Director interlocks and the strategic pacing of CSR activities

Throughout years of corporate social responsibility (CSR) debates, most studies have focused on whether or not a firm should engage in CSR activities, while giving little attention to the firm’s engagement strategy. The purpose of this paper is to demonstrate the optimal way of engaging in CSR activities to maximize firm value while acting in a socially responsible manner.

The sample includes US-listed firms and was initially split into three categories (slow-paced, steady-paced and fast-paced firms) based on how fast the firm increased/decreased the pace of its CSR involvement. The sample was later split into firms that have interlocked directors and those that do not, to highlight the important role played by interlocked directors in moderating the relationship between CSR pace and firm performance.

Results suggest that firms engaging in CSR activities at a slow or steady pace experience superior financial returns than firms engaging in CSR activities at a fast pace. Further analysis indicates that rapid CSR involvement is counterproductive for firms with no interlocked directors. On the other hand, firms with interlocked directors benefit from their directors’ social network, and experience positive returns when engaging in CSR activities at a fast pace.

This study is of particular importance for firms establishing their CSR engagement strategies. The results highlight the optimal way a firm can engage in CSR activities while still maximizing shareholder wealth.

This paper is the first to study the pace determinants of a firm’s CSR engagement strategy. The absence/presence of interlocked directors is identified as a key moderating variable for the CSR–firm performance relationship. The study pinpoints the absence of interlocked directors as a constraint for firms that rapidly engage in CSR activities.