CORPORATE SOCIAL RESPONSIBILITY

Paul C. Godfrey*

THE DYNAMICS OF SOCIAL RESPONSIBILITY: PROCESSES,

POSITIONS, AND PATHS IN THE OIL AND GAS INDUSTRY

A BSTRACT

I use corporate strategy concepts and tools to focus on the dynamics of firm social initia-
tives and actions over time. I examine the different paths and positions taken by firms,
and the processes that may underlie such paths and positions. My sample comprises 19
firms in the oil and gas industry, and covers the decade from 1991-2000. I use an explor-
atory approach that mixes qualitative and quantitative cluster analysis as the primary
tools to examine this industry, and to isolate and examine distinct social responsibility
positions and paths taken by these firms. I also provide evidence about which theoreti-
cal processes seem to best explain these choices.

JEL-Classification: M14.

Keywords: Cluster Analysis; Corporate Social Responsibility; Oil and Gas Industry.

1 I NTRODUCTION

Corporate Social Responsibility (CSR) comes under the heading of corporate strategy,
because it considers how a firm chooses to deal with important elements of its operating
environment, and the performance consequences of those choices. As a field within the
management disciplines, social responsibility has been around for the last half-century,
since the New Jersey Supreme Court allowed corporate philanthropy as a legal and appro-
priate use of corporate profits.

The academic discussion on CSR and other social initiatives can be understood by asking
the journalists’ questions: who, what, when, where, why, and how. CSR scholarship has
typically focused on the “why” and “what” questions.

The “why should firms be socially responsible” question has three answers. First, some
scholars proposed a positive CSR-Corporate Financial Performance (CFP) relationship
through instrumental stakeholder management or strategic philanthropy (Jones (1995);
Post and Waddock (1995)), under which a firm uses its CSR activities to build competi-

* Paul C. Godfrey, Marriott School of Management, Brigham Young University, 789 TNRB, Provo, Utah 84602.

208 SBR 59 July 2007 208-224

 CORPORATE SOCIAL RESPONSIBILITY

tively valuable, and ultimately profitable, relationships or intangible assets with key stake-
holder groups. Another line of scholarship views stakeholder responsiveness as threat
mitigation and neutralization (Mitchell, Agle, and Wood (1997)), where CSR activities
work to forestall troublesome, time consuming, and potentially costly action by stake-
holders against a firm. Finally, those who argue from within a business ethics tradition
present some form of a moral obligation as the foundation for CSR. Business Citizen-
ship, the newest iteration in this stream, sees CSR as a manifestation of an institutional
and moral obligation to social involvement by corporations as citizens of local, national,
and global polities (Logsdon and Wood (2002)).

The “what is CSR” question has engendered much thought, writing, and confusion.
Carroll (1999) catalogues 25 distinct operating definitions of CSR in the literature. How
scholars define CSR greatly influences both the arguments for involvement and the exis-
tence of any relationship with financial performance (Margolis and Walsh (2001)). Indeed,
the relationship between CSR and CFP may be an artifact of how scholars define CSR as
any underlying phenomenon in the business world. I define CSR as actions that are not
required by law but appear to further some social good, and which extend beyond the
explicit transactional interests of the firm (McWilliams and Siegel (2001)).

The “who” in CSR is taken to mean managers and decision makers who influence the
when, if, where, and how much of a corporation’s resources, such as time, money, exper-
tise, will be allocated to social issues. In their book, Margolis and Walsh (2001) argue that
the focus on the Why and What of CSR has created a morass of conflicting theories and
findings. A focus on the What and How questions that can help guide managers in specific
decisions about what CSR activities a firm should pursue, how these may be implemented,
and what the results may be.

In this paper I use corporate strategy concepts and tools to focus on the dynamics of firm
social initiatives and actions over time. My goal is to provide some initial understanding
into the different paths and positions taken by firms, and the processes that may underlie
such paths and positions.

I begin with three sets of questions: 1) Where do firms position themselves in CSR space?
Drawing on diversification research, how can we categorize firms in terms of social initia-
tive participation, in a single domain focus or diversified across several domains? 2) How do
firms move over time? Do they move often, or only occasionally? What defines the paths they
follow? Do they broaden or deepen commitments? 3) When do firms move between areas of
focus? Answers to these questions frame a real dialogue over the dynamics of CSR, not just
glaze over the cross-sectional correlation between CSR and some measure of financial perfor-
mance. My intention is to add value to any of the overarching “why” theories – a better under-
standing of dynamics that may yield good insights into CSR-CFP relationships or stakeholder
management issues. I focus on an overall research question to guide this inquiry: How do firms
that are facing similar environmental pressures respond and position themselves the CSR arena?

I begin by outlining the theorized drivers of CSR initiatives by firms, and defining the key
configurations that we might expect to find if these theories form the underlying processes

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 P. C. GODFREY

of CSR. Next, I describe my method, data, estimation procedures, and results. In the final
section I consider the implications of my study of the oil and gas industry on the various
theoretical processes that could explain the pathways firms take and the positions they
occupy in the social initiative arena.

2 THEORY D EVELOPMENT

Profit-maximizing rules require that the default position be one of no involvement in social
activities that do not tangibly affect the firm’s bottom-line profits (Friedman (1970); East-
erbrook and Fischel (1991); McWilliams and Siegel (2001)). Further, these rules require
that managers should focus on earning profits for shareholders and then return those profits
either in the form of dividends or new investments in positive cash-flow generating proj-
ects. Such managers should only engage in CSR activities when the costs of such activities
exceed the expected costs of not engaging in such activities. Stakeholder pressure, either
explicit pressure in the form of negative activities such as boycotts, lawsuits, or regulatory
pressure (Mitchell, Agle, and Wood (1997)), or implicit stakeholder pressure in the form of
a willingness to pay for, or punish the lack of, CSR activities from shareholders, customers,
or suppliers (Jones (1995); Rowley and Berman (2000); Wood and Jones (1995)), create
economic demand for firms to satisfy social stakeholder demands. Whetten, Rands, and
Godfrey (2001) show that stakeholder response strategies have migrated from primarily
government-oriented activism (legislation and lobbying) in the 1960s and -70s to market-
oriented activism (boycotts, public relations, lawsuits) in the 1990’s, creating both explicit
and implicit pressure on firms to be active in social issues. Alternatively, managers may
engage in CSR activities even without economic incentives. Social norms, pressures for
perceived legitimacy, and ethical values or climates may create institutional pressure for
firms to engage in CSR activities.

Positions and paths can be driven by the nature and scope of these economically based
stakeholder demands or the institutional environment firms operate within. Following
Duncan’s (1972) early description of a firm’s operating environment, stakeholder demands
or institutional pressures can manifest in stakeholder actions that can be characterized as
simple (few demands focused in a narrow social domain, e.g., labor relations, environ-
mental stewardship) or as complex (many demands spanning several domains of social
concern).

The responses of firms to such demands or pressures should be driven by one of four basic
models, two based on the efficiency or economic profit motives of managers, and two
based on managerial responses to ethical norms and institutional pressures.

2.1 E CONOMIC- BASED , OR E FFICIENCY, R ESPONSES

The search for competitive advantage means that managers believe in the old saying that
“doing good leads to doing well.” Firms use CSR to create reputational or other intangible
competitive advantages (e.g., loyalty and commitment among employees, trust between

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 CORPORATE SOCIAL RESPONSIBILITY

supply chain partners, and brand loyalty by consumers). These intangible sources of value
arise from the positive moral capital that CSR builds among affected stakeholder groups.
Godfrey’s (2005) description of the development of positive moral capital implies that for
a firm to gain a competitive advantage through CSR, the firm must be seen as proactive,
for surely CSR actions seen as remedial are likely to be perceived as ingratiating attempts
that do not signal, but rather obscure, underlying character traits or dispositions. For
example, Denny’s and Nike’s efforts in CSR often seem tainted by the remedial nature of
their activities—blood money for past sins such as racist policies or abusive labor prac-
tices. Under this model, managers have no inherent commitment to social responsibility,
they are only interested in investing the firm’s money in areas where it may produce poten-
tial competitive advantages or profits. CSR activities may yield competitive advantages
in terms of reputation capital. However, Jones (1995) argues that differentiation requires
maintaining commitment over the long term.

Stakeholder response models follow the dicta that say “the squeaky wheel gets the grease” or
“doing good avoids doing poorly.” Firms engage in CSR activities to forestall powerful, legit-
imate stakeholder demands for action. Managers have no inherent commitments to social
responsibility, only to managing stakeholders so as to avoid problems or disruptions. CSR
positions appear symmetrical to stakeholder pressure positions. Firms that function in a less
complex stakeholder environment engage in CSR if there are a similarly less complex set of
CSR activities (such as few corporate initiatives focused in a narrow social domain), while
firms facing more complex stakeholder environments respond with a symmetrical, more
complex, strategy (a number of social initiatives spread over several social domains).

2.2 I NSTITUTIONAL , OR S OCIALLY - BASED , R ESPONSES

Mimetic isomorphism holds that firms will play “follow the leader” in terms of CSR activ-
ities, paths, and positions. Social-issues pressure from stakeholders creates uncertainty
and complexity in the firms’ operating environments, so firms mimic CSR activities of
industry rivals to reduce uncertainty and gain legitimacy (DiMaggio and Powell (1991)).
Doing so also provides apparent action and foresight, even though a firm may have no
deep commitment to the social initiatives in which it engages (Meyer and Rowan (1991)).
Under this regime, to create a common foundation of what constitutes acceptable social
involvement firms might calibrate their CSR activities to be similar to each other in terms
of the breadth and number of social initiatives (with some minor natural variation).

Firms may engage in social activities for normative reasons, because the firm’s managers,
stakeholders, or investors truly believe that firms have an institutional role to play in
solving social problems, and that they are in fact good corporate citizens of their commu-
nities. To fulfill their duty to be good corporate citizens, firms that act from a normative
motivation are likely to engage in a complex set of social initiatives (many activities in a
broad area).

Because of the exploratory nature of this paper, rather than present formal hypotheses
for testing, I provide Figure 1, which displays the expected distribution of firms in the

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 P. C. GODFREY

social responsibility space according to each potential response. Each axis follows Duncan’s
(1972) framework of environmental complexity: both firms and stakeholders may choose
either a simple (few activities, narrow scope) or complex (many activities, broad scope)
set of CSR activities in their profile.

Figure 1: A Map of Expected Configurations by Theoretical Explanation

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Firms that search for competitive reputational advantages might wish to be seen as proactive,
out ahead of stakeholder demands and concerns, as shown in Panel A of Figure 1. Panel B
represents the distribution of firms under a stakeholder management model. In this model,
firms in a less complex environment respond with a less complex activity set, and those in
more complex environments exhibit more complex responses. Panel C illustrates the distri-
bution under mimetic isomorphism: there is only one circle, and the exact location of that
circle depends primarily on the level of stakeholder complexity. However, the bottom line
is that firms tend to cluster their responses near each other as each looks to the other to
imitate a legitimate social profile. Panel D shows the distribution under the business citizen-
ship model. In this model, firms engage in high levels of social activity across a number of
domains, regardless of the level of stakeholder pressure and complexity. For firms in a rela-
tively simple stakeholder environment, a high level of social involvement represents experi-
mentation in social initiatives, but responses to a complex stakeholder environment indicate
common responses in the presence of universal values (Wood and Logsdon (2002)).

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2 M ETHOD AND D ATA

2.1 M ETHOD

Since the dynamic issues of movement and positioning within the social space are rela-
tively unstudied, I use an exploratory approach that mixes qualitative and quantitative
cluster analysis as the primary tools to examine the case of the oil and gas industry.
Following Yin (2002) I set up my study as an embedded, multiple-case study. “Embed-
dedness” refers to case studies that examine phenomena from multiple levels of analysis.
In this study I focus on the industry and strategic group level of analysis. I use a multiple-
case design because I include several units (firms) of analysis.

2.1.1 S ET TING

The oil and gas industry comprises two major segments, exploration/production and
refining/marketing. Firms can choose to compete in either segment, or, as many of larger
industry players do, compete in both segments simultaneously. The industry is both envi-
ronmentally (extraction, damage, and degradation to landscapes, oceans, and wildlife)
and socially (monopolistic, centrality to economy, consumer pricing) sensitive. Firms in
this industry compete for scarce resources in factor markets (drilling leases) but produce
a commodity for end use in consumer markets.

Since the oil and gas industry has had a long history of stakeholder scrutiny (including
government regulators), I anticipate that stakeholder pressures will be fairly uniform.
The time frame of the study is 1991-2000. 1989, the year of the Exxon Valdez oil spill,
marked a watershed year for the industry. The massive spill brought renewed attention and
activism around CSR in the oil and gas industry. Exxon and Mobil merged in 1999, and
by 2000 several other large companies had merged, creating a new segment, the Super-
majors. In this study I consider industry responses previous to the advent of the Super-
majors as a definable competitive segment in the industry.

I obtain my sample of firms from the Socrates data set, which is constructed and distributed by
the investment firm of Kinder, Lydenburg, and Domini. KLD independently tracks and rates
firms in the S&P 500 on several positive and negative social activities and issues, including
data for 31 firms in the two four-digit SIC codes comprising the oil and gas industry. My data
sample comprises 19 firms with more than six years of data in the KLD Socrates database. I
eliminated firms with fewer years, since my central interest is in behavior over time. I believe
this many years speak meaningfully of long-term movements. I collect archival data for finan-
cial, operating, and activity data on each of the19 firms in the sample.

2.1.2 P OSITIONS

The traditional view is to create a “net” CSR score for each firm by adding a firm’s positive
CSR activities and subtracting negative responses by stakeholders to arrive at an overall

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 P. C. GODFREY

net contribution. (See Waddock and Graves (1997) and Hillman and Keim (2001) for
examples of this type of CSR measure.) For example, in the mid-1990s, the Walt Disney
Company announced its intention to offer health care benefits to the same-sex partners
of its employees. The move was hailed by diversity advocates, but pilloried by religious
conservatives, who urged a boycott of Disney products, both filmed entertainment and
theme parks. Thus, Disney would receive a strength score for promoting diversity, but
also a concern score for being subject to a consumer boycott. Under a net-score regime,
Disney’s score would be zero, no net social effect of this action. This construction seems at
odds with accounts provided by both diversity advocates, who hailed the move as visionary
and positive, and religious conservatives, who decried the move as a symbol of decaying
social values. Clearly, Disney’s actions were not socially neutral.

Closely related the net-score process is the aggregation of CSR domains into a single
measure. This aggregation obscures the many activities, policies, and action choices avail-
able to managers and executives as they consider social involvement. Aggregation can also
discount or avoid the fact that firms may have different areas of focus, and may be forced to
make tradeoffs in their social activity set. On the other hand, managers like to be involved
in all areas, so the realities of limited resources lead management to prioritize and make
tradeoffs among different social domains. Aggregation proves problematic because it assumes
that all stakeholders view CSRs in the same way, or even that all stakeholders view all issues
as important. I agree with those studies that note that stakeholders often have deeply held
and very distinct notions of what constitutes CSR (Wood and Jones (1995); Rowley and
Berman (2000); Rowley and Moldoveanu (2003)).

Conceptually, I decouple the aggregated and netted construct of CSR into two compo-
nents, endogenous policy choices made by managers who allocate resources to social activ-
ities, and exogenous choices made by stakeholders. Although the two groups are often
linked, each one has discretion about whether, when, and how, to respond to the other.
This disaggregation allows me to position firms along two dimensions, their own choices
around socially responsible activities and stakeholder choices and responses. Thus, I should
be able to see more clearly the interactions between two separate sets of actors that have
previously been collapsed. By disaggregating CSR into its relevant domain components,
I also have a set of coordinates to position firms and stakeholders on a map in n-dimen-
sional space. Rather than firms all being judged against one ideal CSR profile, I can cate-
gorize firms by the numbers of different domains in which they are active, i.e., from
single-issue firms to diversified firms engaged in multiple CSR domains.

2.1.3 PATHS

Although little work has been done in describing how firms move over time, vector algebra
provides the conceptual foundation for mapping movement in a multidimensional space,
the Euclidean distance between a firm’s CSR vectors at different points in time. I choose for a
reference coordinate a firm that makes no endogenous choices to participate in CSR activities.
Euclidean distance can provide an initial distance from that referent and capture movement in
this multidimensional space, giving a clear indication of the various pathways firms take.

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 CORPORATE SOCIAL RESPONSIBILITY

2.2 DATA AND VARIABLES

To describe a firm’s social performance in ten major social issue domains, the Socrates
database assesses companies along 41 component measures. Each component measure is a
discrete variable, coded one for the presence of the indicator, and zero otherwise. Domain
scores are computed by summing the individual measures for the relevant dimension. The
major domains are Community (Strength and Concern), Promotion of Diversity (Strength
and Concern), Employee Relations (Strength and Concern), Environmental Stewardship
(Strength and Concern), and Product Quality (Strength and Concern).

I begin by coding each of the 41 core measures as endogenous or exogenous. I code an

item endogenous if the measure captures a managerial and/or firm-level choice, such as the
presence of a policy, the nature of products or services, or the firm’s engagement in partic-
ular activities or behaviors. I code items as exogenous if they capture something other (or
more) than policy and action choices, such as lawsuits, boycotts, and positive or negative
relationships between stakeholders (such as labor) and the firm.

An expert panel verified the classification of items into these categories; raters were given
a description of each KLD core measure and a definition of endogeneity. I compared rater
scores using Cohen’s kappa statistic for multiple raters. The test statistic yielded a value of
0.6148 (p < 0.0001). Raters agreed on the initial classification for 28 of the 41 items;
differences between raters were resolved by consensus among the raters.

Based on this analysis, I create two base variables for each firm/year in the sample, firm-
endogenous strength choices for each of five domains1 and that firm’s stakeholder driven,
exogenous responses in the same five domains. Using these base variables, I construct the
variable for breadth of commitment, which I define as FIRM BREADTH and STAKE-
HOLDER BREADTH. Breadth captures a firm (or stakeholder) position for each year.
I calculate Breadth as the average Hefindahl score for each firm’s endogenous choices and
exogenous stakeholder actions by measuring intensity of commitment across the five social
domains. Breadth ranges from 0.2 (completely diversified across all five domains) to one
(completely focused within a single domain) for both firms and stakeholders.

I capture annual movement (FIRM MOVES/YR and STAKEHOLDER MOVES/YR)

by measuring the Euclidean distance of changes in the individual domain profiles for each
firm (or stakeholder group) from year to year, or Σ (Fjt+1 – Fjt)2, where F represents
the firm in the jth domain in the tth time period. The Euclidean distance traveled is the
square root of the sum of the squared domain measures. ASSETS record the total assets
for each firm for each year.

After examining the data, I use a single average score for each firm for four reasons: 1) My
intention in this study is to explore the high-level issue of overall positions and movement

1 I do not use all the 41 items in constructing this data set. For example, there were exogenous choices that the KLD
database captures as strengths (such as positive labor relations that are the result of management policies and union
reactions) as well as endogenous concerns (such as the decision to compete in certain lines of business).

SBR 59 July 2007 208-224 215

 P. C. GODFREY

around those positions. An examination of the data indicates that average scores over the
period provide a clear, clean picture of overall positioning. 2) The panel of firms in the
sample is not balanced, since there is a minimum of six years and a maximum of ten years.
Clustering with an unbalanced panel produced results difficult to interpret. 3) The structure
of the KLD data set makes it impossible to ascertain whether stakeholder actions preceded
or followed firm choices. Since I could not determine an appropriate lag structure, aver-
aging the scores seemed a conservative response (Mitchell and James (2001)). 4) Although
a firm may have a large average movement score across years, every firm experiences a year
with no movement, again producing nonsensical annual cluster groupings.

Table 1: Descriptive statistics and Kendall (τ-b) correlations for all variables
(p-value below)

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Table 1 presents the statistics for the variables. Because the Kendall process is distribution
free, and since my sample is small enough (firms within a single industry should not be
treated truly independent) that assumptions of normality in my sample are likely violated,
Kendall rank-order correlations replace the usual Pearson Product Moment correlations.

My study is in two phases. First, I focus on the entire industry as the level of analysis. I begin
by creating qualitative maps of long-term positions and paths for each firm in the industry
and looking for overall patterns. During this qualitative inquiry, I use both the aggregate
data for each firm and its stakeholders over the sample period and yearly data to provide
more detail. To better understand the nature of the pressure coming from stakeholders, I
create qualitatively based clusters for stakeholder activity by using a mean-split method. I
take the mean values of each stakeholder clustering variable, movement and breadth, and

216 SBR 59 July 2007 208-224

 CORPORATE SOCIAL RESPONSIBILITY

categorize firms as being above or below the mean level for the industry. This process shows
a clean distribution of firms into two quadrants, those facing a simple stakeholder environ-
ment (low levels of movement in a narrow band) and those facing a complex stakeholder
environment (high levels of movement across a broad band of domains). As Table 1 indi-
cates, the variables that capture stakeholder breadth and movement are highly correlated.

Because I wish to understand firm responses, given a distinctive stakeholder environment,

I use a k-means clustering algorithm to investigate similarities in firm-stakeholder response
dyads. I cluster the two firm CSR measures with the two stakeholder CSR measures. K-
means clustering uses an iterative algorithm that optimizes between cluster differences
without making hierarchical choices about primary, secondary, or tertiary clustering varia-
bles. Ketchen and Shook (1996) argue that nonhierarchical methods such as k-means clus-
tering are less impacted by outliers, which in a small data set such as mine is a concern;
and which yield a final solution that tends to optimize within cluster similarity as well as
between cluster dissimilarity. The disadvantage of k-means clustering comes because the
researcher must specify ex ante the number of clusters produced. However, post-clustering
test statistics have been developed that provide researchers with methods to determine an
optimal number of clusters. I compare my nonhierarchical clustering solution with two
hierarchical methods, Ward’s linkage and Median linkage algorithms. Ketchen and Shook
(1996) argue that clusters should be verified comparing clusters in terms of a variable not
included in the clustering algorithm as a robustness check on the validity of the cluster
structure. I verify the final cluster solution based on differences in average firm asset size.

I then examine these industry-level clusters by focusing on clearly identifiable CSR clus-
ters. This phase involves both qualitative judgments, based on the individual firm maps
created to capture positions and paths over time, and quantitative cluster analysis tech-
niques. Based on my analysis of these firm maps, I select three clusters for further, within-
group, cluster analysis. I again use k-means clustering, this time with a forced two-cluster
solution (the groups have five and seven members each) to avoid single firm clusters. The
two-cluster solution is optimal in one case, the other case needs a three-cluster solution,
but such a solution would have resulted in two one-firm clusters.

3 R ESULTS

Qualitative mapping of stakeholder environment reveals two broad clusters of firms, those
facing a simple environment (few stakeholder moves in very few domains) and those
facing a complex environment (many stakeholder moves across a wide array of domains).
Kendall correlations of the exogenous variables shows a significant, strong correlation
(–0.635, p < 0.003).

The Ward’s and Median linkage hierarchical clustering algorithms suggested a four-cluster
structure, so I begin specifying k-means cluster solutions at four. I visually examine the
four, five, six, and seven cluster solutions and evaluated each potential cluster solution
with the Calinski-Harabasz pseudo-F statistic value for each potential solution. A six-
cluster solution maximized the pseudo-F statistic.

SBR 59 July 2007 208-224 217

 P. C. GODFREY

Figure 2 illustrates the clusters within a grid defined by firm and stakeholder complexity.
In Figure 2, low movement and low breadth equates with low complexity, and high move-
ment and high breadth equates with high complexity. Table 2 provides detailed statis-
tics for each cluster. Table 2 also presents the results of t-tests that compare group mean
asset size values, and further validates the six-cluster solution. Although every group is
not statistically different from every other group, each group is significantly different in
size from at least other groups in the analysis. Group 2, the Complex-Complex Group, is
significantly larger than any other group.

Table 2: Industry-Level Cluster Results

Characteristic* Group 1 Group 2 Group 3 Group 4 Group 5 Group 6

Cluster Name Complex Complex Very simple Complex Simple firm/ Simple firms/
firms/ Moder- firms/ Com- firms/ Very firms/ simple Complex en- Simple environ-
ately complex plex environ- simple envi- environment vironment ment
environment ment ronment

Member Firms Kerr-McGee Atlantic Amerada Hess Amoco Ashland Apache

FIX TO RE- Phillips Petro- Richfield Louisiana Sun Burlington
FLECT MERG- leum (ARCO) Land & Explo- Resources
ERS Unocal Chevron ration AlliedSignal
Texaco Exxon Anadarko
Mobil Sante Fe Energy
Royal Dutch Resources
(Shell)

Firm Moves_Yr 0.8429 0.9817 0.0714 0.8338 0.3333 (.) 0.4654

(0.2523) (0.1389) (0.1010) (0.2135) (0.0315)

Firm Breadth 0.7792 0.4112 1 0.3942 1 (.) 0.7607

(0.0759) (0.1097) (0) (0.1388) (0.1895)

Stakeholder 0.6482 0.7854 0.1500 0.2768 1.0337 (.) 0.1811

Moves_Yr (0.1615) (0.1700) (0.2121) (0.1086) (0.1313)

Stakeholder 0.6694 0.4942 1 0.9375 0.8095 (.) 1 (0)

Breadth (0.1106) (0.1213) (0) (0.0884)

Average Total 5281 (4359) 52036 4913 17652 5556 (.) 5284
Assets (Mil) (9871) (4917) (17704) (4355)

t-tests of Group 2, 3, 6 Group 1, 3, Group 2, 4 Group 2, 3, 6 Group 2 Group 1, 2, 4

average asset 4, 5, 6
differences
(p < 0.05)

* Cluster mean values (St. Dev.)

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 CORPORATE SOCIAL RESPONSIBILITY

Figure 2: Industry-level Cluster Analysis Results

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To further test conformance with the theoretical model, I analyze Groups 2, 3, and 6
(those lying on the diagonal line representing stakeholder matching). Figure 3 and Table 3
present the results of this analysis. Each grouping differs significantly along the breadth
dimension. The subgroups of group (big oil) also differ significantly on the breadth of
stakeholder responses.

Table 3: Group-Level 2-Cluster Results

Characteristic* Lower Left Upper Left Lower Right Upper Right

Cluster Name Exact Stake- Broader than Narrower than Broader than
holder Matching stakeholders stakeholders stakeholders
Member Firms AlliedSignal Anadarko Chevron Atlantic Rich-
FIX TO REFLECT MERGERS Amerada Hess Apache Royal Dutch field (ARCO)
Burlington Re- (Shell) Exxon
sources Mobil
Louisiana Land &
Exploration
Sante Fe Energy
Resources
Firm Moves_Yr 0.3174 (0.2313) 0.4414 (0) 1.051 (0.0391) 0.9348 (0.1720)
Firm Breadth 0.9296 (0.1067) 0.5778 (0.0550) 0.5264 (0.0019) 0.3345 (0.0444)
Stakeholder Moves_Yr 0.2211 (0.1309) 0.05 (0.0707) 0.9464 (0.0263) 0.6780 (0.1105)
Stakeholder Breadth 1 (0) 1 (0) 0.3851 (0.0212) 0.5668 (0.0969)
Average Total Assets (mil) 5788 (4835) 3615 (3422) 51422 (21458) 52446 (33705)
Mann-Whitney (DATE)
test for endogenous Her- p < 0.05 p < 0.09
findahl score differences
Mann-Whitney (DATE)
test for exogenous Herfin- p < 0.09
dahl score differences
* Cluster mean values (St. Dev)

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 P. C. GODFREY

Figure 3: CSR Group-level Cluster Analysis Results

4 I MPLICATIONS

4.1 I NSTITUTIONAL R ESPONSES

Business citizenship. The cluster map in Figure 2 shows that eleven of 19 firms engage in
highly complex CSR activity sets in responding to both simple and complex stakeholder
environments. The nature of the data precludes any assertion regarding the citizenship
motivations of individual firms; these eleven firms may be motivated by citizenship desires.
However, the overall view of the industry presented in Figure 2 does not confirm the citi-
zenship model. Eight of 19 firms engage in strategies I classify as “simple” – few moves
and narrow focus. A simple strategy is inconsistent with a desire or perceived obligation
to fulfill citizenship duties. I am comfortable asserting that while some firms may engage
in CSR’s from citizenship motivations, citizenship as an industry-wide value or mindset
does not appear to be supported by the data.

Support for the citizenship argument weakens further with the realization that the ideal
configuration for citizenship outlined in Figure 1 completely overlaps with two other
explanations, the search for competitive advantage and stakeholder matching. Firms that
respond to a simple environment with a complex activity profile may be seeking a compet-
itive advantage, while those with a similar response profile but a complex stakeholder
environment may be responding with the necessary variety, which is consistent with the
stakeholder matching model. My research implies that the prospects for verifying business
citizenship behavior may be bleak. The theory may provide management with a rhetor-
ical device or justification for CSR activities, but these actions may be driven by far more
pragmatic concerns for creating profit-yielding assets or forestalling profit-eroding stake-
holder activism.

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Isomorphism. From the industry level, isomorphism receives little support from my
research. The six groups shown in Figure 2 span most of the conceptual space, and there
appear to be multiple CSR activity strategies in play rather than a single, unified response
suggested by institutional theory. As noted above, the within-cluster analysis shows
substantial variation in the positions and paths firms exhibit in their CSR activities.

The within-group analysis presented in Figure 3 and Table 3 presents the within-cluster
structure of the largest and smallest firms. The differentiation within these groups further
weakens confidence in the isomorphism model. The five firms in the lower left quadrant
each focus on a single CSR area, but they focus on different areas. Amerada Hess is the
only firm not involved in any area. Allied Signal spreads its involvement between product
quality initiatives and positive employee relations, consistent with its position as the only
equipment supplier among the 19 firms. Burlington and Louisiana Land focus solely on
environmental stewardship, and Sante Fe Resources confines its activities to the promo-
tion of diversity in the workplace.

Isomorphism gains some limited support in the Big Oil Group. Arco and Mobil pursue
strategies that are statistically, and practically, indistinguishable, both in terms of firm-
based activity sets and the stakeholder environment. Amoco, a company with assets similar
to the Big Oil Group but working in a simpler stakeholder environment, responds with
a CSR profile that looks like its Big Oil counterparts. Amoco may choose an isomorphic
CSR profile so that it can be compared its larger peers rather than smaller companies.

The lack of support for the isomorphism model most likely arises from the lack of uncer-
tainty regarding stakeholder activity and its consequences. Mimetic isomorphism should
be an effective response by organizations in uncertain environments. Both government and
non-government stakeholders have exerted considerable pressure for CSR for many years,
and stakeholder activism strategies are rarely novel or surprising, although they may be
shocking at times. Even the issues likely to invite a stakeholder response can be predicted
with a high probability by corporate decision makers. With this level of certainty in the
social environment, the isomorphic response may be at the level of involvement (18 of 19
firms). However, the look and feel of particular CSR initiatives may invite more flexibility,
direct targeting, and idiosyncratic variation by corporate decision makers.

4.2 E CONOMIC R ESPONSES

Stakeholder matching. This model received the strongest support at the industry level of
analysis, as three of the clusters (comprising twelve of the 19 firms) fall along the diagonal
line, indicating symmetry between stakeholder demands and firm responses. Almost two
thirds of managers in this industry provide CSR “grease” only in the presence of stake-
holder “squeaky wheels”, appearing to calibrate their resource commitments in CSR space
to match, but not exceed, stakeholder expectations. These findings are consistent with
the large-sample empirical work of Agle, Mitchell, and Sonnenfeld (1999), who find that
managers in their sample can both identify and respond to those stakeholders who are the
most important to the organization’s future well-being.

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 P. C. GODFREY

Again, the within-cluster analysis presented in Figure 3 and Table 3 focuses on those firms
along the stakeholder matching line at the industry level. This further and deeper level
of analysis suggests that what appears to be stakeholder matching at a higher level actu-
ally masks significant variation within these groups. Of the twelve firms that apparently
engage in stakeholder matching, the evidence shows that only five firms actually use a
tight matching strategy. Two large firms, Chevron and Royal Dutch Petroleum, seem
mismatched in their strategies, engaging in a narrow activity set significantly different
from the breadth of domain covered by their respective stakeholders. Five firms provide a
pattern consistent with a search for competitive advantage.

Competitive advantage. At the industry level of 19 firms just less than one third display a
response to their stakeholder environment that is consistent with the CSR as competitive
advantage story. These firms engage in a number of CSR activities across several domains
in spite of a simple stakeholder environment. Again, the data at this stage preclude any
inferences about motivation, as well as any ex post determination of actual competitive
advantage. However, firms in cluster 4 groups at least have CSR profiles consistent with
what is required to build a competitive advantage: creating perceptions of reputation,
trust, or other intangible assets that come as firms engage in CSR “above and beyond”
that required by stakeholder demands, or deemed a prudent response by stakeholder
matching principles.

The within-group analysis shows that an additional five firms have CSR profiles consis-
tent with the generation of competitive advantage, bringing the total to eleven firms.
Anadarko, Apache, Arco, Exxon, and Mobil engage in activities that exceed apparent
stakeholder demands. No apparent reason presents itself. The competitive advantage
group contains very small firms (Anadarko and Apache), medium-sized firms (Phillips
and Unocal), and the industries largest player (Exxon and Mobil). Size does not seem to
predict the search for competitive advantage.

The evidence for competitive advantage creation must be tempered somewhat, however.
Amoco, in cluster 4, is a large oil company, with assets more like those of the big compa-
nies in Group 2 than the assets of Sun, its Group 4 partner. In spite of its simple stake-
holder environment, Amoco may choose social responsibility more as an isomorphic
response to its size-based reference group than as an attempt to gain competitive advan-
tage. The case for Sun Oil, as well as the companies in Group 1, bears further examina-
tion for further evidence of a competitive advantage strategy.

5 C ONCLUSION

A dynamic study of the positions, paths, and processes firms exhibited throughout the
1990s supports the notion that CSR is a complicated activity for firms. Firms do engage
in CSR (18 of 19 firms made positive choices to be involved). Although stakeholder activ-
ities fall somewhat cleanly along a line ranging from simple to complex, firm responses
exhibit a much more diverse set of positions. The analysis presented here indicates that of

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the several theoretical models that are used to explain or predict CSR activities by firms,
no model appears to dominate, but neither should any model be rejected.

To my knowledge, this study represents one of the first to examine the long-term dynamics
of CSR activities, and to examine the co-determination of movement by considering
stakeholder action as a specific input to a firm’s CSR decision process. To focus clearly on
the issues of paths and positions arising from various processes, I specifically avoid discus-
sions and tests of links between CSR and CFP. The results present intriguing possibilities
for testing relationships between specific CSR profiles and competitive advantage, finan-
cial and otherwise.

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