What is it about?
We expand our understanding of CSR/ESG under two conditions that were not jointly considered in prior literature: ideological polarization among stakeholders and competition among firms. We find that, at the issue level, salience and polarization have profound implications for a company's strategic CSR decisions, impacting not only their own profits but also that of their competitors. Moreover, by choosing to pick a side on an ideologically contested issue, a firm may incentivize its rival to pick the opposite side, increasing the profits of both firms without clearly addressing the underlying issue. When we add in competition, the effects become more pronounced with a stronger impact on firm profitability (in competitive markets). Conversely, when markets are not competitive, social moves on ideologically divisive issues hurt firm profits. We introduce to the literature the concept of Corporate Social Counterpositioning, where firms use ideological polarization to horizontally differentiate by adopting opposing stances on contentious social issues. The paper also provides a theoretical framework to predict rivals' reactions to a company's CSR activities, thereby tying together contrasting predictions from previous research. We elaborate on the effects of competition, fragmentation, ethical CEO activism and other topics core to the literature on ESG and CSR and provide a comprehensive theory to analyze the competitive moves of for-profit firms on social issues.
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Why is it important?
Firms increasingly pick sides on contested issues (guns, abortions, immigration and LGBTQ rights, for example). This phenomenon seems puzzling at first glance since divisive issues risk alienating a significant portion of the firm's stakeholders. We show in this paper that, in fact, if the right conditions exist (competitive markets, polarized population and highly salient issues) choosing to align with an ideological position is a profitable move. In detailing our theory we reconcile some of the previous contrasting results and predictions and provide a comprehensive theory of when to expect corporate activism, and which position firms are likely to choose.
Perspectives
Our paper brings a fresh perspective to the important field of corporate social responsibility (CSR) and ESG by emphasizing that social issues are not homogeneous and that companies need to consider their salience and the level of social agreement when making strategic CSR decisions. The concept of social counterpositioning, introduced in this paper, illuminates how firms can leverage ideological polarization to horizontally differentiate from each other. This might explain the booming phenomenon in the contemporary business environment whereby increasing sociopolitical polarization is mirrored by firms aligning with one side of an ideological divide. Lastly, our paper's theoretical framework for predicting rival responses to a firm's CSR activities helps resolve conflicting viewpoints from previous research, thereby advancing our understanding of the competitive dynamics around CSR. We believe that our theory opens up new avenues for future research and provides valuable insights for firms about the potential impact of their CSR activities on their competitive standing.
Dr Aharon Mohliver
London Business School
Read the Original
This page is a summary of: Corporate social counterpositioning: How attributes of social issues influence competitive response, Strategic Management Journal, October 2022, Wiley,
DOI: 10.1002/smj.3461.
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