Purpose
Many indicators attempt to measure the social performance of a company from different perspectives. Grounded in stakeholder theory, this paper aims to propose capitalising the economic value distributed annually to society over a period of time, hereafter called a firm’s cumulative contribution to society (CCS). This can be done by including everything that stakeholders value; for example, payments of taxes, remuneration of employees, payments to suppliers and creditors, donations, dividends, research and development expenses and efforts to improve the environment.
Design/methodology/approach
First, this paper makes a methodological proposal about how to calculate the CCS and discusses potentials and shortcomings. Then, a set of hypotheses are formulated about the firm characteristics and country attributes that make the most positive contribution to society such as business models, financial performance, a country’s human development, income equality and the extent of its shadow economy. The authors also argue that a company that originally contributes to society will continue to do so because of the structural inertia faced by organisations. The hypotheses were validated with an empirical study conducted with a sample of 9,276 new-born European companies.
Findings
The most significant contributors to society are large, profitable companies, which are leveraged but solvent, with high asset turnover and high-profit margins and which are productive and pay high wages. Unfortunately, this win-win situation describes a small percentage of the explained variance, which can explain why social and financial performance sometimes do not go hand-in-hand. The paper identifies features of other types of companies that contribute to society, suggesting criteria for socially responsible investors. Country development favours the cumulative contribution that firms make to society.
Research limitations/implications
Most accounting systems do not collect all the information necessary to calculate a refined version of the indicator such as percentage of purchases from local suppliers, percentage of salaries for executives and disabled employees and percentage of financing from socially responsible financial entities. The authors encourage modification of the accounting systems to include those aspects.
Practical implications
This paper identifies several types of companies that contribute the most to society from a modest set of financial indicators. Socially responsible investors can estimate their contribution to society, devising new investment criteria.
Social implications
The paper identifies several types of companies that contribute the most to society from a modest set of financial indicators. Socially responsible investors can estimate their contribution to society, devising new investment criteria.
Originality/value
The paper makes two contributions, one methodological and the other empirical. By applying a financial methodology, the authors propose to capitalise the contributions of a company over a period of time. The empirical study identifies both firm and country characteristics that explain CCS.
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