Corporate Social Responsibility:
CSR Orientation, CSR reputation and
Supply Chain Relationships
By
Hans Meijer
Master Thesis: MSc BA, specialization: Strategic Innovation Management University of Groningen
Faculty of Economics and Business First Supervisor: Dr. J.D. van der Bij Second Supervisor: Dr. R. van der Eijk
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Acknowledgements
I would like to thank Prof. Dr. Hans van der Bij for his supervisory role and the excellent trainings in learning the basics of structural equation modelling in LISREL. I would also like to express my gratitude to Dr. Mirjam Kibbeling, Prof. Dr. Hans van der Bij and Prof. Dr. Arjan van Weele for their hard work on collecting and the opportunity for me to use such an extensive and unique data set.
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Abstract
Firms are increasingly focusing on stakeholder relationship management to increase CSR activities, but research on stakeholder management of multiple stakeholder relations in a supply chain remains scarce. Based on unique data from 88 supply chains I examine relationships between CSR orientation, CSR reputation, and the moderating effect of the strength of a relationship between supplier and focal firm. My findings explain that CSR orientation has a positive relation to CSR reputation, and that a focal firm’s CSR orientation is a mediator of supplier’s CSR orientation. Moreover, I find that when the strength of the relation between supplier and focal firm added as a moderator to this equation, CSR reputation is negatively influenced through the focal firm’s CSR orientation. These findings explain that supply chain CSR activities generate a better CSR reputation, but when upstream collaboration is introduced to increase CSP a negative effect on the perception of CSR reputation arises.
KEYWORDS: Corporate Social Responsibility, supply chain, stakeholder management, instrumental stakeholder theory, CSR reputation, CSR orientation.
INTRODUCTION
Corporate Social Responsibility (CSR) has been a part of management strategies for the last few decades, but only recently CSR has gained a lot of momentum. One only needs to take a look at the press headlines to see stories featured on human rights, safety recalls, poor supplier employee working conditions and many more CSR related topics. Rising stakeholder interest in CSR has spurred managers to invest more resources in promoting CSR activities (Donaldson & Preston, 1995). Over the years many firms have realised that they need to manage more stakeholder groups than just the general interests of shareholders to gain a long term competitive advantage (Donaldson & Preston, 1995; Freeman, 2010; Jones, 1980; Parmar et al., 2010). This article contributes to a growing understanding of how stakeholder relations are managed and how external CSR orientations influence firm outcomes.
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financial performance (Bendheim, Waddock, & Graves, 1998; Carroll, 1979; Husted & de Jesus Salazar, 2006), or how to measure CSR activities (Hack, Kenyon, & Wood, 2014; Wood, 2010), and CSR in relation with stakeholder management (Costa & Menichini, 2013; Peloza & Shang, 2011). Moreover, other scholars have reviewed CSR in different disciplines such as supply chain management (Homburg, Stierl, & Bornemann, 2013; Lindgreen, Swaen, Maon, Andersen, & Skjoett-Larsen, 2009; Pieter van Donk, van der Vaart, Awaysheh, & Klassen, 2010; Siguaw, Simpson, & Baker, 1998) and marketing (Luo & Bhattacharya, 2006; Powell, Balmer, Melewar, Podnar, & Golob, 2007). Needless to say that the research field remains highly fragmented, and more generalizable research should be conducted.
Recent advancements in Stakeholder management theory focus on mostly dyadic relationships in relation to Corporate Social Performance, stakeholder relations and firm performance (Garriga & Melé, 2004; McWilliams et al., 2006), which shows a gap for a multi-level supplier-focal firm-customer stakeholder approach. The little research that has been done on multiple stakeholder levels is located in the B2C environment, revealing the need for empirical verification of CSR influences between supplier, focal firm and customer in a B2B environment (Homburg et al., 2013). Andersen and Skjoet-Larsen (2009) identified a possible under researched avenue that proposes that there is no research on 2nd tier supplier’s CSR activities in relation to the customer.
Carter and Jennings (2002) research examines the roles of purchasing managers in CSR activities in regard to buyer-supplier relationships, their main findings are centred around supplier performance as a firm outcome. For this research I extend this view with the network theory of stakeholders influences coined by Rowley (1997).
There is a clear need for understanding underlying mechanisms that link CSR with organisational outcomes, specifically in the current literature there has not been much focus on the mediating roles of CSR activities (Aguinis & Glavas, 2012). In conclusion, this research paper will focus on how CSR oriented activities from supplier and focal firm affect CSR outcomes, and how supplier-buyer relationship intensification moderates these relations.
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What role does CSR orientation have in a supply chain setting?
How does supplier-focal firm collaboration affect the focal firm’s reputation in a CSR setting? To answer the questions I take a stakeholder management approach, and to be precise the instrumental stakeholder theory (Jones, 1995) with a few aspects from the stakeholder network theory (Rowley, 1997). The research is based on a supply chain setting, in which a key supplier, a focal firm and key customer are the main actors, following the example set by other scholars (Deshpandé & Farley, 1998; Farh, Tsui, Xin, & Cheng, 1998; Kibbeling, der Bij, & Weele, 2013; Kotabe, Martin, & Domoto, 2003). The model is tested using survey data from 88 matched supply chains.
This research paper will contribute to existing literature in several ways. First, the research contributes to stakeholder management ongoing discussion about the positive and negative impact of CSR activities on the firm’s outcomes. Second, it will combine social network theory with the instrumental stakeholder perspective and provide new insights on upstream integration and its effects on firm outcomes. Lastly, I contribute to a better understanding in CSR orientations in supply chains.
The next parts of this research paper are structured as follows. Firstly, in the theoretical background the literature on CSR, CSR integrative theories and stakeholder theories will be elaborated. Followed by a conceptual model that summarizes the main aspects of the theoretical development. Secondly, the hypotheses of the research drawn from the conceptual model are described. Thirdly, the research methodology presents the data collection, pre-test, measures and analysis, pathing the way for the empirical results. Lastly, there is a discussion and conclusion section, containing theoretical and practical implications, limitations and suggestions for future research.
THEORETICAL BACKGROUND
Corporate Social Responsibility
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territory in which most relevant theories are entrenched. The different research streams can be divided in four areas. The first area, instrumental theories is based on the economic dynamics of CSR between businesses and society, and how CSR activities are only a way to create company wealth (Garriga & Melé, 2004). The second area, political theories focuses on how businesses social power interacts with the political arena associated with this power, and how CSR activities are considered a company duty (Garriga & Melé, 2004). The third area, integrative theories, explains how businesses should integrate business and social demands, since society stakeholders are the building blocks for continuity and (financial) growth. The last and fourth area, ethical theories, explains that businesses should understand that ethical values are the bases of a relationship with society, and engagement in CSR activities is an ethical obligation for firms (Garriga & Melé, 2004).
In my research the integrative view of CSR is the most fitting, but instead of catering to generic responsiveness to social demands the focus is more on an indirect relation of stakeholder management in respond to societal demands, which is entailed in the stakeholder theory set by many scholars (Donaldson & Preston, 1995; Jones, 1995; Mitchell, Agle, & Wood, 1997; Rowley, 1997). Generally my assumptions on stakeholder management are that CSR orientation and repeated transactions with stakeholders leads to benefits for the firm and customer (Jones, 1995), but more up-stream integration on the supply side does not always lead to a better firm reputation, which takes a que from Rowley’s (1997) theory on the influence of stakeholder network structural relations.
Definitions
In this paper I follow the CSR definition from McWilliams and Siegel (2000) in which firms go beyond compliance and engage in “actions that appear to further some social good, beyond the interests of the firm and that which is required by law”.CSR related activities and actions are based on ethical behaviour, environmental impact and social issue management, examples of these are the use of green technologies, preventing sub human working conditions and selecting partners based on their social reputation (Bansal, 2005; Clarkson, 1995).
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environmental and societal needs in business processes”. CSR orientation can be related to different stakeholders of a business, in this research paper it represents the relationship with key suppliers and key customers. The moderating variable in this paper is the strength of relationship between supplier and focal firm, which is based on the work of Das and Teng (2002) and is defined as “the quality of the relationship with the supplier”. The quality is based on issues as trust and cooperation and the perception of these issues by the focal firm (Das, Bing-Sheng Teng, 2002). The outcome variable is CSR reputation which is adopted from Hansen, Samuelson and Silseth (2008) and is defined as “The overall CSR respectability within their industry evaluated by the customer”
The Landscape of Integrative CSR Theories
In the CSR literature there have been many different perspectives on social management theories. Garriga and Melé (2004) identify 4 research streams within the integrative CSR theories, namely, issues management, the principle of public responsibility, stakeholder management and Corporate Social Performance (CSP).
Issues management is based on social responsiveness and the process to manage issues related to this, which was first coined by Sethi (1975) and later advanced by Jones (1980) who discussed the idea that the process of CSR activities is of greater importance than the principles of CSR, leading to social responsiveness incorporation in issues management. Specifically, management issue response and process formalization.
Preston and Post (1981) criticized this process only approach and introduced “the principle of public responsibility”. This view states that public policy and law are determinants of a business behaviour towards CSR, and therefore firms would respond to these expectations.
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social issue response, a basic definition of social responsibility and a summary of social responsibility issues.
My research is based upon strategic orientations of CSR and upstream and downstream relationship management with regards to societal demands from customers and therefore stakeholder management is the leading theory in which this research takes place.
Stakeholder Theories
In a general way stakeholder theory explains the interests of different stakeholders in a firm’s resources, and how firms will act to maximize the well-being of stakeholder groups with a relation to the firm (Clarkson, 1995; Donaldson & Preston, 1995; Freeman, 2010; Jones, 1995). Freeman (2010) proposes that managers should focus on relations with stakeholders that increase firm outcomes instead of exclusively catering to the wishes of the stockholders and owners of the firm. Without the support of these stakeholders a firm’s performance might indirectly suffer. In summary, an organisation can be seen as a set of interdependent relationships with stakeholders (Donaldson & Preston, 1995; Jones, 1995).
There are two different kind of stakeholders, primary and secondary stakeholders, primary stakeholders are stakeholders that have invested something of value into the firm and secondary stakeholders can be defined as public stakeholder groups (Clarkson, 1995). In this paper I will use two of the primary stakeholders, the customer and supplier.
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Tang and Tang (2012) use stakeholder power theory to connect CSR orientation to stakeholder-firm power differences. Their findings show that stakeholders with an transactional relation or recursive exchange relations are a driving force for firm performance, and therefore stakeholders can have influence power on the firm. This theory is a combination of the stakeholder identification theory (Agle, Mitchell, & Sonnenfeld, 1999; Mitchell et al., 1997) and the resource dependency theory (Pfeffer & Salancik, 2003). In this research the relation between suppliers CSR orientation and focal firm’s CSR orientation is related to these theories.
The most useful theory in relation to this research is the instrumental stakeholder theory, this theory describes stakeholder directed activities in relation to customer benefits (Donaldson & Preston, 1995), and therefore activities directed at stakeholders must create value for these stakeholders (Jones, 1995; Sen, Bhattacharya, & Korschun, 2006). In this research I consider CSR orientation as stakeholder directed activities. Another aspect of instrumental stakeholder theory relies on managing stakeholder relations which translates in business performance leaning heavily on satisfying the major stakeholder groups (Parmar et al., 2010). Jones (1995) emphasises that CSR oriented activities and performance reveal a firms commitment to its stakeholders, which in turn lays the foundation for mutual trust and cooperation. Higher quality relationships with stakeholders like customers and suppliers based on mutual trust and cooperation have shown reductions in agency and transaction costs and therefore increase a firm’s performance (Jones, 1980). A second benefit is that in strong exchange relationships, like suppliers and customers, information asymmetry and uncertainty reduction is essential to foster long term relationships (Mitchell et al., 1997).
Rowley’s (1997) network theory on the influence of stakeholders on networks explains that managing multiple stakeholder expectations depends on density of a network and centrality of the focal firm in a network. If a focal firm chooses to collaborate with a supplier this influences the relation with the customer, resources could be allocated, which could tip the balance in the network (Rowley, 1997). In my research the strength of the relationship between supplier and focal firm is the factor that explains a stronger network tie. In the following chapter these factors will be elaborated on.
10 Table 1. Research streams and theories
Literature stream Theories Concepts Corporate Social Responsibility - Instrumental theories - Political theories - Integrative theories - Ethical theories
Economic dynamics of CSR between business and society (Garriga & Melé, 2004).
Business CSR activities and social interaction with the political arena (Garriga & Melé, 2004).
Businesses should integrate business and social demands (Garriga & Melé, 2004).
Ethical values are the bases of CSR based relations with society (Garriga & Melé, 2004).
Integrative Theories - Issues management - Principle of public responsibility - Stakeholder management - Corporate Social performance
Social responsiveness and the management of related processes (Jones, 1980; Sethi, 1975).
CSR activities are based on determinants like law and public policy (Preston & Post, 1981).
Managing all stakeholder groups to the best of expectations (Freeman, 2010)
Structuring management strategies to achieve social legitimacy (Carroll, 1979) Stakeholder theories - Stakeholder theory - Stakeholder power theory - Instrumental stakeholder theory - Stakeholder Network theory
Firms act to maximize the well-being of stakeholder groups (Clarkson, 1995; Freeman, 2010; Jones, 1995; Preston & Post, 1981).
Stakeholders gain influence power through transactional and recursive relations to thrust firm performance (Mitchell, Agle, & Wood, 1997; Tang & Tang, 2012).
11 Conceptual Model
To summarize the theoretical background discussion a conceptual model is presented in Figure 1.
Figure 1. Conceptual Framework of the study
The conceptual model of this study shows the relation between a key supplier, focal firm and a key customer. Based on arguments from the instrumental stakeholder theory (Jones, 1995), I hypothesize that supplier’s CSR orientation and focal firm’s CSR orientation both have a positive direct and positive mediated effect on CSR reputation. Additionally, from the instrumental stakeholder theory I hypothesize that the strength of the relationship supplier and focal firm has a positive relation to the focal firm’s CSR orientation. Lastly, based on the network theory of Rowley (1997) I propose that the strength of relationship supplier and focal firm negatively moderates the supplier’s and focal firm’s CSR orientation with respect to CSR reputation.
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HYPOTHESES DEVELOPMENT
The next section will elaborate on the research hypotheses depicted from the conceptual model in figure 1. First the relationship between CSR orientation and CSR reputation is described, second CSR orientation in a supply chain setting is examined, and lastly the moderating relationship of the strength of relationship on CSR orientation is considered.
CSR Orientation and CSR Reputation
Peloza and Shang (2011) are stating that a positive perception of CSR activities is mandatory to create customer benefits, CSR reputation is described as the customer perception of a firm’s CSR oriented behaviour. A healthy CSR reputation is a positive signal of a firms reliability and honesty (McWilliams & Siegel, 2000) and can indicate integrity (Sen et al., 2006). This part also holds true for the relation between focal firm and customer, where a focal firm’s CSR orientation is targeted at the customer’s societal demands (Wagner, Lutz, & Weitz, 2009).
Described in Jones’s (1995) instrumental stakeholder theory CSR reputation can be seen as an outcome that spurs long term organisational performance. Firms that invest heavily in CSR orientation embed CSR activities deep within their culture and create an environment where managers feel committed to the companies cause (Homburg et al., 2013). A focal firm customer relationship is based on exchanges, and with an increase in exchanges firms learn more about each other, further increasing CSR reputation. Logically, a higher amount of engagement in CSR activities at the focal firm should increase the perception of CSR reputation by the customer. Therefore it is hypothesised that:
H1: Focal firm’s CSR orientation is positively associated with CSR reputation.
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importance of supply chain CSR integration and collaboration is expected to have direct effects on the end user. Therefore, a supplier’s CSR orientation is expected to positively influence the customer’s perception of CSR reputation of the focal firm. It is hypothesised that:
H2: Supplier’s CSR orientation is positively related to focal firm’s CSR reputation
CSR Orientation in a Supply Chain
Mitchell, Agle and Wood’s (1997) stakeholder identification theory explains how a supplier has power over the focal firm through dependency on resources that the firm needs for survival (Pfeffer & Salancik, 2003). The power of suppliers over customers in relation to Corporate Social Performance (CSP) is found significant in previously conducted research (Agle et al., 1999). CSP is an indicator based on relations between a firm and its stakeholders and explains the downstream demand from suppliers (Mitchell et al., 1997). In conclusion, firms are reacting to these demands by developing CSR activities, increasing their CSR orientation.
A different perspective from supply chain management theory is that stakeholders and firms are increasingly responsible for CSR related behaviour in their respective supply chains (Lindgreen et al., 2009). Changes in societal demand pressure 1st and 2nd tier suppliers to engage in CSR activities which leads to downstream exertion of power in supply chains and integration of CSR strategies (Pedersen & Andersen, 2006).
CSR activities from a supplier are therefore expected to be carried down the supply chain. A greater importance for CSR at the supplier level is expected to translate in higher CSR activities at the focal firm level. A socially concerned supplier would not want to tarnish its reputation by low CSR oriented customers and vice-versa. Additionally, supplier and buyer are mutually dependent, in stakeholder theory both buyer and supplier gain benefits from managing their relationship and aligning strategies (Jones, 1980). Therefor it is hypothesised that:
H3: Supplier’s CSR orientation is positively associated with focal firm’s CSR
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The Strength of Relationship Focal Firm and Supplier and CSR Orientation
A key approach in the instrumental theory of stakeholder management is that developing relationships based on cooperation and trust can lead to a competitive advantage (Das, Bing-Sheng Teng, 2002; Jones, 1995). These relationships are built upon value creating factors for the stakeholders, which in turn strengthens relations (Donaldson & Preston, 1995). Building strong stakeholder relations are therefore a primary resource that could potentially be rare and inimitable, leading to a sustained competitive advantage (Barney, 1991; Pfeffer & Salancik, 2003).
Zhang, Ma, Su and Zhang (2014) find in their research that CSR behaviour and strategic CSR help develop strong relations with suppliers through enhanced corporate image, the also propose that vice-versa good relations act as a reinforcing cycle on CSR integrated activities. This is in line with Clarkson’s (1995) ideas on using primary stakeholder relationships as an indicator of Corporate Social Responsibility and Corporate Social Performance as indicator for the CSR activities at a relation level of analysis. The quality of these relationships have positive influence on the CSR activities of the focal firm and CSR activities of the supplier (Bendheim et al., 1998). In this paper the quality of relationships is defined as the strength of relationship, and CSR activities are considered CSR orientation. Based on these explanations it is hypothesised that:
H4: Strength of relationship between supplier and focal firm is positively related to focal
firm’s CSR orientation
Freeman’s (2010) theory on stakeholder relationships proposes that all relationships are interdependent and that each stakeholder collaboration group affects the outcomes of other relationships (Donaldson & Preston, 1995; Rowley, 1997). In the instrumental stakeholder theory there is the assumption that strengthening of stakeholder relations are a positive determinant of firm performance (Jones, 1995). Sen, Bhattacharya and Korschun (2006) find similar results in their research on CSR in strengthening multiple stakeholder relations, but a limitation of this research is that it is only limited to employees and consumers who do not have competing stakes in outcomes of relations.
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relationship, they could actively pursue to control external pressures on the end consumer (Rowley, 1997). Drawn from resource dependency a supplier-focal firm alliance could allocate critical resources through strategies to gain more power over the customer (Frooman, 1999; Pfeffer & Salancik, 2003; Rowley, 1997). The customer will most likely put up resistance to this uncertainty (Rowley, 1997) or will use influencing strategies with indirect withholding (Frooman, 1999). In this research a supplier-focal firm alliance is CSR based and therefore allocation of resources are interpreted as shifting CSR activities, leading to a less favourable CSR reputation. It is therefore hypothesised that:
H5: The strength of relationship supplier and focal firm negatively moderates the
relationship between supplier’s CSR orientation and Focal firm’s CSR orientation
In the instrumental stakeholder view and the network theory perspective the relations and the values created for the stakeholders are the main focusses. Relationship are idiosyncratic to different industries and I therefor expect market turbulence and technology turbulence to have positive effects on focal firm’s CSR orientation and CSR reputation. Drawing from the hypothesis development section the strength of relationship and CSR orientation, it is a clear that power plays a major role in firm outcomes, therefore I control for consumer buyer power at the CSR reputation level.
RESEARCH METHODOLOGY
The data set used in this research was originally collected for a PhD research conducted by Dr. Mirjam Kibbeling, Dr. Hans van de Bij and Dr. Arjan van Weele, the creation took place in the Netherlands, and was completed in 2010. The elaboration and use of this set in this research paper is my adoption and adaptation of their methodological approach.
Sample And Data Collection
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to be most knowledgeable about strategic orientations of their respective organisations. Participating general managers or executives of focal firms where approached to identify one of their key suppliers and one of their key customers based on the following criteria: (1) one of their top three suppliers/customers that (2) is perceived crucial for running business operations of the focal firm. Other studies that adopted a supply chain setting were followed (Deshpandé & Farley, 1998; Farh et al., 1998; Kotabe et al., 2003; Langerak, 2001; Siguaw et al., 1998). Key suppliers and key customers increase the reliability of potential supply chain effects (Kotabe et al., 2003).
Three professional platforms databases provided contact details for 885 executives: CSR Netherlands (MVO Nederland, 382), VOKA Chamber of Commerce Kempen (400), and buyers’ cooperative INKA (103). Consultants and freelancers where excluded because they were expected not to have any key supplier relationships. In total 528 executives where contacted by telephone and invited to fill in a questionnaire through a web enabled survey tool or through a digital version via email. The executives and general managers were asked to provide names and addresses of their contact person at a key customer and supplier. The suggested contact persons where personally contacted for an invitation to fill in the web enabled survey.
A total of 182 (34,5%) respondents indicated that they would participate in the research, from which 125 (68,7% of the sent questionnaires) actually completed the questionnaire after reminders by e-mail and telephone. Next to the questionnaires the executives provided contact details for 95 customers and 98 suppliers (53.3% of the participants that received the questionnaire). After several reminders, 185 of the 193 contact persons at supplier and customer firms returned their questionnaires. In this article only matched chains were included, and therefore the final number of supply chains was 88 (48.4% of the focal firms that received the questionnaire and thus could lead to matched chains of questionnaires). The focal firms of these 88 supply chains were operating in manufacturing (36 firms: 40.9 %), construction (22 firms: 25.0 %), information and communication (11 firms: 12.5 %), wholesale and retail trade (7 firms: 7.9 %), administrative and support service activities (4 firms: 4.5 %), other Industries (8 firms: 9.1 %).
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Overton (1977). The results showed that there was no significant difference at a 95% confidence interval.
Pretest
As the primary mean for data collection a questionnaire was used. To best serve international supply chain partners the original questionnaire was written in English and then translated to Dutch. The Dutch version was developed using the parallel translation/double translation method (Adler, 1983; Sekaran, 1983). Two independent translators translated the English questionnaire into Dutch and the English questionnaire was translated back into English by two different independent translators. Inconsistencies and differences where resolved through group discussion and the final questionnaire was modified for logical meaning.
The questionnaires were developed from literature if it was available and used existing scales from that literature. I the case of CSR orientation a new scale had to be developed, which was adapted from validated scales on another construct, market orientation. To test the new developed scale a pretest was conducted in three supply chains by interviewing three focal firms, three suppliers and three customers.
The interviews were recorded and carefully monitored, the interviewees were encouraged to “think aloud” during assessing and answering the questions (Hunt, Sparkman Jr, & Wilcox, 1982). The analysis of the pretest resulted in more fine-tuned adaptations. In the Appendix a full list of the measurement scales of the survey constructs and the response format, a 1-7 Likert scale.
Measures
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corporate social responsibility as one aspect of our firm’s strategy”, “We monitor the environmental impact of our business (unit)”, “Our business (unit) objectives include matters of corporate social responsibility”, “Our processes and products are more environmentally friendly than those of our main competitors” and “We support local communities better than our competitors do”.
The strength of relationship supplier and focal firm scale is adopted from the theory of Das and Teng (2002). The items on this scale are based on trust and control between partners in strategic alliances. The 7 item Likert scale included items like “The relationship with our main supplier is mostly based on trust”, “We are prepared to take the risk of the first step for closer collaboration with our most important suppliers (sharing know-how, or price structures)”, “With our most important suppliers we are actively sharing useful information for both parties” and “We are prepared to readjust agreements with our most important suppliers if the situation calls for it”.
Supplier variables, the contact person from the main supplier was asked for the suppliers CSR orientation. The CSR orientation scale was identical to the previously mentioned scale for the focal firm. The results of the confirmatory factor analysis had me drop 4 items, which left a 3 item subset of the original scale including items such as “We have routines to reduce our energy consumption”, “Our business objectives include matters of corporate social responsibility” and “We consider ourselves more sensitive to environmentally friendly behaviour than our main competitors”.
Customer variables, at the customer level CSR reputation was measured. The definition used for CSR reputation was “the perceptual representation of the firm’s overall CSR appeal when compared to rivals” (Kibbeling et al., 2013). The scale for CSR reputation was based on existing literature on customer-based corporate reputation (Hansen et al., 2008; Walsh, Beatty, & Shiu, 2009; Walsh, Mitchell, Jackson, & Beatty, 2009). The 7-item scale measured CSR reputation generally, CSR reputation compared to focal firm’s competitors, and CSR reputation’s perception. Questions were for instance, “This supplier has a good reputation in the market for conducting fair business practices”, “This supplier has a good reputation among my colleagues for its environmental engagement”, “This supplier really supports local community initiatives” and “Public relations activities of this supplier strongly emphasise its activities for corporate social responsibility”.
19 Table 2. Description of variables
Control variables, on the customer side I used buyer power (Narver & Slater, 1990) defined as “the ability from the end user to negotiate lower prices from the focal firm”, and on the focal firm’s side I used market turbulence (Jaworski & Kohli, 1993) defined as “the rate of change in the composition of customers and their preferences”, and technology turbulence (Jaworski & Kohli, 1993) defined as “the rate of technological change within the industry”. For buyer power one item is measured “we are in a position to negotiate lower prices from this supplier”. In the case of market turbulence the average of two measured items is taken, namely “In our kind of business, customers’ product preferences change quite a bit over time” and “Our customers tend to look for new products all the time”. Lastly for technological turbulence there were also two items measured and averaged, “Technological changes provide big opportunities in our industry” and “The technology in our industry is changing rapidly”.
Analysis
The descriptive statistics and correlations for the constructs in my conceptual model are depicted in Table 3. There is a relatively high correlation between CSR reputation and Focal firm’s CSR reputation, and between market turbulence and technology turbulence. These correlations stay below
Variable Scale Definition
Supplier’s CSR orientation Ordinal “the set of cross-functional processes and activities directed at continuously identifying and integrating environmental and societal needs in business processes” (Deshpandé & Farley, 1998).
3 items measured on a 7 point Likert scale.
Focal firm’s CSR orientation Ordinal “the set of cross-functional processes and activities directed at continuously identifying and integrating environmental and societal needs in business processes” (Deshpandé & Farley, 1998).
5 items measured on a 7 point Likert scale. Strength of relationship
supplier and focal firm
Ordinal “the quality of the relationship between the focal firm and the supplier” (Das, Bing-Sheng Teng, 2002).
4 items measured on 7 point Likert scale.
CSR reputation Ordinal “The overall CSR respectability within their industry evaluated by the customer” (Hansen et al., 2008).
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.50, which is acceptable considering multi collinearity, and did not prevent a good model fit in the CFA and path analysis.
Table 3. Descriptive Statistics and Correlation Matrix
Mean St.Dev. 1 2 3 4 5 6
Respon-dent Supplier’s CSR orientation 1 5.06 1.21 Supplier Focal firm’s CSR orientation 2 4.68 1.35 .17 Focal Firm Strength of relationship
supplier and focal firm
3 5.28 1.05 .00 .21* Focal
Firm
Market turbulence 4 4.35 1.31 -.19 -.25* .29* Focal
Firm Technology turbulence 5 4.84 1.33 -.07 -.08 .26* .46* Focal
Firm CSR reputation 6 4.66 1.00 .17 .35* -.02 .29* -.15 Customer End-user buyer power 7 4.70 1.37 .08 .15 .18 -.10 .11 .16 Customer
*p<0.05
Firstly, I performed an exploratory factor analysis (EFA) using principal component analysis with varimax rotation in SPSS 22. The EFA was performed for all variables simultaneously. After reviewing the loadings in relation to the constructs I deleted the items that had multiple loadings or had low values within their respective construct. Secondly, I performed a confirmatory factor analysis (CFA) by maximum likelihood estimation in LISREL 8.8 for a more robust check on the results from the EFA. The CFA was also carried out on all variables simultaneously. The measurement model based on the results of the CFA is presented in Table 3 below.
Table 4. Confirmatory Factor Analysis Loadings, T-values, Cronbach’s α, Average Variances Extracted (AVE) and Composite Reliabilities (CR)
Construct Item Factor
Loadings T-Value Cronbach’s α, AVE and CR Customer perceived CSR reputation CR1 CR2 CR3 CR4 .73 .90 .78 .66 7.45 10.00 8.16 6.60 α = .85 AVE = 0.60 CR = 0.85 Focal firm’s CSR orientation SO1
21 SO4 SO5 .61 .67 5.91 6.69 Supplier’s CSR orientation SSO1
SSO2 SSO3 .82 .72 .63 7.46 6.57 5.73 α = .76 AVE = 0.53 CR = 0.77 Strength of relationship
supplier and focal firm
BSR1 BSR2 BSR3 BSR4 .55 .88 .59 .74 5.13 8.95 5.57 7.30 α = .78 AVE = 0.49 CR = 0.79
Χ2=99.40; df=98; RMSEA=0.013; NFI=.87; CFI=.99; GFI=.88
In Table 4 the Cronbach’s alpha, the average variance extracted (AVE) and composite reliability (CR) are reported per construct. The Cronbach’s alpha calculated in SPSS 22, ranges from .76 to .84, which is an acceptable range (Nunnally, 1978). The AVE calculated in Excel 2013 ranges from .52 to .60 and the CR, also calculated in Excel 2013 ranges from .77 to .85; these are also acceptable (Fornell & Larcker, 1981). With regard to the measurement model the general fit of the CFA, incorporating all of the constructs is acceptable, Χ2=99.40; df=98; RMSEA=0.013; NFI=.87; CFI=.99; GFI=.88 (Hair, Black, Babin, Anderson, & Tatham, 2006).
Convergent validity was demonstrated, all the loadings on the respective constructs were found highly significant (p<.001) and standardized loadings of the items were greater than .5 (Fornell and Larcker 1981). Also, discriminant validity was proven, inter-factor correlations were absent with a confidence interval containing a value of one (p<.01) and within each pairs of constructs, the shared variance observed is lower than the minimum of their AVE’s (Fornell & Larcker, 1981).
Data on focal firm’s CSR orientation and strength of relationship focal firm and supplier where gathered from the same source, so I performed a Harman’s single factor test with a principal axis factoring extraction and no rotation in SPSS 22, to check for common method bias in the two variables, and for robustness I performed the test again on all variables in the measurement model. The results showed that a single factor explained 31,5% variance on the focal firm’s variables and 21,7% variance on the whole measurement model, staying well below the threshold of 50%. Concluding that the measurement models have a good fit with the data, and the structural equation model can be tested.
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a path analysis using the maximum likelihood estimation procedure in LISREL 8.8. I ran the hypothesised model including the control variables. Although the model fitted the data well and the fit indices exceeded the acceptable level, the modification index suggested that the model could be improved. Another run of the program with additional paths between two of the control variables and the variable focal firm CSR orientation had an even better fit. The path coefficient estimates resulting from this final analysis are presented in Figure 2. The final model had a satisfying fit, χ2=1.89, df=3, RMSEA=.000, NFI=.98, CFI=1.00, GFI=0.99
RESULTS
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between supplier’s CSR orientation and focal firm’s CSR orientation, this hypothesis was also strongly supported with a β-coefficient of .29 (p<.01). Hypothesis 3 related supplier’s CSR orientation and CSR reputation in a positive direct relationship, which was not supported. The results partially support my prediction of hypothesis 4 where the strength of relationship between supplier and focal firm positively influences focal firm’s CSR orientation, with a β-coefficient of .18 (p<.1). Lastly, my conceptual model had a moderation effect, namely the interaction of the strength of relationship between supplier and focal firm on CSR orientation. Therefore a new independent variable was computed in Excel 2013. For the moderator, I created the interaction terms by depending on mean centred indicators that were outcomes of the two variables (Marsh, Hau, & Wen, 2004). A significant relationship was found for hypothesis 5 where the strength of relationship between supplier and focal firm negatively moderates the CSR orientation relation between supplier and focal firm, with a β-coefficient of -.23 (p<.05), the path coefficient of the latent interaction term is significant in the predicted direction, further supporting hypothesis 5.
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DISCUSSION AND CONCLUSION
Drawing from the stakeholder management theory I looked at Corporate Social Responsibility (CSR) in a supply chain setting. More specifically, the CSR orientation of both supplier and focal firm in relation to the focal firm’s CSR reputation and how this relation is moderated by strength of the relation between supplier and focal firm. My key findings in relation to the research question “what role does CSR orientation have in a supply chain setting” are that CSR orientation is an important factor in building CSR reputation. The results show strong support that CSR orientation has a positive relation to CSR reputation. Focal firm’s CSR activities and supplier’s CSR activities mediated by the focal firm’s CSR orientation both have a significant impact on building focal firm’s CSR reputation as perceived by the customer. Additionally, an interesting unexpected finding is that a supplier’s CSR orientation has no direct effect on CSR reputation, this result could be explained by that the customers do not have insight in the 2nd tier supplier’s CSR activities.
Secondly, the more CSR oriented a supplier’s activities are the more likely those activities will increase CSR orientation of the focal firm. Thirdly, the strength of the relationship between supplier and focal firm has a positive relation to a focal firm’s CSR orientation. Lastly I will answer the research question “how does supplier-focal firm collaboration affect the focal firm’s reputation in a CSR setting”, as expected the strength of the relationship as a moderator on CSR orientation has a negative influence, showing that up-stream CSR collaboration with suppliers does not increase CSR reputation. The more intensified this relation becomes the worse the CSR reputation will become. A more in depth relation to theory will be explained in the following section
Theoretical Implications
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behaviour. In the instrumental stakeholder theory there is a shortcoming of testing multiple stakeholder relations simultaneously and in the network view there is clear call for empirical testing, this research fills that void.
The findings in this study explain several theoretical implications. First, the results of this research indicate that CSR activities in the form of CSR orientation have a positive effect on CSR reputation. My findings indicate that these activities have an influence on the perception of the CSR reputation by the customer. Externally oriented behaviour to create long term benefits for the stakeholders is a great part of instrumental stakeholder theory and general stakeholder theories (Donaldson & Preston, 1995; Freeman, 2010; Jones, 1980, 1995), but there have been a lot of mixed results from CSR related activities in relation to firm performance and outcomes. Recently, light is shed on these discrepancies by Orlitky et al. (2003) who showed in their meta-analysis that CSR activities and CSR performance generally have a positive relation to firm value, which is in line with the findings in this paper that CSR oriented activities do indeed increase firm outcomes. Future research might investigate how these CSR activities effect other stakeholder groups beyond the customer, perhaps even secondary stakeholders to provide a more balanced view of actual reputation.
Second, I found no direct relation between supplier CSR orientation and CSR reputation, which explains that customers might not have a clear picture of what a supplier’s strategic CSR activities are. However, there was a significant indirect relation found where focal firm’s CSR orientation acted as a mediator. Further empirically proving that instrumental stakeholder theories on managing relations to increase firm outcomes is validated.
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Fourth, the results of this research show that strong relationships with suppliers have a significant positive effect on a firm CSR activities. This is in line with stakeholder theories (Donaldson & Preston, 1995; Freeman, 2010), but also with empirical evidence (Clarkson, 1995) that firms engage in stakeholder management for performance related reasons.
Fifth, my findings integrate aspects of the network theory of stakeholder influences into the instrumental stakeholder theory. My model shows that relationships with suppliers might not always yield results in from a CSR point of view. Moreover, Bhattacharya, Korchun and Sen (2009) agree that strengthening stakeholder company relationships might lead to indirect negative firm performance, strengthening on the one side can lead to uncooperative behaviour on the other. Recently in the stakeholder stream there has been a lot suggestions that Corporate Social Performance is measured at the relationship level (Brammer & Pavelin, 2006; Waddock & Graves, 1997; Zhang et al., 2014) and how this stakeholder management can lead to competitive advantages. My findings empirically prove the proposition of Rowley (1997) that changes in stakeholder relationships can create an imbalance in power and partners might try and allocate resources to the detriment of e.g., the customer. A lot of research on stakeholder relations is currently done and there are mixed findings, regarding different stakeholder groups. Future research could focus on empirically testing and finding a more detailed approach on how different stakeholder management approaches on groups, partners and relations influence one another.
Managerial Implications
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satisfaction. Therefore upstream supplier integration should be carefully monitored and the customer should be involved into the collaboration process, to keep network ties and power distribution balanced (Rowley, 1997). In summary, when managers or executives have stakeholder maximizing interests and act to the well-being of multiple groups related to the firm, deeper relationships with suppliers need to evaluated for possible negative side effects.
Managers should also recognise that a supplier CSR orientation might be projected downstream due to resource dependency (Pfeffer & Salancik, 2003) and stakeholder’s power over the focal firm (Mitchell et al., 1997), and although this downstream CSR orientation positively influences the CSR reputation of the firm, managers should asses if they have resources and commitment necessary to engage in these activities, when engaging in recursive exchange relations with these suppliers.
Limitations And Future Research
As with every other research, my research had several limitations. First the dependant variable CSR reputation is based on the perception of a key customer. One might argue that the relation with a key customer has a certain bias towards positive perception, more distant customers could differ in opinion. The formulation of the questionnaire items is mostly based on how the customer would compare CSR activities to the focal firm’s competitors. Therefore information from a broader base of customers or from more stakeholder groups would provide a more balanced perspective.
Second, the measurement of CSR reputation is conducted in a very general manner, the items on the questionnaire do not provide a deeper insight in what kind of CSR activities are measured and how they relate to the general concept. Examples of dimensions in which a distinction could be made are ethical, environmental and social. Future research could make a distinction between these dimensions to examine in what types of CSR increase the reputation of the focal firm is important, which is also proposed by Aquilera, Rupp, Williams and Ganapathi (2007).
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address this issue by collecting data on multiple partners in supply chains which could provide a better spread of input information.
Fourth the strength of relationship between supplier and focal firm is based on the theory of Das and Teng (2002) which depicts trust and cooperation as the main antecedents of the strength of the relationship, many scholars have recently acknowledged that cooperation and trust are two different constructs with different impacts and relations to relationship management (Homburg et al., 2013). Future research might divide the strength of relationship between supplier and focal firm into two different constructs, trust and cooperation.
Fifth, this research was conducted on focal firms within Belgium and The Netherlands, while the Benelux has a diverse set of values, it might not be representative for regions as Asia or the United States. Future research could focus on a more global approach increasing generalizability of the results. Lastly, the findings that the influence of a stronger focal firm-supplier relation negatively impacts the CSR reputation of the focal firm does not fare well with empirical evidence from a lot of stakeholder and supply chain theories. Further empirical testing is needed to lay more groundwork for theory development, I suggest combining aspects from, and incorporate resource dependency theories with stakeholder theories (Frooman, 1999; Mitchell et al., 1997).
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APPENDIX
Supplier Variables
Supplier’s CSR orientation (adapted from (Deshpandé & Farley, 1998)) (α = .76)
Please evaluate the following statements on a scale of 1 (strongly disagree) to 7 (strongly agree). 1. We have routines to reduce our energy consumption.
2. Our business objectives include matters of corporate social responsibility.
3. We consider ourselves more sensitive to environmentally friendly behaviour than our main competitors.
Focal Firm Variables
Focal firm’s CSR orientation (adapted from (Deshpandé & Farley, 1998)) (α = .84)
Please evaluate the following statements on a scale of 1 (strongly disagree) to 7 (strongly agree). 1. We consider corporate social responsibility as one aspect of our firm’s strategy.
2. We monitor the environmental impact of our business (unit).
3. Our business (unit) objectives include matters of corporate social responsibility.
4. Our processes and products are more environmentally friendly than those of our main competitors.
5. We support local communities better than our competitors do.
Strength of relationship between supplier and focal firm (Das, Bing-Sheng Teng, 2002) (α = .78) Please evaluate the following statements on a scale of 1 (strongly disagree) to 7 (strongly agree).
1. The relationship with our main supplier is mostly based on trust
2. We are prepared to take the risk of the first step for closer collaboration with our most important suppliers (sharing know-how, or price structures)
3. With our most important suppliers we are actively sharing useful information for both parties 4. We are prepared to readjust agreements with our most important suppliers if the situation calls
for it.
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1. In our kind of business, customers’ product preferences change quite a bit over time. 2. Our customers tend to look for new products all the time.
Technology Turbulence (Jaworski & Kohli, 1993)
1. Technological changes provide big opportunities in our industry. 2. The technology in our industry is changing rapidly.
Customer variables
CSR reputation (adapted from (Hansen et al., 2008)) (α = .85)
Please evaluate the following statements on a scale of 1 (strongly disagree) to 7 (strongly agree). 1. This supplier has a good reputation in the market for conducting fair business practices. 2. This supplier has a good reputation among my colleagues for its environmental engagement. 3. This supplier really supports local community initiatives.
4. Public relations activities of this supplier strongly emphasize its activities for corporate social responsibility.
End-user buyer power (taken from (Narver & Slater, 1990))
