Are theories on CSR becoming a self-fulfilling prophecy?

Assistant Professor RSM and the Dynamics of Inclusive Prosperity Initiative

Theories on corporate social responsibility (CSR) matter because they influence the behaviour of actors. If actors believe that a theory is true, they may change their behaviour in line with the theory. A new theory may thus become a self-fulfilling prophecy even if it was initially only partially “true”.

Imagine a manager in an executive MBA who becomes fascinated by transaction cost theory. This theory postulates that employees will behave opportunistically. Back at her company, this manager sets up controlling mechanisms to monitor her employees and to curb opportunism. Yet, monitoring demotivates employees because they do not feel trusted. Extrinsic motivation crowds out intrinsic motivation. Once the intrinsic motivation is gone, employees will behave more opportunistically, and the manager will see the assumption of transaction cost theory (that employees behave opportunistically) confirmed. However, this whole process only started because the manager started using the theory in the first place. In their now classical paper, management scholars Sumantra Ghoshal and Peter Moran take this example to illustrate how theories can become self-fulfilling.

In a recently published paper, my co-author Jean-Pascal Gond and I build on this idea to explore how theories on CSR may influence the mainstreaming of CSR. Over the last 40 years, management scholars have written over 200 papers on whether CSR makes companies more profitable. Finding a positive link between CSR and financial performance has been described as the “holy grail” of business-society research. After 40 years of research, scholars have not found a definite “proof” for the business case of CSR.

Yet, even if theories may initially not be “true,” they can still change the behaviour of business actors and thereby, over time, become self-fulfilling. In our paper, Jean-Pascal and I delineate this process in three steps. In Step 1, companies that believe in theories postulating that CSR pays out start experimenting with new CSR activities. For instance, a company may hire more people from disadvantaged minorities. In Step 2, the experimentation produces anomalies, which are widely observable events that contradict conventional wisdom but align with the new theory. For example, companies that hire people from disadvantaged minorities may become more innovative. In Step 3, the anomalies convince initially unconvinced actors that the new theory is valid and thereby shifts their practices toward CSR.

Emilio Marti – Assistant Professor Rotterdam School of Management

Jean-Pascal and I see some evidence that such a process may be happening. If so, the rules of the game within the economy will change over time. Once customers, shareholders, and other stakeholders believe in the theory that CSR pays out, they will favour companies that employ people from disadvantaged minorities based on the theory that these companies will be successful in the future. Meanwhile, stakeholders will shun companies that do not heed the new theory—again, based on the theory that the latter companies will fare badly. Through this process, theories can become “true” over time. Put differently, theories on CSR will have become a self-fulfilling prophecy.

More information

This blogpost is written by Dr. Emilio Marti and is the second blogpost in a series by the Erasmus Initiative Dynamics of Inclusive Prosperity. 

Emilio Marti is an assistant professor in the Business-Society Management Department at the Rotterdam School of Management (RSM).

Emilio’s research focuses on how pressure from shareholders makes companies more or less sustainable. For example, with Tanja Ohlson, he currently conducts an ethnography at a London-based shareholder engagement fund to explore the conditions under which shareholder engagement can make companies more sustainable. Emilio also explores, with Mark DesJardine, the potentially problematic interplay between pressure from activist hedge funds and the CSR activities of companies.

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