The financial benefits are greatest if the appointed executive is a woman.
This article is based on research by Frank Wiengarten
Do you want to improve your company's financial performance? If so, then hire a chief corporate social responsibility (CSR) officer.
Esade Associate Professor Frank Wiengarten and his research colleagues at the Hong Kong Polytechnic University have demonstrated that chief CSR officers, under certain conditions and with certain characteristics, improve a firm's financial performance in terms of return on assets.
Under what circumstances – and to what extent – can a chief CSR officer impact a company's financial performance?
"Our findings demonstrate that appointing a chief CSR officer does more than improve financial performance," says Wiengarten. "We employ a behavioural perspective and explore how certain characteristics of the CSR executive impact financial performance. We found that the best financial performance is achieved if the appointee is female with a CSR functional background."
The best financial performance is achieved if the appointee is female with a CSR functional background
To be effective, the chief CSR officer needs to be part of the top management team, which is directly involved with strategic decisions made by the CEO.
CSR and financial performance
Previous research has confirmed the impact that improvements in environmental and social performance can have on financial performance. According to Wiengarten, appointing a chief CSR officer can help to enhance a company's reputation, thereby positively affecting its financial performance.
"Effective sustainability strategies can help to reduce costs, which in turn can have a positive impact on financial performance," explains Wiengarten. "We believe that the chief CSR officer has a substantial influence on effective sustainability strategy."
Female chief CSR officers
Gender does matter. Previous research has demonstrated that gender diversity in the top management team can generate economic gains.
"Previous studies suggest that women are more concerned with ethical and CSR behaviours, are more inclined to build harmonious relationships and help others, and are more likely than men to be ethical," explains Wiengarten.
"In our study, we found that greater performance benefits can be expected in terms of ROA if the CSR executive is a woman."
Internal hire, functional background and newly created position
Other aspects that contribute to greater financial performance are for the CSR executive to be an internal hire (instead of externally recruited) and to have a relevant functional background, as it will allow him or her to be more influential in the firm's strategic decisions.
Another characteristic that contributes to improving firm performance is for the CSR position to be a newly created strategic role within the company. This sends signals to both internal and external stakeholders that the CSR role is being elevated to the strategic level.
The researchers warn that to implement an effective sustainability strategy, the chief CSR officer should have a high level of technical knowledge of the operations process as well as solid managerial skills to encourage a new corporate culture and liaise with various internal stakeholders.
This article is based on research published in the Journal of Business Ethics.
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