Barnett (2005)

Barnett, Michael L. "Stakeholder influence capacity and the variability of financial returns to corporate social responsibility." Academy of Management Review, forthcoming (October 2005 version).

This thoughtful theoretical paper addresses several open questions in the dialogue around corporate social responsibility and stakeholder relations. Barnett succinctly summarizes the view of many management researchers: "A large and ever-growing body of literature has investigated whether the financial benefits to the corporation can meet or exceed the costs of its contributions to social welfare. If so, [corporate social responsibility] can be justified as a wise investment; if not, [it] can be condemned as an agency problem. The result: after more than 30 years of research, we cannot clearly conclude whether a one-dollar investment in social initiatives returns more or less than one dollar in benefit to the shareholder."

A more nuanced approach is required to make sense of this, he argues, and in particular it would be helpful to better understand "the underlying drivers of whether and when particular firms may earn positive returns from CSR; in short, to make the business case firm-specific, not universal."

To help address this challenge, Barnett introduces the concept of 'stakeholder influence capacity' (SIC) to help explain variation in the relationship between corporate social responsibility and corporate financial performance. SIC is and "an overall assessment of 'the soul of a business'," or, more formally: "the ability of the firm to identify, act upon, and profit from opportunities to improve stakeholder relationships through CSR."

In this view, corporate social responsibility influences corporate financial performance indirectly through the intangible asset of SIC. SIC acts as a kind of account of cumulative goodwill from all stakeholders - "a record of social performance...accrues, forging a firm's SIC stock..."

One implication of this line of thought is that the financial impact of a particular CSR project may be large or small, depending not only the characteristics of that particular project, but on the firm's cumulative track record of social responsibility. Barnett also notes that "trust is an asset that is built slowly, but destroyed quickly. If it is revealed that a CSR activity was insincere or fraudulent, any trust gained from the CSR act will be lost, and the firm's stakeholder relations may be seriously degraded."

This is an interesting 'think piece' - highly recommended.