Proactive CSR: An Empirical Analysis of the Role of its Economic, Social and Environmental Dimensions on the Association between Capabilities and Performance

Abstract

Proactive corporate social responsibility (CSR) involves business practices adopted voluntarily by firms that go beyond regulatory requirements in order to actively support sustainable economic, social and environmental development, and thereby contribute broadly and positively to society. This empirical study examines the role of the economic, social and environmental dimensions of proactive CSR on the association between three specific capabilitiesshared vision, stakeholder management and strategic proactivityand financial performance in small and medium enterprises (SMEs). Using quantitative data collected from a sample of 171 Australian SMEs in the machinery and equipment manufacturing sector and employing structural equation modelling, we find that the adoption of practices in each CSR dimension by SMEs is influenced slightly differently by each capability, and affects financial performance differentially. The study also demonstrates the importance of the interaction between the three dimensions of proactive CSR in positively moderating the deployment of each individual CSR dimension to generate financial performance. Paying primary attention to the economic dimension of proactive CSR, and selectively focusing on social and environmental elements of proactive CSR that drive and support the economic dimension, are of key importance to sustainable long-term financial success for SMEs.

Do Entrepreneurial SMEs Perform Better Because They are More Responsible?

“…This mediating effect can be discussed with reference to the study conducted by Torugsa et al (2012Torugsa et al ( , 2013, based on a previous study by Aragon-Correa et al (2008), which analyzes the mediating effects of proactive CSR in the relationship between certain capabilities (shared vision, stakeholder management and strategic proactiveness) and financial performance. In the context of Australian SMEs in the machinery and equipment sector, these authors show that the environmental and social dimensions of CSR have no effect on performance, except when they coincide with economic objectives (e.g., cost reduction, product differentiation, and protection of firm interests).…”

“…The authors in question examined proactive CSR, whereas we adopted a broader approach regarding sustainable practices. In addition, Torugsa et al (2012Torugsa et al ( , 2013 included economic concerns (measured via the implementation of actions with a strictly economic objective) as another dimension of CSR. In the social dimension, they pooled human resource management and community practices, which we distinguished in our research, as they do not concern the same stakeholders.…”

“…The specificities of SMEs can thus be considered sources of competitive advantage when managers know how to use them to establish sustainable strategies, which have positive impacts on financial, commercial, and relational aspects (e.g., Arend 2014; Russo and Perrini 2010;Torugsa et al 2012Torugsa et al , 2013. Of course, this is not the case for all SMEs in all situations (Carroll and Shabana 2010;Dixon-Fowler et al 2013;Russo and Perrini 2010).…”

“…As proactiveness allows firms to better identify and better adapt to social mutations (Anderson 1998;Groza et al 2011), it appears to encourage the introduction of SD practices (Aragon-Correa et al 2008;Torugsa et al 2012Torugsa et al , 2013. In more concrete terms, proactiveness implies strategic monitoring of markets, clients, and governmental requirements.…”

“…Creating value for both the firm and some of its stakeholders then becomes the primary question (Spence et al 2011). In a very tangible sense, greener practices tend to decrease operating costs and, in turn, improve profitability (Reyes-Rodríguez et al 2014;Torugsa et al 2012Torugsa et al , 2013.…”