Strategic Corporate Purpose

We propose a theory of strategic corporate social responsibility (CSR). Value-maximizing shareholders play an industry CSR game where they can opt for an objective function that extends beyond shareholder value, thus conditioning other strategic firm decisions. The theory provides a formalization of the “doing well by doing good” adage in an industry setting. We develop conditions such that the CSR game is a pure coordination game, which provides a natural and novel theory of strategic leadership in CSR: By committing to a CSR objective function, a first mover leads the industry to a Pareto superior equilibrium. The theory can rationalize recent evidence on correlated industry-wide CSR adoption, and carries implications for competition policy.