Academic journal article International Journal of Business

What Relation Exists between Corporate Social Responsibility and Longevity of Firms?

Academic journal article International Journal of Business

What Relation Exists between Corporate Social Responsibility and Longevity of Firms?

Article excerpt

ABSTRACT

The relation between company longevity and its performance is undeniable; however the relationship between sustainability and performance remains the subject of multiple studies which seem to confirm a positive link. But what type of relationship exists between a firm's longevity and sustainability management? In this paper, we demonstrate that the adoption of corporate social responsibility (CSR) principles explains this link. Therefore, sustainable development policies can create a rampart wall which protects firms against crisis through its three pillars (environmental, social and economic) and thus limit the number of enterprises which go bankrupt. This rampart wall would be even more effective if the principles of sustainable development which companies adopt were guided by a suitable mix of softlaw and hard law.

JEL Classifications: G32, G34, M14

Keywords: longevity; CSR; crisis; performance; governance, sustainable development

I. INTRODUCTION

Increasing profits has been a truism for firms since the beginning of the industrial revolution1. Obtaining good financial performances was generally more important than worrying about how these results were reached. However, several factors have changed this rule: a series of environmental catastrophes, bankruptcies due to flaws in ethics or governance, an increase of sustainable development practices, as well as the rise of shareholders' engagement. Over the last decades, the multiplication of crises (financial, economic, social, food and climate) have showed that the prosperity and welfare of firms cannot be dissociated from social and environmental contexts. Thus, more and more companies have decided to incorporate sustainable development principles, referred to as "Corporate Social Responsibility" (CSR) into their strategy. For firms which want to grow, or just thrive and survive in a period of economic crisis, when the rate of companies going bankruptcy rate of companies is strongly increasing, various long-term contributions such as human, financial and natural resources (including materials and energy) are necessary. Today, after a recession and with an economy which is having difficulties rebooting itself, shouldn't the objective of firms consist in ensuring their own long-term viability, by maintaining a durable access to financial, social and human resources? In other words, what relation exists between the sustainability and the performance of firms, but also between their longevity and their sustainability? Moreover, putting forward the existence of a strong relation between the longevity and the sustainability of firms should make it possible to show that the integration of CSR in the strategy of firms will give them a stronger aptitude of surviving in a changing environment and crisis.

II. IS THERE A RELATIONSHIP BETWEEN LONGEVITY, SUSTAINABILITY AND PERFORMANCE?

The link between the performance of a company and its longevity is obvious. Indeed, only high-performing firms over a long period are able to overcome an evolving environment, the risks of market and crisis. Thus, centenary firms represent a minority that share, whatever the branch of industry, some common characteristics and values that we try to highlight. In parallel, many studies have investigated the relationships among social performance, and financial performance (Scholten, 2008). In particular, the meta-analysis of Wu (2006) made the synthesis of 121 empirical studies and proved the positive link between corporate social performance (CSP) and corporate financial performance (CFP) even if the results strongly depend on the type of measures chosen: "market-based measures are weaker predictors of CSP than other financial measure and, perceptually based measures reported a stronger CSP-CFP relationship than performance based measures". Taking into account the apparently positive relation between CSP and companies' financial performance, we then consider the link between longevity and sustainability. …

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