A Conceptualization of How Firms Engage in Corporate Responsibility Based on Country Risk

Abstract

This conceptual article looks at corporate responsibility (CR) and country risk claiming that there is a relationship, and then positing the directionality of the relationship. An understanding of this relationship can help firms respond to a variety of pressures from organizations and this knowledge may help firms prevent negative media coverage with the need to “bolt” CR strategies on to existing corporate strategies. When firms have an understanding of how country risk affects them, they can plan entire clusters of CR initiatives to fulfill needs within the operating community. To understand the CR–country risk relationship, the authors build on Matten and Moon’s (2008) distinction between implicit and explicit CR. The first argument is that firms engage in no explicit CR (explicit CR that is voluntary and goes beyond legal requirement) when country risk is very high. As country risk lowers to high, firms engage in explicit CR, which creates little impact to the firm if CR must be withdrawn. The second argument is that as country risk shifts to moderate, firms commence to engage in high levels of explicit CR and low levels of implicit CR. The third argument concludes that when country risk shifts to low or very low, firms will engage in the least amount of explicit CR and the most amount of implicit CR. A set of three propositions develops these arguments.