Speaking of Corporate Social Responsibility

The following post comes to us from Hao Liang and Luc Renneboog, both of the Department of Finance at Tilburg University, Christopher Marquis of the Organizational Behavior Unit at Harvard Business School, and Sunny Li Sun of the Department of Global Entrepreneurship and Innovation.

Linguists suggest that obligatory future-time-reference (FTR) in a language reduces the psychological importance of the future. Applying this to a corporate context, we theorize in this paper that companies with strong-FTR languages as their official/working language would be less future orientated and hence perform worse in future-oriented activities such as corporate social responsibility (CSR)—firms’ environmental, social, and governance engagement—compared to those in weak-FTR language environments.

In recent decades, economists have become increasingly aware of the importance of CSR, and study the degree to which organizational orientation towards the future affects corporate long-term performance (e.g., Guiso, Sapienza, and Zingales, 2013; Dimson, Karakas, and Li, 2013). Similar to management practices (Bloom and Van Reenen, 2007) and corporate governance (Doidge, Karolyi, and Stulz, 2007), CSR has been shown to be strongly influenced by the cultural and socio-economic environments firms operate in. Studies in this tradition typically relate CSR practices to a country’s national business system (NBS) bundles, such as political institutions, type of market competition, and cultural orientation. In particular, a growing body of research has considered CSR as a culturally embedded organizational behavior.

While empirical analyses have documented important differences in CSR practices between cultures, they also yield conflicting findings. That is, the very same cultural dimensions are frequently found to have opposite effects on CSR when using different samples and measurements of CSR. Theoretically, the inconclusive findings in the literature likely reflect the obscurity of the underlying mechanisms by which national cultural variation affects CSR. Empirically, given the durable nature of culture, the conflicting results are likely to be driven by either omitted variable biases or the inappropriateness of survey- and observation-based culture proxies, rather than by cultural changes between sample periods. Thus, the aim of our study is to both theoretically identify the underlying mechanisms of cultural influence on CSR, and empirically measure cultures in a more objective and theory-based way.

In our paper, Speaking of Corporate Social Responsibility, which was recently made publicly available on SSRN, we introduce a new way to think about the underlying variation in global CSR practices, as we focus on how differences in cross-national CSR commitment stem from characteristics of the languages spoken across the globe. Prior research has shown that one of the most important factors that shapes culture and creates variation in economic behavior across countries is the spoken language (Chen, 2013). Languages do not merely express thoughts that are rooted in culture; the structures within language also shape the very thoughts that people wish to express. A critical difference across languages is whether or not they require speakers to grammatically mark future events (compulsorily use the future tense to describe future events). According to linguists, grammatically separating the future and the present leads speakers to disassociate the future from the present, as this would make the future feel more distant. However for some languages, such as German, differentiating between the present and future is optional, not mandatory like it is in English. Linguistics research has shown that by having the present and the future in different conceptual categories, mandatory future-time reference (FTR) in a language reduces the psychological importance of—and hence a person’s concern for—the future (Dahl, 2000; Thieroff, 2000).

Following this line of thinking, we hypothesize that companies with strong-FTR languages as their official/working language are less future-orientated and, hence, perform worse in terms of CSR compared to firms in weak-FTR language environments. Examining thousands of global companies across 59 countries from 1999-2011, we find support for our theory. In addition, we also test factors that we expect to mitigate the negative relation between FTR and CSR performance. We demonstrate that the relation between FTR and CSR performance is weaker for firms that have greater exposure to diverse global languages as a result of (a) being headquartered in countries with higher degree of globalization, (b) being more international (with production or sales facilities abroad), and (c) having a CEO with more international experience and overseas education. These results are robust after controlling for legal origins, the rule of law, economic development, cultural values and religions, corporate governance, firm financials, and CEO characteristics. We also test our theory on firms in countries where several official languages are spoken (in separate areas), such as Switzerland and Belgium and find similar results. Our results are also upheld when we control for country fixed effects, which potentially rule out most alternative factors at the country level that affect both language FTR and firm CSR. Overall, our results suggest that language use by corporations is a key cultural variable that is a strong predictor of CSR and sustainability.

Our paper makes two main contributions to the literature. At the basic level, our study contributes to understanding the international variation in CSR. While some researchers have proposed that CSR is related to a deeply cultural process, there are inconsistent findings on which specific cultural mechanisms affect CSR. As we show in this paper, it is crucial to examine language as an important underlying—and largely exogenous—feature that shapes cultural values and norms in a society. Second, our research contributes to the ways in which perceptual category systems focus the attention and the behavior of corporate leaders. Our broader conclusion is that examining how and why language affects organizational behavior is essential to understanding differences in global organizational behavior.

The full paper is available for download here.

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