constructing the (positive) relationship between corporate ... - CiteSeerX

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Conférence Internationale de Management Stratégique, Annecy / Genève 13-16 Juin 2006

CONSTRUCTING THE (POSITIVE) RELATIONSHIP BETWEEN CORPORATE SOCIAL AND FINANCIAL PERFORMANCE ON FINANCIAL MARKETS Jean-Pascal Gond Lecturer in Corporate Social Responsibility International Centre for Corporate Social Responsibility Nottingham University Business School

PARTICIPATION AU PRIX ROLAND CALORI DU MEILLEUR ARTICLE Jubilee Campus, Wollaton Road Nottingham, NG8 1BB, United Kingdom Tel: +44 (0) 115 95 15 261 Fax: +44 (0) 115 84 68 074 [email protected] Abstract The purpose of this paper is to move the theoretical debate about the ‘CSP-FP relationship’ beyond positivism by analyzing that link as a social construction on financial markets. The construction of such a relationship indeed becomes a crucial business problem for managers since the legitimacy-building process of organizations implied in markets related to corporate social responsibility is closely associated to the belief that ‘ethics and/or social responsibility pay’ – at least in the long run. Consequently, actors’ behaviours and beliefs on these markets can no longer be considered as external to the CSP-FP debate, but must be integrated as endogenous variables. Moreover, the diffusion of these behaviours and beliefs could also contribute to the effective realization of such a relationship on financial markets and, to some extent, in the business arena. These facts offer the opportunity to reframe theoretically the classical and over-studied debate around ‘the CSP-FP link’ and to propose a new framework describing the various processes of performativity through which actors enact and construct the positive relationship between CSP and FP. Key-words Cognitive embeddedness – Corporate Social Performance – Corporate Social Responsibility – Framing – Performativity – Self-full filling prophecies

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CONSTRUCTING THE (POSITIVE) RELATIONSHIP BETWEEN CORPORATE SOCIAL AND FINANCIAL PERFORMANCE ON FINANCIAL MARKETS Abstract The purpose of this paper is to move the theoretical debate about the ‘CSP-FP relationship’ beyond positivism by analyzing that link as a social construction on financial markets. The construction of such a relationship indeed becomes a crucial business problem for managers since the legitimacy-building process of organizations implied in markets related to corporate social responsibility is closely associated to the belief that ‘ethics and/or social responsibility pay’ – at least in the long run. Consequently, actors’ behaviours and beliefs on these markets can no longer be considered as external to the CSP-FP debate, but must be integrated as endogenous variables. Moreover, the diffusion of these behaviours and beliefs could also contribute to the effective realization of such a relationship on financial markets and, to some extent, in the business arena. These facts offer the opportunity to reframe theoretically the classical and over-studied debate around ‘the CSP-FP link’ and to propose a new framework describing the various processes of performativity through which actors enact and construct the positive relationship between CSP and FP. Key-words Cognitive embeddedness – Corporate Social Performance – Corporate Social Responsibility – Framing – Performativity – Self-full filling prophecies

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Constructing the (positive) relationship between Corporate Social and Financial Performance on Financial Markets

Introduction The financial impact of Corporate Social Responsibility (CSR) has always been a central and a very controversial area of research overlapping the two academic fields of strategic management and business and society (Bowen, 1953: 110-123; Levitt, 1958; Friedman, 1962; Waddock & Graves, 1997; Margolis & Walsh, 2003). Over the past thirty years, that question has been refined through empirical and theoretical investigations of the relationship between Corporate Social Performance (CSP) – a concept reflecting corporations’ capacities to manage their social responsibilities toward their stakeholders (Wood & Jones, 1995) – and Corporate Financial Performance (Preston & O’Bannon, 1997; Roman, Hayibor, & Agle et al., 1999; Margolis & Walsh, 2003). More than 120 empirical studies have been dedicated to that so-called “CSP-FP relationship debate” (see Allouche & Laroche, 2005; Margolis & Walsh, 2003; Orlitzky et al., 2003), and the number of publications dedicated to that question follows an exponential trend since the mid 1990’s. Several competing frameworks have also been developed to explain that relationship, ranging from stakeholder theory (e.g. Barnett, 2006; Freeman, 1984), to micro-economics (e.g. McWilliams & Siegel, 2001) and signal theory (e.g. Cornell & Shapiro, 1987), and virtually all the possible (linear) relationships between CSP and FP could find some forms of theoretical justification (see, Gond, 2001; Preston & O’Bannon, 1997). However, these previous research efforts seem to have obscured rather than improved the understanding of the “CSP-FP relationship”, and the status of that question appears deeply problematic in contemporary research. Indeed, this question is simultaneously the most studied area of research on CSR and the one providing the most ambiguous and mixed

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empirical results (see reviews by Allouche & Laroche, 2005; Margolis & Walsh, 2001a, 2001b and 2003; Orlitzky, Schmidt & Rynes, 2003; Preston & O’Bannon, 1997; Roman et al., 1999; Rowley & Berman, 2000). This topic also remains very attractive in contemporary research, authors are now attempting to develop more contingent (Barnett, 2006) or behavioural (Schuler & Cording, 2006) explanations supporting the ‘business case’ argument for CSR, in spite of recent calls for moving away from that question (e.g. Margolis & Walsh, 2003; Vogel, 2005), and of regular criticisms of the under-theorized and ‘data-driven’ nature of the works produced in that field (see Ullman, 1985; Rowley & Berman, 2000). Finally, whereas the potentially very high complexity of that relationship is often acknowledged (Margolis & Walsh, 2001; Rowley & Berman, 2000; Ullman, 1985) the modelling of these interactions in empirical research has always been very basic. Indeed, a “positive, negative or neural” form of global linear relationship between these concepts is generally assumed, and the CSP-FP interaction appears as being a kind of ‘black-box’ theoretically ill-informed. The purpose of this paper is to offer an alternative perspective on the “CSP-FP relationship” and to contribute to solve these limitations by providing a more complex picture of that relationship, by recognizing its role for practitioners and managers, and by consequently explaining its permanent attractiveness. To date, the “CSP-FP” stream of research exemplifies the positivist and functionalist (Burrell & Morgan, 1979) analysis of Corporate Social Responsibility, leading to an instrumental interpretation of corporate responsibility that fits with economic ideology (Scherer & Palazzo, 2006) and to empirical analysis considering CSP measurement as ‘taken for granted’ (Entine, 2003, Gond, 2006; Igalens & Gond, 2006). It is argued here that our understanding of the CSP-FP link could be enriched if we stop considering that link as a causal law that needs to be discovered in the social world tanks to methods like correlation analysis and following models inspired by “sciences” (Donaldson, 1996) (e.g. Waddock & Graves, 1997), and accept to recognize its

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symbolic and ideological role in the process of markets construction. Indeed, the construction of such a positive relationship has moved away from the academic arena to become also a crucial business problem since CSR have been turned into ‘markets for virtue’ (Vogel, 2005). The legitimation of actors implied in markets related to corporate social responsibility, such as CSR consultancy and certification, social and environmental notation or Socially Responsible Investment, is closely associated to the belief that ‘ethics and/or social responsibility pay’ – at least in the long run. Consequently, I propose to develop a new approach where that relationship is considered as a deliberate cognitive and social construction promoted by actors working on financial markets and in the business arenas and interested by the existence of such a relationship. Specifically, I argue that actors’ behaviours and beliefs regarding that relationship can no longer be considered as external to the CSP-FP debate but should be integrated as endogenous variables (Rowley & Berman, 2000). Actors’ beliefs in a CSP-FP relationship of a specific nature (e.g. positive or negative), and actors’ behaviours related to these beliefs, should be integrated into the models explaining that relationship since they could contribute to the effective realization of such a link on financial markets and, to some extent, within the business arena. The two concepts of performativity (Callon, 1998a; Latour, 1996, 2006; MacKenzie & Millo, 2003; MacKenzie, 2004) and self-fulfilling prophecies (Ferraro, Pfeffer & Sutton, 2005; Merton, 1948) provide the theoretical foundations for a model which maps these endogenous effects. This model describes how actors could deliberately use the idea of a positive relationship between CSP and FP to institutionalize CSR on financial markets, and how, doing so, they could construct actually a positive CSPFP relationship on these markets. Previous empirical research conducted in the field of Socially Responsible Investment – an activity consisting in the use of CSR or CSP criteria for the purpose of investing (Cowton, 1999; Hutton et al., 1998) – are used to build the model and

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to illustrate the analysis. The two research questions we seek to address could be formulated as follow: [1] How do interested actors construct and diffuse beliefs about a positive relationship between Corporate Social Performance and Financial Performance on financial markets? [2] How could these beliefs contribute (at least potentially) to the effective realization of a positive CSP-FP relationship on financial markets? The paper is organized as follows. I firstly show scholars have paid little attention to the social and institutional processes through which actors are constructing and influencing cognitive frames and behaviours related to that link. Secondly, I offer a model which captures the neglected performative processes leading to a potential self-full filling construction of a positive relationship between Corporate Social Performance and Financial Performance. Previous empirical studies of the emerging market for Socially Responsible Investment is then used to provide illustrations of the mechanisms at play on financial markets. The main research implications of that model are finally discussed.

THE CORPORATE SOCIAL-FINANCIAL PERFORMANCE RELATIONSHIP AS A SOCIO-COGNITIVE CONSTRUCTION

The search for the nature of the CSP-FP relationship as an academic problem The analysis of the relationship between CSP and financial performance is certainly the most studied topic in the CSR literature over the last thirty years in spite of poor empirical results (Arlow & Cannon, 1982; Griffin & Mahon, 1997; Pava & Krausz, 1996; Preston & O’Bannon, 1997; Roman et al. 1999; Margolis & Walsh, 2001a, 2001b, 2003; Orlitzky et al. 2003). Indeed, Roman et al. (1999) and Griffin and Mahon (1997) show that, even if a majority of empirical studies demonstrate a positive relationship, empirical evidences are not exempt from strong methodological shortcomings. Margolis and Walsh (2003) offer a rather

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pessimistic conclusion after a review of more than 100 empirical studies, while Orlitzky et al. (2003) and Allouche and Laroche (2005) suggest the existence of a small but positive relationship (based on 53 empirical studies in the first meta-analysis and 82 in the second one). To quote Margolis and Walsh (2001a & 2001b), the CSP-FP relationship appears to be “positive” but “scientifically unfounded”. Indeed, the question of the CSP-FP relationship has been under-theorized for a long time (Rowley & Berman, 2000) to a point that this stream of research has been depicted through the Pirandello’s image of ‘data in search of theory’ by Ullman (1985). Consequently, some authors suggest moving beyond that question by refocusing research on the explanations and the determinants of CSR or CSP per se (Margolis & Walsh, 2001a & 2003; Vogel, 2005). However, it could be argued that a theoretical question that has attracted attentions of researchers for thirty years in spite of poor empirical results is quite intriguing per se and should be considered as a potentially interesting research object – at least from an organizational theory point of view. Indeed, it seems that the search for a positive relationship between CSR-CSP and financial performance has always been considered as a necessary condition to justify the managerial accuracy of the CSR concept against its detractors (Margolis & Walsh, 2003). For Rowley and Berman (2000), the ‘CSP-FP debate’ encompasses a tacit ideological dimension and is strongly biased toward the search for a positive relationship. The intensity of scholars’ efforts deployed to study that question – and their hope to establish a positive relationship – could consequently be interpreted as a legitimating strategy for the institutional recognition of the CSR academic field (Rowley & Berman, 2000). In an attempt to better theorize the CSP-FP relationship through stakeholder analysis, Rowley and Berman (2000) also suggest analyzing CSP as an ‘endogenous variable’ in the explanation of the CSP-FP link. Their approach implies considering the CSP-FP relationship as a socially and cognitively constructed link, resulting from institutional

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processes shaping actors’ cognition and behaviours related to CSP and FP. Such a perspective finds today a strong empirical support in the fact that actors trying to construct markets related to CSR have a clear interest in the creation of conditions supporting the convergence between CSP and FP.

The search for a convergence between CSP and FP as a managerial issue The search for a convergence between CSP and FP became a ‘business problem’ in recent years for two main reasons: the diffusion of CSR concepts in business life and the emergence of CSR markets where the beliefs in such a convergence plays a crucial role.

Diffusion of CSR concepts in business life. It seems that business and society language and concepts have been widely diffused across society, business and various cultural contexts over the last ten years (Vogel, 2005). Wood (2000) informs us that “Business and Society concepts are everywhere: stakeholders and stakeholders management, issues management and public affairs, social auditing and reporting, ethics and values, code of conducts, and yes, even corporate social responsibility” (p. 364). She concludes that “[…] the core ideas of B&S have come of age” (p. 365). In January 2005, the editor of The Economist acknowledges that “the movement for corporate social responsibility has won the battle of ideas”, recognizing the wide diffusion of the 'CSR ideology' among top managers (pp. 3-4). These trends lead to a situation where CSP or CSR concepts are more often anchored as ‘cognitive categories’ in the head of managers. Due to that cognitive diffusion, relationships between CSR and more classical management problems (e.g. efficiency improvement, search for financial performance) could emerge more easily as a “relevant” managerial problem.

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Development of CSR markets (CSR-M). The second and most important reason explaining the moving of the CSP-FP debate from the academic arena to the business arena is related to the development of a complete ‘CSR industry’ (Acquier & Gond, 2006; Acquier et al., 2005; Capron & Quairel, 2004; Gond, 2006; Vogel, 2005). That industry encompasses a wide range of economic activities related to CSR such as Socially Responsible Investment, Social Rating by external agencies (e.g. KLD in US, EIRIS in UK or ARESE/VIGEO in France, SAM in Switzerland), Teaching on CSR, Consulting on CSR strategies or Sustainable Development, Communication of the CSR policy and Public Relations activities linked to CSR related issues, Audit and Certification of the social responsible statements and reports or stakeholder reports produced by companies… These activities correspond to various forms of CSR ‘commodification’ (Acquier & Gond, 2006). Their existence implies that CSR and CSP can no longer be considered as (neutral) label used to qualify organization from an (academic) external point of view, but rather as managerial and marketing tools. ‘Corporate Social Responsibility’ could consequently be considered as an organizational field in itself (DiMaggio & Powell, 1983; Whittington et al., 2003) (including of course academics, but also consultants, socially oriented investors…). Moreover, there is no reason to postulate any “neutrality” in the approach of the CSP-FP relationship from actors playing in that field. Indeed, most of them are interested in the development of markets on which they act on (Vogel, 2005). Central in the development of CSR-M will be the idea that CSR or CSP improves financial performance, or, at least, does not impact negatively the financial performance. The construction of a link between CSP and financial performance appears here crucial for the legitimacy-building of new CSR-M, since new businesses are facing the liability of newness and have an especially strong need to appear legitimate (Stinchcombe, 1965; Zimmerman & Zeitz, 2002). To develop their new industry, these actors will have to conform to the expectations of their dominant stakeholder such as investors or top managers

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(Meyer & Rowan, 1977). Actors developing CSR-M should show they share (at least partially) common cognitive frame with these groups; as a consequence they should be able to demonstrate the economic benefits of investment in social activities (e.g. Porter, 2003), i.e. established the Business Case for CSR (e.g. Vogel, 2005). The managerial search for a relationship between CSR and FP is however different from the academic one since the nature of the searched relationship is already known: the problem is to enact, to justify and to demonstrate the existence a positive link, or at least a neutral one.

Combining perspectives: the CSP-FP relationship as a socio-cognitive construction The two main consequences of the previous analyses for the study of the CSP-FP relationship are the following: (1) the CSP-FP link cannot be considered as external to actors playing on CSR markets and should be considered at least as co-produced by these actors. That fact will be especially true for actors trying to construct the legitimacy of markets related to and relying on the notion of CSR. That relationship should consequently be considered as a socially embedded one (Granovetter, 1985; Rowley & Berman, 2000; Mitnick, 2000) depending on the institutional contexts; (2) the CSP-FP link cannot be considered without taking into account the cognitive embeddedness of actors into specific systems of beliefs (or mental models), economic theory being an especially powerful cognitive model embodying both a theory of the functioning of economy and an approach of the role of business into society (Callon, 1998a; Ferraro et al., 2005). The processes of CSP-FP convergence, i.e. the progressive construction of a positive relationship between CSP and FP, could consequently be understood through a sociocognitive perspective by building on the key assumption that the CSP-FP relationship is socially and cognitively embedded. Actors trying to influence or to reframe the cognitive frames of others actors in order to make the ideas of CSR or CSP acceptable should

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consequently be placed at the core of the analysis. In the CSR case, those actors frequently act as moral entrepreneurs (Becker, 1953) – when they rely on values to justify their actions and to promote new social norms by labelling (or not) a company as socially responsible – or institutional entrepreneurs (DiMaggio, 1988; Dorado, 2005; Leca & Kleiner, 2003; Rao, 1998; Zimmerman & Zeitz, 2002) – when they act on various institutional parameters (not especially on values) in order to promote a new social norm regulating corporate behaviours. I label actors trying to enhance CSR on financial markets and in the business arena “CSR entrepreneurs”. Based on that new perspective on the CSP-FP relationship a theoretical framework is offered to account for the perfomativity processes through which a positive relationship between CSP and FP could become self-fulfilling due to CSR entrepreneurs’ strategies.

CREATING THE CONVERGENCE BETWEEN SOCIAL AND FINANCIAL PERFORMANCE ON FINANCIAL MARKETS: A THEORETICAL FRAMEWORK

The focus here is on the specific case of CSR entrepreneurs acting on financial markets, and consequently, the majority of examples we will use to illustrate the model are related to the so-called ‘Socially Responsible Investment’ industry and to its related market such as social and environmental rating and evaluation. The overall framework is presented in Figure 1. It articulates two central mechanisms referring to the concepts of perfomativity (Latour, 1996, 2006; Callon, 1998b) and self-fulfilling prophecies (Merton, 1948; Ferraro et al., 2005). I present and define both concepts and then detail each mechanism. -----------------------------------------------------INSERT FIGURE 1 ABOUT HERE -------------------------------------------------------

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Performativity of economics and self-fulfilling prophecies in economies The notion of ‘perfomativity’ is used by Callon (1998a) to explain the idea that economy “is embedded not in society but in economics” (p. 30). That provocative insight accounts for the fact that ‘economics’ plays a central role in the construction of economy through its influence on actor’s cognition. Actors could be ‘disembedded’ from their social context and cognitively ‘framed’ in order to act accordingly to economic theory premises, contributing consequently to the self-realization of economics in the real economy (Latour, 1996). That idea of economics perfomativity found empirical support in several studies analysing the social construction of markets (Garcia, 1986; Muniesa, 2000; Mackenzie & Millo, 2003). For instance, MacKenzie and Millo (2003) show how the Black-Scholes formula, which initially did not predict option prices on the Chicago Board Options Exchange, has finally become the best predictive theory of those prices due to the financial actors’ uses in their practices of trading and their beliefs of its truthfulness. Performativity is defined here in the broad sense of Callon (1998a, 1998b) to analyze the various processes through which actors contribute to validate the theoretical idea of a convergence between CSP and FP by framing other actors’ beliefs about that relationship (‘triggering mechanisms’ in Figure 1). Self-fulfilling prophecy is used to model the steps of the loop reinforcing these beliefs and ‘consolidating’ in reality (or not) the previous cognitive idea of a ‘positive CSP-FP relationship’ (according to MacKenzie and Millo, 2003; Merton, 1948) (‘looping mechanisms’ in Figure 1). Given that both concepts of performativity and self-fulfilling prophecies have been previously used to analyze financial markets, it could be expected that they will be relevant theoretical tools to capture the processes at play in the construction of a ‘CSP-FP convergence’ on these markets.

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Triggering mechanisms: Framing financial actors’ beliefs about CSP-FP convergence on financial markets We rely on the three dimensions distinguished by Ferraro et al. (2005) to present the various processes through which CSR entrepreneurs could trigger processes of financial actors (re)framing in such a way they will accept and support the idea of a positive CSP-FP relationship: [1a] language and concepts; [1b] social norms; [1c] institutional arrangements (see part [1] on the Figure 1).

[1a] Language and concepts: exploring the rhetoric of the positive CSP-FP relationship Language is a powerful way to make theories self-fulfilling, since it frames the cognitive categories used by actors, and ultimately their comprehension and their perception of the social world (Berger & Luckman, 1966; Ferraro et al., 2005; Foucault, 1971; Weick, 1979). It has also been argued that rhetoric plays an important role in the diffusion and institutionalization of new ideas and concepts (Green, 2004; Jonsson, 2003; Strang & Meyer, 1994; Suddaby & Greenwood, 2005). Financial actors such as security analysts, portfolio managers or institutional investors are cognitively embedded in an economic and financial framework and act as a ‘frame maker’ for others financial actors such as investors (Callon, 1998; Ferraro et al., 2005; Garud & Beunza, 2004). Their language is made of figures and quantified indicators, and their activities are oriented toward the analysis of the financial performance of their investment (Godechot, 2001; Kalthoff, 2002). The modification of these actors’ mental models strongly embedded in economics is especially challenging. The practical implementation of CSR language and of beliefs related to the positive relationship between CSP-FP in that area appears especially intriguing. It is argued here that as CSR has been made ‘socially acceptable’ (i.e. considered as a relevant and a ‘normal’

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concept for actors) on financial markets through two strategies: (1) a semantic adaptation of the CSR language; (2) the use of the CSP-FP relationship as a rhetoric instrument to convince investors, funds managers and security analysts of the economic virtue of Socially Responsible Investment (SRI) and to enrol them in the development of the SRI industry. The relative success of that process is illustrated by the fact that actors implied in the management of SRI funds consider the CSP-FP convergence as obvious.

Capturing financial language/translating B&S concepts. The capture of financial language appears as a first strategy to frame B&S concepts and to make them acceptable for mainstream investors and financial actors. In France, that strategy is clearly illustrated in the case of the development of ARESE, a pioneering company providing social and environmental data on major stock rated companies to investors, which has chosen to label itself ‘Social Rating Organization’ rather that ‘Research Provider’ in order to better stick to the expectations of investors (Gond, 2006; Gond & Leca, 2004). The financial language has also been used for the self-presentation of ARESE members, who have always presented themselves as ‘social analysts’ doing a similar activity than financial analysts but working on different data. Similar strategies have been observed in the Dutch field of SRI, where analysts have progressively and deliberately adopted a ‘business-like’ identity to present their activity and their organization (Louche, 2004). It could also be expected that such a strategy is possible for various activities surrounding SRI and consisting in translating B&S concept in the financial arena. By framing CSR into concept easily understandable by financial actors, organizations implementing CSR activities on financial markets will facilitate the possibility for these actors to associate – at least cognitively – concepts such CSP and CSR with their traditional preoccupations – such as financial performance.

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Proposition 1a. The capture of financial language by organizations implementing CSR activities on financial markets will facilitate their social acceptance on these markets. Proposition 1b. The capture of financial language by organizations implementing CSR activities on financial markets will enforce financial actors’ beliefs in a positive relationship between CSP and FP on these markets. The ‘positive CSP-FP relationship’ as a marketing instrument. Selling ‘CSR’ to security analysts, investors, portfolio managers or a bank retail customer implies to rely on marketing arguments and a ‘chain of justification’ will therefore be deployed across the processes consisting in selling the ‘CSR’ qualities of companies to various publics. Indeed, Socially Responsible Investors have to justify their investing strategy toward their final customers, stock rated companies have to provide rationales for their investments in CSR for both organizations rating or evaluating their behaviour from a socially responsible perspective (e.g. Social Rating Organization and CSR data provider…) and their shareholders. Previous empirical works on the legitimacy-building strategy of bank engaged in socially responsible investment and social rating organizations suggest that these actors tend to use the idea of a positive relationship as a central argument in their marketing discourse and artefacts (Déjean, 2004, 2005; Déjean & Gond, 2004; Gond, 2006; Louche, 2004; Vogel, 2005). For instance, social evaluation agencies such as Vigeo in France or KLD in US are using documents and pictures showing an over-performance of their CSR indexes as compare to financial benchmarks. Websites of associations composed from SRI actors or corporations are also providing lists of expected benefits from CSR behaviours (Déjean & Gond, 2004) (see, e.g., Social Investment Forum, CSR-Europe or the World Business Council for Sustainable Development). Moreover, Green (2004)’s rhetorical model of institutionalization suggests that the ability to provide ‘rational arguments’ will be especially crucial in the early stages of development of a new activity. Consequently, we could expect that such a rhetorical

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strategy will also be used by corporations engaged in CSR activity to justify their CSR investment toward their stakeholders (and especially toward their shareholders). Proposition 2a. Actors implementing CSR activities on financial market will use the idea of a positive relationship between CSP and FP as a main marketing argument to sell their CSR activity or product. Proposition 2b. Corporations will use the idea of a positive relationship between CSP and FP as a main argument to justify their engagement in CSR activities toward their stakeholders.

The positive CSP-FP relationship as central belief for Socially Responsible Investors. The centrality of the existence of a positive relationship between CSP and FP appears as an obvious point to numerous actors implied in the field of socially responsible investment, even when these actors work within mainstream financial company. That observation has been made by authors criticizing the SRI field, such as Entine (2003: 362): “Do companies rated as more socially responsible perform better financially? Do socially responsible stocks outperform those that are lesser rated? It is not surprising that social fund advocates would be tempted to selectively present performance data to make their case that social funds “outperform” mainstream investment styles (Camejo, 2002). After all, they are true believers, and often their livelihood depends on reinforcing this propaganda point.”

The empirical investigation of legitimacy-building strategies used by financial management companies to legitimate their socially responsible products in the French context by Déjean (2004) also clearly points out the fact that the existence of a CSP-FP relationship is a central and obvious belief for the majority of socially responsible fund managers (see also Déjean & Gond, 2004). Based on these previous researches, we could expect that SR investors, as compare to mainstream investors not implied in SRI, will believe more strongly and more systematically into the existence of a positive relationship between CSP and FP. Such a phenomenon is consistent with the psychological analysis of rationalization processes. Indeed, the belief in a positive CSP-FP relationship is a way for SRI investors to cognitive 16

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dissonance occurring when ethical/social and financial logics of investment are divergent and could help SRI actors to make sense of their position in the financial field (Beauvois & Joule, 1981). However, it could also be expected than mainstream investors could be progressively contaminated by that ideology, beyond the small circle of ‘convinced’ socially responsible investors. These investors will become less sceptical about the idea of a positive CSP-FP relationship if practices of SRI are widely diffused and tend to become the norm on an important sub-segment of the market (Jonsson, 2003). Proposition 3a. The more actors are engaged in the implementation of CSR on financial market, the stronger are their beliefs in the existence of a positive CSP-FP relationship. Proposition 3b. Mainstream financial actors’ tendency to believe in a positive CSPFP relationship on a financial market and the development of CSR activity on that market are positively related. [1b] Social norms enforcing the CSP-FP convergence One of the most powerful ways to spread the idea of CSP-FP convergence is to turn that idea into a social norm well accepted by a majority of actors. Professionalization and mimetism have been recognized as two main social processes leading successfully to the implementation of a new social norm (DiMaggio & Powell, 1983; Ferraro et al. 2005; Scott, 2001).

Professionalization of CSR activity. Even if SRI could not yet be considered as a fully ‘professional’ activity on its own (Jonsson, 2003) that field demonstrates numerous signs of professionalization, such as the development of professional association dedicated to the promotion of SRI in US (e.g. Social Investment Forum, SIF), but also in various European countries (e.g. creation of SIF in France, England, Netherlands… Creation of Eurosif) (Entine, 2003; Giamporcaro, 2004; Gond & Leca, 2004; Louche, 2004). In France, we could 17

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also observe the development of informal networks grouping actors implied in the activity of SRI (e.g. Sustainable Club Of Paris, or SCOP) (Gond, 2006). In various countries rules regulating the SRI profession emerged in the past few years, such as the quality management process developed by the SIRI Group – a network of social rating agencies – to enforce the quality of the work done at each phase the social rating process (data gathering, data processing, customers relationship) (see Louche, 2004). This global movement of SRI professionalization will also tend to legitimate CSR activities toward mainstream financial actors (Louche et al. 2005) and consequently facilitate the diffusion of the idea that CSR could increase financial performance. Proposition 4. The diffusion of beliefs in a positive CSP-FP relationship on a financial market is positively related to the level of CSR activities professionalization on that market. Mimetism and diffusion of CSR practices across organizations. Following a similar logic, it could be argued that mimetic pressures to adopt CSR practices will also reinforce the beliefs in the positive CSP-FP (DiMaggio & Powell, 1983). Even if the adoption is purely symbolic, the rationalization of that adoption will imply to mobilize arguments such as the economic efficiency of these practices (Meyer & Rowan, 1974). Here the idea of a positive relationship between CSP-FP comes as an easy way to justify CSR practices adoption and will spread as practices are diffused. That diffusion of CSR practices is facilitated by the creation of think-tanks grouping managers of CSR programs in different corporations. In France, the ORSE (Observatoire sur la Responsabilité Sociétale des Entreprises) is an association of that type, where managers working on CSR and sustainable development inside corporations and professional of SRI could meet each others and discuss around specific topics such as CSR reporting issues or the CSP-FP relationship (Giamporcaro, 2004). According to a study by Trebucq and Dahan (2004) that association has reinforced the mimetic pressures between participating organizations. Indeed, corporations implied in 18

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ORSE have seen the homogeneity of their social ratings increased with time. It could thus be expected that professionalization will also reinforce mimetism in terms of CSR practices across organization and will subsequently develop beliefs about a positive CSP-FP relationship. Proposition 5. The diffusion of beliefs in the positive CFP-FP relationship on a financial market is positively related to the number of corporations engaged in CSR practices listed on that market. [1c] Institutional arrangements supporting the CSP-FP convergence MacKenzie and Millo's (2003) study clearly highlights the role of the institutional design in the validation of specific theories since they will reflect the implicit and explicit theories of their designers, transforming ideas into social reality (Ferraro et al., 2005). In the case of financial markets, institutional arrangements are strongly shaped by economics and financial theory, financial indicators being pregnant in the decision making process of actors such as investors or security analysts. It is argued here that CSR entrepreneurs could reinforce the beliefs related to the positive relationship between CSP and FP notion through the construction of various artefacts embodying CSR principles and ideas (Hasselbladh & Kallinikos, 2000). At least three examples of such institutional arrangements supporting SRI practices could be advanced: (a) the development of specific metrics and CSP measurement practices helping investors to select socially responsible corporations. These ‘metrics’ contribute to align CSR and CSP concepts with investors expectations and cognitive frameworks (e.g. Déjean, Gond and Leca, 2004); (b) the creation of ethical or socially responsible indexes such as the Domini Social Index in US, or the FTSE4GOOD in Europe. These indexes have recently diffused on financial markets in Europe (Déjean, 2005; Jonsson, 2003); (c) the development of reward and/or incentive systems inside companies aligning classic corporate objectives with objectives related to CSR (e.g. bonus conditioned to corporate entrance in an ethical index) (see de Brito et al., 2004). 19

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These artefacts will tend to make CSR notions and concepts perceived as more natural and more easily understandable by actors of the financial world, and consequently they will support the possibility for these actors to associate the elements from the ‘cognitive category’ CSR to well embedded cognitive categories such as financial performance. Proposition 6. The diffusion of beliefs in the positive CFP-FP relationship on a given financial market is positively related to the diffusion of artefacts embodying CSR concepts and principles (e.g. ethical indexes, CSP quantified metrics) on that market. Consequences of the triggering mechanisms The previously described ‘triggering mechanisms’ have all a similar outcome: they contribute to put the idea of ‘a positive CSP-FP relationship’ into the head of investors on financial market. They correspond to the different leverages that “CSR entrepreneurs” could use to embed the ‘positive CSP-FP’ into discourses, social norms and material artefacts. The research propositions corresponding to these processes are summarized in the table 1. -----------------------------------------------------INSERT TABLE 1 ABOUT HERE ------------------------------------------------------These processes could interplay to reinforce the speed and the extent of these ‘beliefs’ diffusion across actors on a financial market. Once that ‘triggering’ processes are at play and if a sufficient number of ‘believers’ is obtained on markets, loops of enforcing mechanisms could come at play, reinforcing beliefs and potentially coming true.

Looping mechanisms: Potential self-fulfilling processes reinforcing the CSP-FP convergence The self-fulfilling processes refer here to the various steps that could potentially contribute to reinforce the financial actors’ beliefs of a positive relationship between

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corporate social and financial performance (see part [2] on figure 1). The overall selffulfilling loop is described through five steps: [2a] the first refers to the behaviours of convinced investors toward CSP; [2b] the second to the effect these behaviours could potentially produced on Corporations presenting high levels of CSP; [2c] the third refer to the validation of a positive relationship between CSP and FP through academic empirical research; [2d] the fourth described the effect of the results of these empirical researches on investors beliefs; and, finally, [2e] the fifth show the potential use of these research materials by “CSR entrepreneurs”.

[2a] Impact of convinced investors’ behaviours toward corporate financial performance Previous empirical works on the behaviour of socially responsible or ethical investors suggest that ‘final’ consumers of CSR investment products have a relatively ‘inelastic’ demand for ethical investment and are more loyal than traditional investors (MacKenzie & Lewis, 2000: 184-185). They tend to increase their ethical investment when its financial performance increase but they have tendency to maintain their investment even if the financial performance is strongly decreasing. Even if these studies are focused on ‘final’ consumers already buying these products and being ready to sacrifice financial performance in order to obtain an ‘ethical’ product (MacKenzie & Lewis, 1999 and 2000), it could be expected that professional investors engaged in SRI will tend to adopt a similar behaviour due to their beliefs in a higher return of SRI – at least in the long run. Moreover, financial investors believing strongly in such a relationship will be more aware of information related to CSR management and more susceptible to introduce shares of corporations presenting high levels of CSP in their portfolio (based on their own internal analysis of extra financial information and/or the data provided by a social rating organization or specialized institution). They could be cognitively biased toward CSR information compare to mainstream investors. Connecting

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together, these ideas suggest a relative inertia of investors engaged in socially responsible investment and/or believing in the financial virtue of CSR investing. Proposition 7a. The more investors do believe in the CSP-FP convergence, the more likely they will put a corporation exhibiting high level of CSP in their portfolio for a given level of financial performance. Proposition 7b. The more investors believe in the CSP-FP convergence, the less likely they will remove a firm exhibiting high levels of CSP from their portfolio, even when its financial performance decrease. [2b] Impact of convinced investors’ behaviours toward corporate financial performance on corporations demonstrating high levels of CSP. If a sufficient amount of money is invested in socially responsible forms on a given financial market and/or if the previous behaviours of investors are sufficiently diffused on that market, it is possible to consider that corporations presenting a high level of CSP will benefit from the previously described behaviours. Especially it could be expected that these corporations will access to a higher amount of financial resources on these markets. Consequently, they could also benefit from a lower level of their cost of capital than corporations exhibiting a lower level of CSP. Proposition 8a: Corporations exhibiting high levels of CSP benefit from a lower cost of capital on financial markets that corporations exhibiting on financial markets where the SRI segment is well developed. Proposition 8b: Corporations exhibiting high levels of CSP benefit from a larger access to resources on financial markets on financial markets where the SRI segment is well developed. [2c] Confirming the positive nature of the CSP-FP relationship: the role of academics At this stage, a new group of actors appears as a crucial link in the chain of performativity: academics working on the CSP-FP relationship. They will investigate empirically the performance of socially responsible corporations on financial markets and produce statements about the positive relationship between financial returns and corporate

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social performance (e.g. Waddock & Graves, 1997). According to cognitive and institutional academic biases well known from meta-analysts (Allouche & Laroche, 2005; Orlitzky et al. 2003) and due to the implicit normative project embedded in their approach (Rowley & Berman, 2000), they will tend to report more systemically empirical research exhibiting a positive relationship between CSP and FP. Doing so, they will bring their own contribution to the social construction of that relationship, by confirming empirically the existence of a positive relationship. Moreover, as a stakeholder of the field of CSR activity, they will tend to construct and to develop theories providing rationales for the existence of a positive CSPFP relationship. Proposition 9a: Academics engaged in the CSR field will be biased in the sense of reporting more systematically positive or neutral empirical results about the CSPFP relationship rather than negative empirical results. Proposition 9b: Academics engaged in the CSR field or research will tend to provide more theoretical explanations justifying the existence of a positive CSP-FP relationship than explanations justifying a negative relationship. [2d] Research as an instrument reinforcing beliefs about the CSP-FP convergence The previous outcomes of academics could produce real social effect due to its diffusion on financial sphere through media and its use by actors. Here, it could be expected that professionals and investors from the financial sphere will be more aware of studies presenting a positive relationship than others. First, these studies will be much more publicized and quoted than others, through mechanisms such as awards (e.g. Moskowitz Award) and Internet Website of association and groups engaged in the promotion and the diffusion of SRI or CSR behaviours (e.g. Business in the Society). Second, investors previously engaged in SRI activity and/or sympathetic to the idea of positive relationship between CSP and financial performance will tend to select information more coherent with their cognitive framework. Consequently it could be considered that

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empirical studies demonstrating a positive relationship between CSP and FP will contribute to confirm and reinforce beliefs in the existence of a CSP-FP relationship. Proposition 10a: Investors and professional of the financial world will be more aware of the academic publications showing a positive relationship between corporate social performance and financial performance than other academic publications. Proposition 10b: Academic publications showing a positive relationship between corporate social performance and financial performance will reinforce investors’ beliefs in the existence of a positive CSP-FP relationship. [2e] Academic research as a resource for “CSR entrepreneurs”. Finally, the studies and researches about the positive relationship between CSP and FP produced by academics could be also used by “CSR entrepreneurs” to reinforce the triggering mechanism previously highlighted. These works could help them to develop their own marketing and legitimacy-building. For example, the Website of INNOVEST, a social rating organization present reports building on academics researches and studies explaining why environmental performance could reduce risk and increase financial returns. Proposition 11: Actors implementing CSR activities on financial market will use academic publications showing a positive relationship between corporate social performance and financial performance as a resource to sell their CSR activity or product and/or to increase their legitimacy. The overall model is now completely ‘looped’: the table 2 summarises the set of research propositions mapping the ‘looping mechanisms’. -----------------------------------------------------INSERT TABLE 2 ABOUT HERE ------------------------------------------------------That model suggests that if each link in the chain is at play the convergence between CSP and FP on financial market assessed through financial market indicators and external

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CSP indicators will increase and across time, whatever the real impact of CSP on corporate economic efficiency.

DISCUSSION AND IMPLICATIONS

Implications for the study of the CSP-FP relationship The model implies that if we consider the CSP-FP relationship at a very cognitive level – as an idea or a belief more or less shared among a community of actors – it could be expected that mechanisms of triggering and looping will contribute to transform that idea into a social reality for actors. Consequently the model describes the ‘performativity’ of theories explaining the existence of a positive relationship between CSP and FP. Moreover, it suggests that these theories could be strongly performative, i.e. susceptible to increase their verisimilitude through social diffusion and adoption. That fact is nothing but obvious since some theories, even in financial economics seems to be counter-performative, i.e. susceptible to decrease their verisimilitude by being adopted by actors (MacKenzie, 2004). Of course, this model does not mean that others mechanisms could not be at play simultaneously and that CSP could not generate ‘positive’ and ‘direct’ effect through its impact on stakeholder behaviour (e.g. Rowley & Berman, 2000; Wood & Jones, 1995). However, the main objective here was to track one of the numerous chains of causality linking CSP to FP in order to better inform the knowledge about the multiple processes at stake in the interaction between these multidimensional constructs, in line with Dentchev (2004) and Ullman (1985).

Methodological implications The final model composed from 18 research propositions summarized in tables 1 and 2 can not be tested directly as a whole. However each subset of propositions – corresponding

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to a step in the global process of CSP-FP convergence – could be tested through suitable research design and adapted methodologies, and could generate new empirical studies. The triggering process propositions (propositions 1 to 6) and the last part steps of the looping process (propositions 9a to 11) suggest conducting new in-depth qualitative field studies of CSR markets. Moreover, the propositions linking the diffusion of beliefs in a positive CSPFP relationship to institutional factors on financial markets (especially proposition 4 to 8b) could be tested through cross-institutional and cross-temporal research designs, for example by assessing the diffusion of beliefs and of various aspects of the CSR activity across various contexts (e.g. financial market with a strong and well established segment of SRI as opposed to financial market with an emergent SRI activity) and/or the evolution of CSR activity development and assessments of CSP-FP beliefs in investors population across time. Finally, behavioural economists and cognitive psychologists have already developed methodologies well suited to assess the biases of investors toward information that could be of interest to investigate investors’ sensitiveness to CSR information in their portfolio management (propositions 7a to 8b).

Implications for the strategic analysis of CSR The present model is focused on the financial field, but ‘looping’ mechanisms selfenforcing the CSP-FP relationship could be at play in related field. For example, the observed convergence of CSP and FP by academics could also be used by consultants to produce various forms of ‘business case for CSR investment’ in order to convince top managers of corporations to develop CSR programs (see Gond, 2006). Indeed, the processes at play could be analyzed in other organizational settings in order to theorize the ways through which various CSR entrepreneurs are constructing markets for CSR or using theories to legitimate that concept. In the present paper, the model is focused on the explanation of the construction

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of a positive relationship between CSP and FP. However, it could be expected that actors trying to construct and implement beliefs in that relationship will face difficulties to convince other actors to adhere to that belief. These potentially numerous barriers offer perspectives for further empirical investigations. These barriers could be cognitive, e.g. if actors strongly believe alternative or incompatible theories about the impact of CSR (e.g. Ghoshal, 2005), but they could also be related to the materials aspects of their strategies, e.g. if “CSR entrepreneurs” lack the necessary resources to enrol a sufficient number of human and non human actants in their project (see Leca et al., 2006). Finally, by stressing the relationship between the CSR field and professional of CSR, the model invites to evaluate carefully the social responsibility of academics dealing with corporate social responsibility (Ghoshal, 2003 & 2005; Swanson & Frederick, 2003; Swanson, 2004).

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Figure 1. A model explaining the performativity of the ‘positive CSP-FP relationship’ and its potential self-full filling realization on financial market

[1]

TRIGGERING MECHANISMS Strategies of framing deployed by “CSR entrepreneurs” i.e. Social and cognitive construction of the CSP-FP convergence

[1a] Language and concepts [1b] Social norms [1c] Institutional arrangements

Investors’ beliefs in a positive CSP-FP relationship

[2a]

Investors’ behaviours toward CSP

[2] [2e]

[2d]

Observed convergence between CSP & FP

LOOPING MECHANISMS Self-full filling realization of the CSP-FP convergence on financial markets

[2c]

[2b]

Effective reward of firms demonstrating higher level of CSP

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Table 1. Synthesis of triggering mechanisms: Constructing beliefs in CSP-FP convergence Global Mechanisms

Processes at play

Research Propositions

Mobilization of language and discourse

Capture of financial language

[1a] The capture of financial language by organizations implementing CSR activities on financial markets will facilitate their social acceptance on these markets [1b] The capture of financial language by organizations implementing CSR activities on financial markets will enforce financial actors’ beliefs in a positive relationship between CSP and FP on these markets

Marketing instrumentation of the CSP-FP link

[2a] Actors implementing CSR activities on financial market will use the idea of a positive relationship between CSP and FP as a main marketing argument to sell their CSR activity or product [2b] Corporations will use the idea of a positive relationship between CSP and FP as a main argument to justify their engagement in CSR activities toward their stakeholders

Rationalization as beliefs reinforcement

[3a] The more actors are engaged in the implementation of CSR on financial market, the stronger are their beliefs in the existence of a positive CSP-FP relationship [3b] Mainstream financial actors’ tendency to believe in a positive CSP-FP relationship on a financial market and the development of CSR activity on that market are positively related

Development of social norms

Construction of artefacts

Maintenance of beliefs through professionalization

[4] The diffusion of beliefs in a positive CSP-FP relationship on a financial market is positively related to the level of CSR activities professionalization on that market

Diffusion of beliefs supported by mimetic processes and rationalization

[5] The diffusion of beliefs in the positive CFP-FP relationship on a financial market is positively related to the number of corporations engaged in CSR practices listed on that market

Embodiment of beliefs in material artefacts

[6] The diffusion of beliefs in the positive CFP-FP relationship on a given financial market is positively related to the diffusion of artefacts embodying CSR concepts and principles (e.g. ethical indexes, CSP quantified metrics) on that market

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Table 2. Synthesis of looping mechanisms: the CSP-FP convergence self-realized Global Mechanisms

Processes at play

Research Propositions

Influence investors’ beliefs about the CSP-FP relationship on their behaviours toward CSP

Rationalization

[7a] The more investors do believe in the CSP-FP convergence, the more likely they will put a corporation exhibiting high level of CSP in their portfolio for a given level of financial performance [7b] The more investors believe in the CSP-FP convergence, the less likely they will remove a firm exhibiting high levels of CSP from their portfolio, even when its financial performance decrease

Influence of investors’ behaviours toward CSP on the financial reward of corporations

Cognitive biases and rationalization

[8a] Corporations exhibiting high levels of CSP benefit from a lower cost of capital on financial markets that corporations exhibiting on financial markets where the SRI segment is well developed [8b] Corporations exhibiting high levels of CSP benefit from a larger access to resources on financial markets on financial markets where the SRI segment is well developed

Confirmation of the positive CSP-FP relationship

Social desirability and legitimation

[9a] Academics engaged in the CSR field will be biased in the sense of reporting more systematically positive or neutral empirical results about the CSP-FP relationship rather than negative empirical results [9b] Academics engaged in the CSR field or research will tend to provide more theoretical explanations justifying the existence of a positive CSP-FP relationship than explanations justifying a negative relationship

Influence of research accounting for a positive CSP-FP relationship on investors’ behaviours

Information selection bias

[10a] Investors and professional of the financial world will be more aware of the academic publications showing a positive relationship between corporate social performance and financial performance than other academic publications [10b] Academic publications showing a positive relationship between corporate social performance and financial performance will reinforce investors’ beliefs in the existence of a positive CSP-FP relationship

Use of research by CSR entrepreneurs

Legitimation and persuasion strategy

[11] Actors implementing CSR activities on financial market will use academic publications showing a positive relationship between corporate social performance and financial performance as a resource to sell their CSR activity or product and/or to increase their legitimacy

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