Examining the Link between Strategic Corporate Social Responsibility and Company Performance: An Analysis of the Best Corporate Citizens

Using KLD data on the performance of 188 companies over a three-year period in seven areas of corporate social responsibility (CSR) – environment, community, corporate governance, diversity, employee relations, human rights, and product quality – this study examines whether CSR initiatives have a greater impact on company performance (CP) if the company prioritizes the CSR issues that matter most to it and approaches CSR initiatives in a strategic way, than if it approaches them based on generic rationale unrelated to the company's strategy. The results show that when a company pursues CSR initiatives that are linked to stakeholder preferences and allocates resources to these initiatives in a strategic way, the positive effect of its CSR initiatives on CP strengthens in terms of both market-based and accounting-based measures of performance. However, this relationship was not observed across the board for all of the seven areas of CSR. The main conclusion of this study is that companies need to link their CSR initiatives to the likely preferences of their stakeholders and undertake the corporate social actions that are relevant to the company's strategy