Why Steve Jobs Avoided CSR: The Impact of CSR on Innovation

Abstract

This study aims to explore the relationship between corporate social responsibility (CSR) and innovation. We differentiate between two types of CSR: ESG (environmental, societal and governance), which addresses remote stakeholders’ interests, and employee-related CSR, which addresses internal stakeholders’ interests. Fixed-effects panel analyses on approximately 1,000 U.S. public manufacturing companies for the 2001-2012 period reveals that while increasing employee-related CSR exhibits a positive impact on firm innovation, increasing ESG leads to significantly lower innovation output. An instrumental variable approach and a difference-in- differences approach both confirm that increasing ESG indeed leads to decreased innovation output. Furthermore, supplementary analyses rule out alternative explanations such as resource allocation or shifting to quality innovation. We contend that although employee-related CSR enhances firm innovation, ESG may distract attention and create cognitive complexity for managers and employees. Our study suggests that firms should carefully design and implement their stakeholder strategies.