The paper studies the relationship between social capital (SC) and Corporate Social Responsibility (CSR) by investigating the idea of a virtuous circle between the level of SC and the implementation of CSR practices that favours the creation of cooperative networks between the firm and all its stakeholders by promoting the spread of social norms of trust, trustworthiness and cooperation.

Following the literature on SC that stresses its multidimensional character (e.g. Paldam 2000), and starting from the distinction introduced by Uphoff (2000), a cognitive and a structural dimension of social capital are considered. The former essentially refers to the dispositional characters of agents that affect their propensity to behave in different ways. The latter refers to social networks connecting agents.

More specifically, cognitive social capital is defined in terms of beliefs and dispositions. Beliefs (in the behaviour of others) depends on the behaviour that others have already exhibited in the past and can be generated (or reinforced) by ethical commitments undertaken by them (for example if agents subscribe to an agreement on a ideal principle). Dispositions principally stem from the norms and values shared in the community where agents live; but they also depend on micro elements (e.g. genetic and psychological factors). Both beliefs and dispositions can promote (or, obviously, reduce) trust and propensity to cooperate.

Structural social capital is constituted by cooperative linkages between agents. Three factors able to promote the creation of structural social capital are essentially considered: a) beliefs that others will cooperate, b) disposition to cooperate and c) the existence of believable sanctions against the agents that decide not to cooperate.

With respect to the corporate social responsibility, a contractarian approach is adopted and CSR is defined as a “model of extended corporate governance whereby those who run a firm (entrepreneurs, directors and managers) have responsibilities that range from fulfilment of their fiduciary duties towards the owners to fulfilment of analogous fiduciary duties towards all the firm’s stakeholders” (Sacconi 2006).  According to this approach, CSR is a voluntary model of corporate governance. To be socially responsible, the firm must subscribe an explicitly announced standard that sets out general principles, whose contents are such to elicit stakeholder consensus, as well as explicit commitments to compliance with principles and rules which are to be known ex ante by stakeholders. The standard must contain explicit norms with an appropriate structure that must be endorsed by the firm and established in the light of a multi-stakeholder social dialogue, such to induce impartial acceptability. It is by adopting the standard that the firm extends the concept of fiduciary duty from a mono-stakeholder setting to a multi-stakeholder one. The adoption of a explicit standard makes self-regulation a voluntary but not discretionary approach.   

Among stakeholders, a original distinction between “strong” and “weak” stakeholders is introduced. The key element that allows to distinguish between strong and weak stakeholders concerns the consequences that the break in the relationship with the firm produces both on the stakeholder and on the firm. Both these two categories have made specific investments in the firm. However, strong stakeholders are precious for the firm because they bring in strategic assets. On the contrary, weak stakeholders do not bring strategic assets into the firm and firms have material incentives at defecting in the relationship with them.

Considering the notions of cognitive and structural SC, a contractarian approach to CSR and the distinction between weak and strong stakeholders, the paper shows, by using the tools of psychological game theory, the role of cognitive social capital and the adoption of CSR practices in promoting the emergence of social norms of trust, trustworthiness and cooperation which favour the creation of cooperative networks between the firm and all its stakeholders. In particular, the model developed in the paper considers a network of repeated relations between the firm and its stakeholders. The firm plays repeated prisoner’s dilemmas with all its weak stakeholders and plays an enlarged version of the trust game with its strong stakeholders. In this context, both strong and weak stakeholders are under the risk of abuse of authority (i.e. the firm may decide to behave opportunistically with both the types of stakeholders, that is the firm may decide to defect against its stakeholders the game in which they are involved). Nonetheless, the strong stakeholders have the possibility to punish the firm which abuses by stopping to cooperate with it. The gain that the firm gets by cooperating with the strong stakeholders reduces the risk of abuse for the latter. Conversely, the weak stakeholders do not have any possibility to avoid the abuse, because the firm is not interested in starting a cooperation process with them and, consequently has no fear of a sanction by the weak stakeholders.

According to the idea stressed in the paper, if (strong) stakeholders are endowed by high cognitive SC in terms of dispositions to cooperate with agents who conform to principles of cooperation and they believe that the firm will be cooperative with all the stakeholders in the network (for example because the firm has adopted a CSR standard), then the firm who contradicts these beliefs by behaving opportunistically with weak stakeholders (i.e. by defecting in the prisoner’s dilemmas) faces the sanction of the strong ones who may decide to stop cooperating with it. In presence of an appropriate structure of dispositions and beliefs (cognitive SC), the punishment of strong stakeholders, that consists in stopping their cooperation with the firm, may be a protection against opportunistic behaviour of the firm also for the weak stakeholders. It creates the condition to generate a sustainable networks of cooperative relations between the firm and its stakeholders, a network which would not be sustainable otherwise. For this reason, cognitive social capital (in terms of belief and dispositions) and CSR declaration generate the condition for the emergence of social norms of trustworthiness and cooperation which start from the relationship between the firm and its strong stakeholders and spread all over the network.

The paper presents three main results:

1. The level of cognitive SC, in terms of dispositions,  plays a key role in providing incentives for the firm to adopt and observe CSR practices which respect to all the stakeholders;
2. The adoption of formal instruments of CSR creates cognitive social capital (in terms of beliefs);
3. The level of cognitive social capital (both beliefs and dispositions) and the decision to adopt CSR practices generate structural social capital understood as long-term cooperative relationships between the firm and its stakeholders, even though, by looking at the material payoffs characterizing the single relationships, the firm would not have any incentives to cooperate with weak stakeholders. We show that strong stakeholders endowed by high cognitive social capital, who start cooperating with a firm who adopts a CSR standard, have the interest in punishing the firm if it is not cooperative with weak stakeholders. The sanction can induce the firm in cooperating also with weak stakeholders and it generates cooperative networks that would not be sustainable without the power of the sanction.

 References

Paldam, M. (2000),”Social Capital: one or many? Definition and Measurament”, Journal of Economic Surveys, 14 (5), 629-653.

Sacconi, L. (2006),”A Social Contract Account For CSR as Extended Model of Corporate Governance (I): Rational Bargaining and Justification”, Journal of Business Ethics, Special Issue on Social Contract Theories in Business Ethics, 259-281.

Uphoff, N. (2000),”Understanding Social Capital: Learning from the Analysis and Experience of Participation”, in P. Dasgupta and I. Serageldin (eds),Social Capital : A Multifaceted Perspective, Washington, The World Bank.