Download REGIONAL REGULATORY CHANGES PROMPT CSR STRATEGY

Research published in the Strategic Management
Journal shows that two unexpected factors
prompt companies to improve their
environmental reporting. The first is shareholder
activism at a competitor firm, and the second is
the threat of new government regulation – even if
that regulation only affects other industries.
The study was conducted by Erin Reid and
Michael Toffel of Harvard Business School. Their
goal was to determine which forces drive firms to
undertake climate change activities. To conduct
their study, the researchers used Carbon
Disclosure Project data on S&P 500 companies.
The data included CEOs’ identification of the risks
and opportunities associated with climate change
as well as official reporting on greenhouse gas
emissions.
SHAREHOLDERS (YOURS OR OTHERS’)
DRIVE VOLUNTARY DISCLOSURE
The authors found one of the most powerful
influences on corporate strategy and reporting
was shareholder resolutions at other
organizations. For example, Greenpeace, a
shareholder in Royal Dutch/Shell, launched a
protest campaign against the company for its
decision to sink the decommissioned Brent Spar
oil storage platform. Not only did the shareholder
resolution they filed address the Brent Spar
situation – it also protested the industry practice
of sinking decommissioned oil platforms into
deep-sea ridges.
The research showed that being directly targeted
by a shareholder resolution more than doubled
the chance a company would voluntarily disclose
their emissions. And every shareholder resolution
launched in the same industry further increases
the chance a firm will report.
REGIONAL REGULATORY CHANGES
PROMPT CSR STRATEGY
Companies also strengthened their CSR strategy
and publicly disclosed more environmental
information when the state in which they were
headquartered began considering more stringent
environmental regulations. The regulations didn’t
have to be formalized – or even apply to a given
company’s industry – to make firms feel
pressured enough to change their practices.
THE TAKEAWAY
Companies should view activist shareholders not
as outliers but as representatives of broader
stakeholder interests. They should also view
activist shareholders as early indicators of future
political changes. Companies should address
activist concerns sincerely and effectively before
those activists wield influence with regulators and
bring about cumbersome regulatory changes.
Similarly, companies should keep an eye out for
pending changes in legislation and regulation.
Even if they currently target other industries, the
changes might be indicative of regulations soon to
affect your industry.
IMPLICATIONS FOR RESEARCHERS
Future research could more directly examine the
attributions stakeholders ascribe to firms engaged
in different CSR activities. Research could also
evaluate how different forms and measures of
CSR activities can affect firm value. Finally,
examination of the managerial motives behind
CSR activities is needed to determine whether
managers employee CSR activities to gain
insurance protection.
Source: Paul C. Godfrey, Craig B. Merrill, and Jared M. Hansen. (2009). The relationship between corporate social
responsibility and shareholder value: An empirical test of the risk management hypothesis. Strategic Management Journal, 30:
425-445.
Summary: Denny Kuruvilla and The Network Team