. Firms tend to implement at least a moderate level of CSC as “insurance” against social losses (Koh, Qian, & Wang, 2013) in order to acquire or maintain their social license to operate. Organizations that are perceived to neglect the expectations of stakeholders risk losing legitimacy (Pfarrer, Decelles, Smith, & Taylor, 2008). Furthermore, CSC practices are based on social relationships and it is difficult to reverse negative perceptions and rebuild trust once those relationships are challenged (Gillespie & Dietz, 2009). The more embedded in their field, and the more entrenched the norms of acceptability, the more motivated organizations are to avoid social losses (Kennedy & Fiss, 2009). Numerous studies provide insights as to how legitimacy can be rebuilt in the face of a crisis (e.g. Coombs 2007; Dowling 2001; Marcus & Goodman 1991); however, few studies explore persistently low CSC. For the reasons above, we hypothesize:

Hypothesis 1: Corporations will implement moderate or strong corporate social commitment (CSC) practices over time, avoiding weak commitment.

The extensiveness of corporate environmental commitment over time

Much like CSC, CEC is also subject to institutional norms and expectations. There is much about CEC that is socially constructed and deemed socially acceptable or unacceptable (Lounsbury, Fairclough, & Lee, 2012). For example, even though scientists have by and large accepted the evidence around climate change, the Kyoto Protocol was not fully ratified in many countries. In fact, the Conference of Parties to the United Nations, the governing body for such an agreement, could not reach consensus, because of the contested nature and political agendas associated with climate change (Schüssler, Rüling, & Wittneben, 2013). However, the fifth CEC principle—that it is grounded in the natural sciences—substantially differentiates the adaptation paths of CEC and CSC. As discussed above, most firms will seek at least moderate CSC; however, they will choose either weak or strong CEC, not settle in the middle. We suggest two factors that contribute to the bifurcation in the extensiveness to which CEC practices are implemented.

First, relative to CSC, there is greater certainty about firms’ CEC progress because of the scientific and technological foundations of CEC. Environmental measures of emissions, energy use, waste, and recycling can sometimes be more reliable than corporate financial measures. As a result, it is often possible to track the costs and potential savings associated with CEC. For example, firms can estimate the cost savings associated with introducing a recycling program, streamlining their supply chain, or improving production efficiency (Klassen & Whybark, 1999).

Second, the technical attributes of CEC are attractive to firms because they offer firms greater certainty and internal control. CEC focuses on internal changes to production processes and product design, which are not as dependent as CSC on the actions of external stakeholders. Innovations and systemic changes are decided and implemented internally (Hart, 1995). CEC’s grounding in the natural sciences amplifies the importance of technical fit in implementing its practices, as described by Ansari et al. (2010). For example, food manufacturers that shift to bio-based and compostable packaging materials, or oil and gas companies that switch from mechanical to chemical processes to reduce their greenhouse gas emissions, must involve several organizational units. Therefore, CEC requires high levels of learning and continuous innovation, which are often within the control of the firm, to allow for such system-wide changes (King & Lenox, 2002; Sharma & Vredenburg, 1998).

Prior research shows that CEC may generate economic returns (Russo & Fouts, 1997), which, according to Kennedy and Fiss (2009), motivates firms to engage more extensively with practices and thus show strong CEC. Improving the efficiency of physical materials and energy is directly related to positive economic outcomes. Therefore, we expect CEC to strengthen over time.

However, not all firms are convinced that it “pays to be green” (Stefan & Paul, 2008). Some firms are unable to practice CEC, or choose not to do so, because of the technical challenges of fitting CEC with the current organizational context. Some organizations may lack key resources and capabilities, such as continuous innovation and absorptive capacity (Sharma & Vredenburg, 1998), and cross-functional or total quality management (Hart, 1995). Others may lack complementary assets, such as capabilities for process innovation and implementation (Christmann, 2000). These weaknesses may cause significant uncertainty in implementing strong CEC. Even if organizations can implement strong CEC at some point, technological shifts may hinder their capacity to retain that position, not to mention the significant costs often associated with strong environmental programs. Therefore, we expect that some firms will exhibit low CEC over time.

Not only do the technical requirements of CEC push firms to either weak or strong positions over time, they also override institutional requirements, forcing firms away from the middle. The technical requirements of CEC are such that it is easier for firms to resist or obfuscate, because of the substantial costs of compliance. And these actions often go unchallenged because very few organizational insiders fully understand the costs and benefits of different environmental options, or the different competing options available, mainly because environmental management practices lie at the technical core of an organization. Therefore, firms can offer up an argument that supports their view. To illustrate, a carbon dioxide level of 350 parts per million is assumed to be the tipping point for climate systems, yet the CEO of Exxon Mobil Corp., Rex Tillerson, recently told shareholders that “We do not see a viable pathway with any known technology today to achieve the 350 outcome that is not devastating to economies, societies and peoples’ health and well-being around the world” (Globe and Mail, 2013).

Only in the most extreme situations, such as a toxic spill, do external stakeholders punish firms with weak CEC. Thus, firms are less worried about legitimacy crises or social losses associated with weak CEC, relative to weak CSC. Whereas stakeholders push organizations to “do more good” in the case of CSC, stakeholders expect firms to “do less bad” in the case of CEC. The objective of most environmental practices is to return the environment to a more natural state. The technical characteristics of CEC likely explain why scholars have found that even regulations, the strongest form of pressure on institutions, fail to drive high environmental commitment (Buysse & Verbeke, 2003; Decker, 2003). Based on these arguments, we hypothesize:

Hypothesis 2: Corporations will implement either weak or strong corporate environmental commitment practices, moving away from the middle, over time.

Methods

Data and sample

Our goal was to examine temporal variations in CSC and CEC over time. We drew the sample of firms for this empirical analysis from the social ratings data published by Kinder, Lydenberg, Domini & Co. (KLD). We chose this data source for two major reasons. First, it is the only available social rating dataset of US public firms that covers a wide time period, which permitted us to uncover the temporal variations of CSC and CEC. Since 1991, KLD has published annual summary spreadsheets that evaluate the social and environmental performance of approximately 650 publicly listed US firms, including S&P 500 firms. Second, the KLD data’s validity is supported by its extensive use by CSR researchers (Dahlmann & Brammer, 2011; Hillman & Keim, 2001; Waddock & Graves, 1997). Our final sample included 266 firms with data from 1991 to 2003. Approximately 60 percent of the sampled firms were in the manufacturing sector.

Corporate social and environmental commitment

We used KLD data to build measures of CSC and CEC. In the KLD database, a firm is assessed on seven qualitative dimensions that are rated on both strengths and concerns. The strengths and concerns are assigned either a 1 or 0, depending on whether a firm meets the set criteria. For example, a criterion in the employee relations dimension is: The company has consistently given over 1.5 percent of trailing three-year net earnings before taxes to charity, or has otherwise been notably generous in its giving. A criterion in the environment dimension is: The company has notably strong pollution prevention programs, including both emissions reductions and toxic-use reduction programs.¹

The seven qualitative dimensions are community relations, employee relations, women and minority diversity, environmental issues, product liability, human rights (“non-US involvement” prior to 2002), and corporate governance (“other” prior to 2002). We used the first five dimensions to construct the CSC and CEC measures, consistent with prior studies using KLD data (Hillman & Keim, 2001; Johnson & Greening, 1999). By our definition, CSC and CEC include positive social and environmental actions; thus, we chose only the strengths items when developing the measures. The CEC measure was constructed by summing the five strength items in the environmental issues dimension. The CSC measure was constructed by summing the 21 strength items from the other four dimensions, consistent with prior studies. The numerical range of CSC and CEC reflects the extent of implementation, which allows a more granular analysis than a binary number.

Data analysis

We tested our hypotheses via latent growth curve modeling (Bollen & Curran, 2006) and one-way ANOVA. Latent growth modeling is commonly used in development and child psychology research. The method has recently gained currency in social sciences, particularly in management literature (Jokisaari & Nurmi, 2009; Ployhart, Weekley, & Ramsey, 2009; Qureshi & Fang, 2011; Williams, Edwards, & Vandenberg, 2003), because of its unique role in analyzing temporal variations. The intuition behind this approach is that a latent trajectory of “growth” or temporal variation for a variable, if identifiable, can be modeled, and its relation to trajectories of other variables tested. In latent curve models, the observable time-specific values of one variable—CSC, for example—are conceptualized as being determined by an underlying temporal path. The growth pattern of this variable is reflected in two parameters of the growth curve: intercept and slope. The intercept represents the initial level of the growth trajectory, while the slope represents the rate of change (Curran & Willoughby, 2003). Multivariate growth curve models allow researchers to simultaneously estimate multiple growth processes (Li, Duncan, Duncan, & Acock, 2001; MacCallum, Kim, Malarkey, & Kiecolt-Glaser, 1997). We used MPlus 6.0 to execute the latent growth analysis.

We followed four steps to test the temporal patterns of CSC (Hypothesis 1) and CEC (Hypothesis 2). First, we split the 13 years for which we had data into three time periods: 1991–1994 (period 1), 1995–1998 (period 2), and 1999–2003 (period 3), and calculated the average CSC and CEC for each individual firm in each time period. This averaging approach smooths out potential year-specific idiosyncrasies in a firm’s CSC and CEC, while still revealing any significant changes across different time periods. This approach also meets methodological requirements that there be at least four time points in each period to execute multivariate latent growth modeling. We checked CSC and CEC scores across the years and did not find any year significantly different from others. To check for robustness, we analyzed the data over different three-period splits.² The results were not meaningfully different.

Second, within each time period, we classified all the sampled firms into three groups based on their patterns of variation in CSC and CEC, separately. Specifically, we isolated firms scoring zero throughout all the years of a time period, for CSC for instance, and grouped these firms together because they did not change their CSC within that time period. We labeled this group as the low group, representing weak commitment, because all other firms scored a higher CSC. We did this separately for CEC. Note that scoring zero does not mean these firms were doing nothing; rather, their commitments, according to KLD, were not considered significant enough to score 1. Note also that a firm “low” in CSC is not necessarily also “low” in CEC.

We then used latent growth mixture modeling (Qureshi & Fang, 2011; Wang & Bodner, 2007) available in MPlus 6.0 to identify potential classes of firms remaining in our sample. This analysis groups cases into similar classes based on their change (growth) patterns. Cases with similar initial values and similar slopes over time were grouped into one class such that cases in any one class are similar to each other on initial values and slopes and are statistically different from the members of the other classes.

After comparing different solutions, we finally reached a solution of two classes for both CSC and CEC based on the best fit indices (AIC, BIC, SABIC, H0 test, and Entropy) (Muthen, 2008; Qureshi & Fang, 2011; Wang & Bodner, 2007). Figure 1 shows four firms randomly chosen from each class of CSC: members of the high group (indicated by black lines), showing strong commitment, have greater initial value and slope and are significantly different from the members of the medium group (indicated by gray lines). Including the low group we identified earlier resulted in a total of three groups with substantively different CSC. Similarly, three groups were identified for CEC.

Figure 1.

Illustrative Trajectories of Corporate Social Commitment Movement.

Third, we looked at how each firm changed its group membership from one time period to another, in terms of CSC and CEC. Moving from the low group in one time period to the medium or high group in a subsequent time period is considered an upgrade; shifting down to a lower CSC or CEC group is a downgrade.

Finally, to add rigor to our analysis, we conducted one-way ANOVA tests to statistically support the patterns observed in the third step. For Hypothesis 1, we compared means across the three time periods to see whether they are statistically different from each other and whether a mean at a later period is higher than it is in earlier period. For Hypothesis 2, we excluded firms that had a zero CEC score across all the three time periods, because these firms show no movement over time. We were then left with 125 firms that were either in high or medium group at period 1. We created two subgroups among these firms based on a median split at time period 1 and labeled them as high and low. We compared means of the high subgroup across the three time periods to see whether they are statistically different from each other and whether the mean at a later period is higher than it is at an earlier period. Similarly, we compared means of the low subgroup across the three time periods. Combining these two ANOVA tests formed our test for Hypothesis 2.

Results

Figure 2 shows the observed results of movement in CSC across the three time periods, from period 1 to period 3. The bold numbers at period 1, period 2, and period 3 represent the number of firms that had low, medium, or high CSC scores in the respective time period, whereas the bold and italicized numbers represent movements between the time periods. For example, at period 1, 64 firms were in the low class. Of these, 32 remained in the low class at period 2, 31 moved to the medium class, and only one moved to the high class.

Figure 2.

Temporal Movement of Corporate Social Commitment.

Three observations in Figure 2 together show strong support for Hypothesis 1—that firms tend to avoid the low group and stay in the medium or high group. First, a significant portion (about half) of the firms in the low group moved to the medium group both from period 1 to period 2 (31 out of 64) and from period 2 to period 3 (20 out of 43). Further, the number of firms in the low group dropped across the three time periods, from 64 at period 1 to 35 at period 3. These numbers suggest a tendency to upgrade CSC from a low position. Second, most firms in the medium group (about 90 percent) clearly chose to stay in the medium group. Those that did opt out did not tend to shift downward; instead, these firms were more likely to upgrade than downgrade (e.g. 39 upgrades vs. 11 downgrades from period 1 to period 2). Third, the firms in the high group chose to stay rather than downgrade (e.g. only two firms downgraded from period 1 to period 2). Interestingly, the number of firms in the high group increased over time, from 33 at time period 1 to 76 at time period 3.

For additional support of Hypothesis 1, we conducted one-way ANOVA. CSC means for each time period (P1 = 1.38; P2 =2.63; P3 = 3.27) were significantly (p <0.01) different than the other, and the mean at period 3 was higher than the mean at period 1 and period 2.

The results shown in Figure 3, similarly created as Figure 2, support Hypothesis 2. That is, for CEC, firms tend to move toward either the low or the high group over time. For instance, 72 percent of firms in the medium group (50 in total) at period 1 moved to the two end groups at period 2 (out of 50, 20 to low and 16 to high), and 70 percent of firms in the medium group moved to the two end groups from period 2 to period 3 (out of 40, 16 to low and 12 to high). This observation suggests a clear tendency for firms to dissipate from the middle group. Further, firms in both the low and high groups primarily chose to stay where they were rather than move to the medium group. In addition, the size of the medium group shrank, from 50 in period 1 to 35 in period 3, while the sizes of the low and high groups both increased, although only slightly. We observed that some firms downgraded from the high group in both period 2 and period 3, and two firms even moved directly from the high group to the low group. We suspect that these firms might have faced difficulties sustaining a high CEC and thus regressed to a more modest position.

Figure 3.

Temporal Movement of Corporate Environmental Commitment.

For additional support for Hypothesis 2, we conducted one-way ANOVA on the two subgroups based on a median split in period 1. The grand mean of CEC for the high subgroup across the three periods was 0.93, 1.18, and 1.23, respectively. The mean of CEC in period 1 was significantly (p <0.001) smaller than CEC in period 2 and period 3. Although the mean of CEC in period 2 was not significantly different from that in period 3, the overall pattern indicates that firms in the high subgroup increased their CEC over time. Similarly, we compared means of the low subgroup across three time periods. The grand mean of CEC for the low subgroup across the three periods was 0.163, 0.139, and 0.057, respectively. The mean of CEC in period 3 was significantly (p <0.01) smaller than the mean in period 1 and period 2. Although the mean of CEC in period 1 was not significantly different from that in period 2, the overall pattern indicates that firms in the low subgroup decreased their CEC over time. The results of these two ANOVA tests provide additional support for our Hypothesis 2; that is, that CEC bifurcates towards two ends over time.

Discussion and Conclusion

In this study, we attempt to understand the differences in the extensiveness of CSC and CEC implementation across a population of firms from 1991 to 2003. These two sets of practices are particularly salient because they are both captured under the banner of corporate social responsibility and subject to institutional pressures and processes; CEC, especially, has strong technical attributes. As a result, the practice may not always fit with the organization. Given differences in fit, opportunities are opened for organizations to apply economic accounts, in addition to the institutional accounts that accompany CSC. As a result, we predicted and found that the extensiveness of CSC and CEC varied over time among our population of firms.

In particular, Hypothesis 1 predicted that institutional forces encourage firms to implement at least average CSC, so that firms appear “normal” or even “good.” Hypothesis 2 predicted that the technical characteristics of CEC encouraged firms to either seek a high or low position. Those that can manage high technical fit assume a strong CEC position, opening up economic and competitive opportunities. Those firms that cannot manage to fit the practices with their technical core will buffer and decouple their activities and move towards a weak CEC position. The empirical results support our hypotheses.

Contributions to institutional theory

These findings have several important implications for institutional research. First, we extend the work that recognizes that both institutional and economic accounts can apply simultaneously in diffusing innovations (Kennedy & Fiss, 2009; Lounsbury, 2007), by showing how the two forces work together. Lounsbury (2007) shows that most fields are fragmented and that multiple competing logics can exist simultaneously. The institutional environment gives meaning to economic logic, so the two accounts co-evolve. In the presence of a conflicted field, firms choose between accounts based on their attention, interpretation, and practice-organizational fit (Ansari et al., 2010; Kennedy & Fiss, 2009). Our results are consistent with these findings. We argue that institutional accounts are more consistent with CSC practices and economic accounts with CEC practices, so that both accounts can coexist. We show that the extensiveness of CSC and CEC varies over time within firms and across firms. Whereas firms tend to practice at least moderate CSC, firms tend to bifurcate in their CEC. There is one primary reason for this: the technical requirements of CEC. Ansari et al. (2010) predict that in conditions of poor technical fit, early adopters will implement less extensive versions of the practice and later adopters will implement more extensive versions. However, we argued here that in conditions of low fit, there is no reason to suggest that later adopters will implement the practice extensively at all.

Second, our study argues that technical requirements can explain more variance in the extensiveness of implementation than institutional requirements, even in the face of heavy regulatory pressures. This variance is especially salient when the technical requirements require a high degree of internal fit and are not always easy to communicate. In other words, technical fit seems to present more of the boundary condition to actions than institutional fit. This variation in the extensiveness of implementation can expose economic opportunities for firms that are able to achieve good organization-practice fit. Practices that do not impose high technical requirements, such as external contracting (Lounsbury, 2007) and shareholder value management (Fiss & Zajac, 2004), are more likely follow institutional prescriptions.

Our study suggests that social practices are more likely to lead to greater alignment between the organizational and institutional environments because of their inherently constructed nature. As a result, economic motivations and institutional forces start to align. However, in the case of technological innovations, there may be discord between field-level mechanisms and organizational-level activities. Whereas some organizations are moving in concert with the institution, others will be diverging over the long term. As a result, there are opportunities for firms to secure competitive opportunities, but the directions are unpredictable.

Our work has been able to uncover these findings because our analysis has two unique and important attributes. First, we explored two sets of practices that are very similar in institutional pressures, yet different along the technical dimension. Therefore, our context provides a natural setting in which to explore differences in the implementation and adaptation of practices. Second, our data analysis (latent growth modeling) permitted us to focus, not on the firm level of analysis (in aggregate) or the field, but on a sample population of firms, allowing us to detect variations in the extensiveness of practices across firms over time. As a result, we could assess variations in the extensiveness of implementation of practices with strong technical attributes (CEC) relative to practices with primarily social attributes (CSC).

Contributions to corporate social responsibility

We also contribute to research in corporate social responsibility (CSR). In particular, CSR research often treats social and environmental practices as different items under the same CSR construct. However, as we have demonstrated, their implementation patterns differ over time, so we call into question the theoretical similarity of CSC and CEC. In particular, the findings for Hypothesis 1 suggest that institutional forces are more dominant with CSC and the findings for Hypothesis 2 suggest that economic opportunities are more salient to the implementation of CEC. This analysis suggests that future researchers may uncover stronger results when considering the adoption and adaptation of CSC practices alone, rather than blending them under the broader CSR construct that also includes CEC.

As well, our study offers important cautionary notes on the considerable body of work exploring the relationship between CSC and CEC and financial performance (Aguinis & Glavas, 2012; Hillman & Keim, 2001; Waddock & Graves, 1997). First, we argue here that CEC practices are open to impression management because the practices can be buffered and decoupled from the organization’s technical core. As a result, firms can appear to practice CEC, but it is difficult for organizational outsiders to assess this commitment. Second, we also suggest that the economic opportunities for CEC are often fleeting. Whereas there may be a relationship between CEC and financial performance at a single point in time, the changing institutional and scientific landscape means that any economic benefits are dynamic. Further, although CSC contributes to greater alignment of organizational and institutional environments, the economic benefits are eroded as firms imitate each other’s practices.

Limitations

This study has several limitations. First, our 13-year study period, from 1991 to 2003, might not be long enough to capture the full scope of variation and underlying relationships. Stronger results or more nuances might emerge with a longer time window. For example, it is quite possible that many CSC and CEC practices are fads, as described by Abrahamson (1991), and will not be institutionalized. However, there is evidence to suggest that CSC and CEC are not merely passing management fads, but are becoming entrenched and institutionalized. Firms are increasingly engaging in stakeholder management (Shropshire & Hillman, 2007; Smith, 2003). As well, Brammer and Millington (2004) found that the drivers for corporate donations are becoming less related to profitability and more akin to institutional processes, such as corporate visibility and societal impacts. Furthermore, stakeholders are beginning to treat some CSC and CEC activities, such as workplace diversity and emissions reporting, as simply standard operating practice (Meyer & Rowan, 1977; Rivoli & Waddock, 2011). Finally, Hoffman (1999) has described the institutionalization of environmentalism in the US chemical industry, from being regulated to becoming taken-for-granted.

Second, the measures of CSC and CEC could be improved. The coarse binary nature of the KLD items does not capture actual processes of practice implementation and likely masks some of the important variances among firms’ social and environmental investments. Also, the measure of CEC in KLD data is zero-inflated; a large proportion of firms scored zero for several years, which weakens the stability of our findings in growth modeling. However, KLD continues to remain the only database of social and environmental performance data that has a wide time span for this type of study. Third, our sample focused on large public firms headquartered in the United States. These findings cannot be easily generalized to other types of firms in other cultural contexts, where the views of social and environmental issues and the institutional environment may differ.

Closing thoughts

We believe that this study has underscored the complexity that arises in the implementation and adaptation of practices over time. We have shown that some practices, such as CSC, help to build greater coherence in the institutional environment, whereas other practices that are grounded in technology and demand technical fit, such as CEC, do not contribute to this coherence, potentially contributing to institutional heterogeneity. In doing so, we hope to have advanced the conversation on inter- and intra-organizational practice adaptation.

Footnotes

Acknowledgements

We are grateful to Michael Lounsbury’s careful and supportive editorial guidance during the review process. We also thank Dr. Rajulton Fernando for helping us with the data analysis during the early stage of developing the paper.

Funding

We would like to acknowledge the financial support of the Social Sciences and Humanities Research Council (# 410-2010-1577), and the Research Grants Council of Hong Kong (CUHK 448109; GRF Grant: PolyU 548210 and PolyU 549211).

Notes

Author biographies

Pratima (Tima) Bansal is the Canada Research Chair (tier 1) in Business Sustainability at the Ivey Business School, Western University (London, Ontario). Her research brings to bear a range of theories and methodological approaches to understand sustainability. Her research has been published in the Academy of Management Journal, Strategic Management Journal, and Journal of International Business Studies, among others. She also founded and directs the Network for Business Sustainability that aims to bridge research and practice.

Jijun Gao is an Assistant Professor at Asper School of Business, University of Manitoba. His research has focused on corporate social responsibility and irresponsibility, business sustainability, and competitive advantage. He currently examines irresponsible innovations in the food industry, with particular interest in Asia and North America. Applying both qualitative and quantitative methods in research, he has published in the Journal of International Business Studies and Journal of Business Ethics, among others.

Israr Qureshi is an Assistant Professor at Hong Kong Polytechnic University. He is currently involved in various projects that investigate social innovation and social entrepreneurship in China, India, and the Philippines. His research examines the role of ICT in social inclusion; social entrepreneurship at the base of the pyramid; and the comparative study of the social enterprise sector in Asia. He applies both qualitative and quantitative methods to investigate various issues related to social entrepreneurship. He has published in MIS Quarterly, Journal of Management, Journal of Management Studies, and Organizational Research Methods, among others.

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