This cross-country study argues that corporate social responsibility (CSR) has an internal as well as an external focus: although the internal aspect has been less carefully examined in the literature, ‘doing good’ for society necessarily involves treating employees properly. Focusing on this internal aspect of corporate social responsibility, we investigate how firm and country characteristics affect the likelihood of a firm having a CSR statement and how it impacts the way such firms treat their internal stakeholders and their staff. In particular, our paper examines employer-employee interdependence – how the existence of a CSR statement affects a firm’s investment in its staff and the downsizing of its workforce when required – according to types of firms and legal families.
The following research questions are addressed:
- Are publicly listed firms more likely to have a CSR statement?
- Are multi-national enterprises (MNEs) more likely to have CSR statements than their domestic peers?
- Using the La Porta et al. classification of legal families, are firms in common law countries less likely to have a CSR statement?
- Finally, is there a correlation between the existence of a CSR statement and higher levels of employer-employee interdependence?
Our study benefits from the extensive survey data collected by the Cranet network. We examine the practices of more than 4000 firms from 30 different countries included in the 2009/10 wave of the Cranet survey. The survey covers firms with more than 100 employees in all major sectors in each country. It focuses on Human Resource Management practices and policies. Given the sensitivity of the questions asked, responses are anonymised, which means it is impossible to match the survey data with financial data, but the survey does offer two major advantages. Firstly, it includes both listed and unlisted firms, allowing us to differentiate between them. Secondly, it includes granular data on employment practices - for example, the Employment Change index distinguishes seven different ways companies may downsize their workforce and offers detailed data on the extent of training.
Results show that firms in civil law countries are more likely to have CSR statements, and that this is associated with greater employer-employee interdependence. The study therefore confirms the relevance of the country’s legal family to CSR. There are weaker incentives for socially responsible behaviour in common law countries. This contrasts with the existing literature, which suggests that the opposite should be the case: as reputational crises are less likely in civil law countries, there should be less need for CSR statements which are intended, at least in part, to mollify investors. Implied here is a synergy between civil law and social responsibility in firms.
On the other hand, the study also finds that firms with higher scores on the La Porta et al. (2008) investor rights index were more likely to have a CSR statement. This suggests that the investor rights index and legal origin are not interchangeable and are in fact measuring different things. We found that listed firms were more likely to have a CSR statement. This suggests that shareholders do worry about their firm’s reputation and do not necessarily equate CSR with a waste of resources. We also found MNEs were more likely to have CSR statements. This contrasts with existing studies which suggest that MNEs drive down standards rather than lead by example.
Clearly, national corporate governance systems are more complex and multi-dimensional than some theories might suggest. La Porta et al. (2008) choose to depict German and, above all, Scandinavian legal origin as diluted forms of civil law in order to account for their strong economic performance. However, features of each might suggest that they in fact allow for greater stakeholder influence: strong unions in Scandinavia and a strong system of workplace co-determination in Germany. Shareholder versus stakeholder rights may not represent a zero-sum game. Strong stakeholders may drive firms to improve labour standards or to be more socially responsible without necessarily leaving shareholders worse off. Or perhaps the broad taxonomy derived by La Porta et al. (2008), centering on legal origins, does not provide an accurate description of many economies.
Marc Goergen is Professor of Finance at the Cardiff Business School and a Research Associate of the European Corporate Governance Institute.
Salim Chahine is Professor of Finance at the Oslayan School of Business, American University of Beirut.
Geoffrey Wood is Dean and Professor of International Business at the Essex Business School.
Chris Brewster is Professor of International Human Resource Management at the Henley Business School, University of Reading.