Corporate Social Responsibility and Strategic Performance: Realizing A Competitive Advantage through Corporate Social Reputation and a Stakeholder Network Approach

This study provides an exploratory investigation of the link between Corporate
Social Responsibility (CSR) and Firm Competitive Advantage. It poses two primary
research questions (1) What valuable and rare resource does the firm acquire through
CSR? and 2) How does the firm's approach to stakeholder management influence its
ability to protect and enhance the value of this resource? Corporate Social Reputation,
the perception of the firm by its internal and external stakeholders, is argued to be the
valuable and rare resource that CSR provides. By building positive stakeholder
relationships through CSR the firm is able to positively influence stakeholder assessment
and gain 'reputational capital'. The value of reputational capital lies in its ability to
promote operational efficiency and engender product differentiation, which independently as well as in tandem, grant firms superior performance over their
competitors.
Corporate Social Reputation is also expected to be positively influenced by the finn's
adoption of a 'network' approach to stakeholder management. Two specific network
attributes: extensiveness and consistency are argued to promote reputational capital
growth. Network Extensiveness is determined by the number and diversity of firmstakeholder
relationships, whereas Network Consistency is concerned with the variability
of firm behavior across its entire stakeholder network.
The hypothesized model was evaluated via a longitudinal study of one hundred
and fifty eight firms from multiple industries. Structural Equation Modeling (SEM) was
employed to assess path coefficients as well as the goodness of fit of the measurement
and structural models.
The results provide support for the positive influence of CSR on Corporate Social
Reputation, but no support for a significant relation between either Network
Extensiveness or Network Consistency and Corporate Social Reputation. Also, the results
indicate that Corporate Social Reputation directly, positively and significantly contributes
to a firm's ability to achieve and sustain a Competitive Advantage for both an internal
(Return on Assets) and external (Tobin's q) measure of firm financial performance.
Further, the findings suggest that the contribution of CSR to financial performance may
be indirect and facilitated through a step-wise process which requires the attainment of a
positive and superior Corporate Social Reputation before Competitive Advantage can be
achieved.