CSR as a Socially Constructed Phenomenon: Simulating the Interplay between Public Expectations and Firms' Choices

Abstract

Compliance in the domain of CSR differs from financial compliance in that mere abidance to legal rules is insufficient. By its very nature, CSR compliance is a socially constructed phenomenon. Public expectations regarding CSR evolve over time but are also driven by how the majority of firms behave. CSR non-compliance is constituted by not meeting these expectations. Firms meeting or exceeding public expectations receive a bonus in terms of public support, firms not meeting public expectations get punished, and firms respond to this by choosing their CSR engagement. Using an agent-based-model, we simulate this interaction. For firms, we presume simple decision rationales based on benefits and costs. We vary model parameters, like CSR-related costs, but also the public’s ability to perceive CSR-related out-/under-performance and the magnitude of the punishment and rewards associated with this. Of interest are CSR levels in the firm population, how firms adapt their CSR engagement, depending on the parameters chosen but also, which parameter constellations correspond to observations of CSR levels in reality. Looking at differences between a setting in which the public predominantly punishes under-performance as opposed to a setting in which the public predominantly rewards out-performance we see different implications. For constellations with a high malus for under-performance, firms which substantially lag in terms of CSR quickly catch up to avoid reputational costs. In the long run, in particular after the laggards caught up, the CSR development responds to the bonus associated with outperforming the average in terms of CSR. For constellations with a substantial bonus for CSR out-performance, firms with very low costs of CSR engagement specialize in CSR, set high initial levels of CSR engagement and constantly out-perform the rest of the population and pull the CSR average upwards. Comparing constellations with empirical data, we see that the catching-up effect can be found in the development of the CSR engagement of firms as measured by data from the Thomson-Reuters-Eikon Database, while there is no corresponding CSR escalation of high performers.