Seminar 16 June 2014

Corporate Social Responsibility as an Agency Device

Abstract

We argue that Corporate Social Responsibility (CSR) may affect the agency relationship inside a firm. In an initiative model, we analyze how both the threat of stakeholder activism and altruism influence effort of manager and shareholder, and describe how a shareholder may use CSR as a strategic device to alleviate the agency problem. We show how engaging in CSR may allow the shareholder to commit to less monitoring, thereby increasing managerial effort and raising profits. Thus, even a non-altruistic shareholder can potentially benefit from CSR. He may even find it optimal to sponsor an activist, giving it the means to exert pressure on the firm.

Keywords: Corporate Social Responsibility; Corporate governance; Agency; Stakeholder activism.
JEL classification: G30, M14.

Contact: Battista Severgnini and Cédric Schneider