Stakeholder Approach to Corporate Social Responsibility, Reputation and Business Performance

This is the authors’ final peer reviewed (post print) version of the item
published as:
Taghian,M, D'Souza,C and Polonsky,MJ 2015, A stakeholder approach to
corporate social responsibility, reputation and business performance, Social
Responsibility Journal, vol. 11, no. 2, pp. 340-363.
Available from Deakin Research Online:
http://hdl.handle.net/10536/DRO/DU:30073833
Reproduced with the kind permission of the copyright owner
Copyright: 2015, Emerald Group Publishing

A stakeholder approach to corporate
social responsibility, reputation and
business performance
Mehdi Taghian, Clare D’Souza and Michael J. Polonsky
Abstract
Purpose – This paper aims to investigate business managers’ assessment of stakeholders’ influence
on corporate social responsibility (CSR) initiatives. The key stakeholders included “employees” and
“unions” as internal and “public”, the “media” and the “government” as external stakeholders. The
purpose was to estimate the influence of stakeholders that managers perceive as important.
Moreover, the study sought to identify association between the CSR construct and corporate
reputation and in turn whether this influences business performance.
Design/methodology/approach – This study uses a mail survey with a random sampling of senior
managers sourced from Dun & Bradstreet’s Australian business database, focusing on large
organizations (i.e. minimum $10 million p.a. reported sales and minimum 100 employees) as the
selection criteria. A conceptual model was developed and tested using structural equation modeling.
Findings – The results identified that “employees” and the “public” are perceived to be the
influential stakeholder groups in CSR decision‐making. There was evidence of a positive relationship
between the CSR construct and reputation, which in turn influenced market share, but not
profitability.
Research limitations/implications – This study examined a cross‐section of organizations using Dun
& Bradstreet’s database of Australian businesses and may not fully represent the Australian business
mix. The effective response rate of 7.2 per cent appears to be low, even though it is comparable with
other research in the CSR area. There may have been some self‐selection by the respondents,
although there were no statistically significant differences identified in the corporate characteristics
of those invited to participate and those responding with usable questionnaires.
Practical implications – Managers can adopt a stakeholder‐influenced CSR strategy to generate
strong corporate reputation to improve business performance. It is important to ensure that the
interests of “employees” and “public” stakeholders are addressed within organizational strategy.
Respondents were less concerned about government stakeholders and thus government
involvement in organizational CSR may need to be revisited.
Social implications – The major concern that emerges from these findings is the absence of the
perceived importance of regulatory stakeholders on firms’ CSR activities. Regulatory controls of CSR
messages could reduce or eliminate inaccurate and misleading information to the public.
Originality/value – The analysis explains the perceived relative influence of stakeholders on CSR
decisions. It also provides an understanding of the link between organizational CSR reputation and
organization’s performance.

Keywords Corporate social responsibility, Stakeholders, Business performance, Profit, Market share
Paper type Research paper
Introduction
Corporate social responsibility (CSR) is the voluntary actions taken by firms to benefit social and
environmental causes and communicated to the organization’s key stakeholders. CSR activities have
been found to influence corporate reputation which, in turn, has been found to increase business
performance (Ackerman, 1975; Baron, 2001; Garriga and Mele, 2004; McGuire et al., 1988; Menon
and Menon, 1997; Siegel and Vitaliano, 2007; Turker, 2009; Weaver et al., 1999). Firms’ adopt CSR to
allow them to be perceived as being “socially responsible”, gaining customer and other stakeholder
support (Golob and Bartlett, 2007).
However, for any strategic activities to be effective, managers must assess stakeholders’ interests to
identify what factors are important to them (Berman et al., 1999). Stakeholder orientation requires
that firms actively monitor and engage with their stakeholder environment, which has been likened
to expanding on the traditional marketing orientation approach (Ferrell et al., 2010). Evaluating of
the role of environmental forces has long been identified as important to strategy development
(Hambrick, 1982). Firms that are more effective in understanding these forces are better able to
develop strategy and, thus, improve organizational performance (Beal, 2000).
Research has suggested that managers are also considering how stakeholders view their actions
when developing activities that have a societal influence (Miles et al., 2006; Zink, 2005), which may
be influenced by a range of individuals or institutional factors (González‐Benito and González‐Benito,
2010). However, there are many instances where organizations have incorrectly assessed
stakeholder’s interests. For example, Shell revised its decisions in regard to the sinking of the Brent
Spar oil rig and chose instead to dismantle it, directly in response to the criticism of the global
community, a key stakeholder for Shell (Wheeler et al., 2002; Zyglidopoulos, 2002).
The effectiveness of managerial actions is, therefore, dependent on how well managers understand
stakeholders’ interests and influence and how appropriately they respond to them (Miles et al.,
2006; Wing‐Hung Lo et al., 2010). As a result, prior to designing and implementing strategy,
managers should undertake a variety of marketing research and environmental scanning activities to
understand the views of their stakeholders whom they believe are important (Berman et al., 1999).
Understanding the approaches used to monitor stakeholders such as stakeholder orientation, or
environmental scanning is important for understanding the wider business environment in which
strategic CSR decisions are made. Within this paper, we do not assess the process of how managers
collect stakeholder information, but rather the degree to which managers’ perceptions of
stakeholders’ influence affect their CSR decision‐making and, in turn, its impact on corporate
reputation and through this, how it impacts on the firm’s performance. We then provide some
recommendations on the importance of managers understanding and assessing the key
stakeholders’ attitudes, sentiments and expectations and addressing the business case for CSR. The
paper also refers to how government activities and initiatives may be used to assist in encouraging
organizations to be socially responsible.
The objectives of this study are:

 to identify the extent to which key stakeholders’ influence managers CSR
decision‐making;
 to seek evidence of an association between the CSR measure and corporate reputation; and
 to identify if there is an association between corporate reputation and business
performance.
The study begins by discussing CSR, its influence on corporate reputation, and in turn its influence on
firm performance. In particular, it is argued that when CSR actions are communicated to
stakeholders, there is the likelihood that such activities influence corporate image and reputation.
Consequently, such activities need to be considered as an element of marketing communication and,
so, be free from potentially deceptive information. The suggestion is that existing marketing
communication control mechanisms need to be applied to the communication of CSR activities, even
though such activities are voluntary in nature. We then outline the key stakeholders and discuss the
components of the proposed model, which has been developed to examine the proposed
associations. The associations include identification of the stakeholders’ perceived influence on
management’s decisions, assessment of whether CSR activities influence organizational reputation
and, in turn, the impact of reputation on organizational performance. The business performance
measures are then explained. These are based on managers’ subjective assessments of changes in
performance by the respondents, rather than objective assessment of performance.
CSR and its impact on corporate reputation and firm’s performance
There is a growing interest in the theoretical development and practical aspects of CSR. Dahlsrud
(2008) has reviewed 37 definitions of CSR, most of which he suggests are generally similar in focus.
In this study, we define CSR activities as voluntary actions undertaken by organizations extending
beyond their legal obligations, providing benefits to the environment and to society (Andreasen,
1994; Turker, 2009; Werther and Chandler, 2006).
CSR has become a popular corporate practice, as well as being important for stakeholders when
assessing corporate activities (Perrini and Minoja, 2008). Motivation for the growing academic
interest is, at least partly, the result of recent global corporate problems arising from unethical
corporate behavior. The global consequence of unethical conduct has resulted in a general loss of
consumers’ trust and confidence in business practices (Minor and Morgan, 2011).
In many cases, therefore, the application of CSR initiatives may be characterized as a marketing
activity, especially if the activity is designed to influence stakeholders’ perception of the firm. In
looking at CSR as a marketing initiative, such activities would be subject to legal frameworks that
regulate the veracity of marketing activities, such as the Federal Trade Commission in the USA, and
the Consumer and Competition Commission in Australia (Golob and Bartlett, 2007). These
governmental frameworks already regulate the promotion of CSR‐related activities such as green
marketing claims (Kangun and Polonsky, 1995). There are also other international frameworks that
have an impact on CSR‐related activities, such as the International Organisation for Standardization
(ISO) social accountability standards (Miles and Munilla, 2004).
CSR can also be characterized as strategic choices that are incorporated into a firm’s business
strategy and linked to its brand personality. For CSR to be effective, it has to affect societal outcomes
as well as be expressed through corporate communications, with the intention of informing and

influencing the firm’s internal and external key stakeholders in such a way that it is seen as value
adding (Miles et al., 2006; Neville et al., 2005). Such organization‐wide action (Golob and Bartlett,
2007) is intended to promote CSR‐related claims that are often designed to influence corporate
positioning and reputation. The reputation of an organization reflects their stakeholders’ perception
of the organizational personality. This perception is formed over time based on consumers’
experiences with the company, influences from other stakeholders and corporate communications.
As such, both CSR‐related claims and corporate reputation are central to a firm’s strategic direction
(Du et al. (2010)).
Given that CSR is becoming a prerequisite for organizations to operate (Minor and Morgan, 2011),
this study builds on the theoretical perspective that a firm’s adoption of CSR is a strategic decision,
aimed at achieving specific business performance objectives rather than being pursued for purely
philanthropic purposes (Garriga and Mele, 2004). Thus, managers need to consider all their legal,
ethical and discretionary responsibilities (Burton and Goldsby, 2007), as well as how their actions will
affect all stakeholders.
Notably, the positioning of CSR as an ethical and moral responsibility of business decision‐makers
could potentially be misplaced if, as some argue, CSR activities generate additional costs without
contributing additional profits. The dilemma of additional costs contradicts the fundamental tenet of
agency, where managers should be the generators of wealth for the firm’s owners while operating
within the legal framework (Freeman and Hasnaoui, 2010; Galan, 2006; Tsoutsoura, 2004). This
raises the issue, in regard to CSR, of which issues a firm wishes to pursue (Polonsky and Jevons,
2009).
CSR activities need to be considered from a moral and ethical basis, assuming that firms self‐regulate
their CSR behavior and their communication of those activities. However, they rely on individual
managers whose personality characteristics (i.e. attitudes, upbringing, cultural background and
religious orientation) can influence the outcomes (Carroll and Shabana, 2010), resulting in variations
in practice, often within the same organization. The recent ethical breaches provide evidence of the
ineffectiveness of a self‐regulation approach to corporate behavior. The ineffectiveness of self‐
regulation has prompted a debate on stronger governmental regulation to protect the economy,
businesses and consumers, from inappropriate behavior (Kemper and Martin, 2010). In addition, the
growing importance to consumers of social issues such as the environment has resulted in
businesses actively adopting CSR activities that are designed to resonate with both the brand and
the firms’ consumers (Bigné et al., 2012), thereby improving consumers’ perceptions of the firm (Ben
Brik et al., 2011).
Targeting of consumers’ perceptions through improvements of firm’s corporate reputation might
suggest that CSR is a strategic philanthropy tool and is more about corporate profits than social
responsibility (Carroll and Shabana, 2010) whereby “doing good” is undertaken in a way that
achieves the most corporate benefit rather than focusing on societal benefit. As a result, such CSR
activities would be a reactive tactical tool rather than a proactive strategic and positioning approach
(Faulkner et al., 2005). Given that firms’ CSR strategies should be driven by both business and
societal objectives, it is critical that they involve managers who assess and react to the sentiments of
organizational stakeholders that most strongly influence their business activities (Albareda et al.,
2008; Minor and Morgan, 2011; Moon, 2004). Although, as has been mentioned earlier, these
strategies also assume that managers effectively assess stakeholders’ interests (Berman et al., 1999;
Wing‐Hung et al., 2010).

The organization’s identity in the minds of the corporate stakeholders can be considered its
reputation or corporate identity. As such, firms societal activities play a critical role in shaping how
stakeholder’s assess organization’s reputation (Lii and Lee, 2012) and this in turn impacts on
corporate performance (Lai et al., 2010). Corporate reputation has been referred to as a collective
judgment of a corporation over time (Barnett et al., 2006). Reputation influences how stakeholders
assess the corporation and it enables consumers to make comparisons with other organizations. The
firm’s corporate reputation also creates expectations in regard to actions aligning with its
reputation. Research has indicated that there is an association between corporate reputation and
business performance, in other words, the more positive the reputation, the higher the performance
(Fombrun and Shanley, 1990; Lai et al., 2010; Neville et al., 2005). Given CSR activities affect
corporate reputation (Bertels and Peloza, 2008; Lai et al., 2010), it is important to investigate
whether or not improved corporate reputation through stakeholder engagement increases business
performance.
Key stakeholders
Stakeholder theory asserts that managers need to consider the values, sentiments and expectations
of their key stakeholders, where a stakeholder is any individual or group that has a “stake” in the
firm and “can affect or be affected by the achievement of an organization’s objectives” (Freeman
and McVea, 2001, p. 4), either as a claimant or influencer (Fassin, 2008). Managers design strategy
and corporate actions, including CSR actions, to address or respond to what the managers believe
are their key stakeholders’ expectations (Clarkson, 1995; Dawkins and Lewis, 2003; Donaldson and
Preston, 1995; Maignan et al., 2005; Wing‐Hung Lo et al., 2010). Researchers have identified that
any firm can focus on meeting stakeholders’ expectations (i.e. being stakeholder‐oriented) and that
such strategy potentially enhances business performance (Bhattacharya and Korschun, 2008; Bosse
et al., 2008; Ferrell et al., 2010; Phillips et al., 2010; Rivera‐Camino, 2007).
Research has classified stakeholders in a number of ways (Clarkson, 1995). In this study, de
Chernatony and Harris’s (2000) approach for classifying stakeholders as internal or external has been
used. Internal stakeholders include managers, shareholders, company employees and labor unions.
External stakeholders comprise the general public (i.e. the community and local residents), media
and the government. The following sub‐sections briefly describe key internal and external
stakeholders, and their influence on CSR activities.
Internal stakeholders
Internal stakeholders are those groups who directly participate in the operation of the business
(Aaltonen, 2011). They comprise managers, employees and labor unions.
Employees and managers
Internal (primary) stakeholders are perhaps the most influential groups in a business enterprise
(Masden and Ulhoi, 2001; Rupp et al., 2006). They directly participate in the formation, design,
structure and conduct of a business. The managers’ and employees’ levels of motivation, loyalty and
organizational support are crucial if stated goals are to be achieved. Employees’ attitudes toward the
organization may also influence the external stakeholders’ perceptions about the firm (de