Stakeholder-oriented corporate governance serves the interests of such nonshareholders as employees, clients, and the greater community. Although there may be conflicting needs among these groups, stakeholder-oriented companies manage to survive in certain environments where they compete with shareholder-owned firms.

A telling example is Norwegian savings banks in the wake of Norway’s financial deregulation. The continued survival of savings banks in a competitive environment is often a function of the level of trust they engender and the level of civic engagement to which they commit in the communities they serve. That those communities display a high degree of civic involvement and trust in institutions facilitates the success of stakeholder-governed savings banks more inclined to eschew high-risk activities.

Norwegian savings banks have a socially conscious lineage as a philanthropic endeavor of the early 19th-century bourgeoisie, who established them to encourage savings among ordinary people. Bank branch deregulation began in Norway on 1 January 1984. The banking crisis of 1988–1993 accelerated the industry’s transformation, resulting in further rounds of consolidations.

A community’s level of civic engagement is a function of its trust, the degree of media consumption that informs it, and its levels of altruism. Those areas that display high degrees of these activities enable stakeholder-oriented savings banks to survive and prosper. Social capital tends to improve the level of savings banks’ stakeholder governance because it raises the demand for and use of the banks’ services.

Students and practitioners of the environmental, social, and governance model of investment could find the results of the Norwegian experiment useful for generating asset selection and portfolio management ideas to achieve results consistent with their investment mandate. Regulators could glean from this study a potential template for risk mitigation, although probably not for profit-focused commercial banks.

The authors draw on the relevant literature on stakeholder-oriented firms. Proxies for social capital expressed as degree of trust and civic engagement include the measure of trust from the 1990 World Values Survey, household subscriptions to newspapers, and charity donations. The first metric gauges levels of trust among Norwegians. The second metric is a precondition to civic engagement because it considers how well informed the citizenry is. The third metric demonstrates civic involvement through altruism and volunteering. Social capital varies across Norway, with its many small communities and distinct regional and cultural identities.

A discrete-time hazard regression model approximates the relationship between the survival of savings banks and the level of social capital where they conduct business. The model looks for the hazard, or the disappearance of savings banks as standalone nonprofit entities. It tracks survival rates from the beginning of bank branch deregulation in January 1984. Banks’ lifetimes are a function of how long they exist until they are acquired or convert their charter and increase equity through issuance of residual equity claims. Explanatory variables in the model are proxied in various ways to capture such things as bank lifetime, municipality demographics, level of social capital, degree of competition, market share, asset size, and capitalization.

Regressions simulate the influence of social capital on savings banks’ survival. The banks’ probability of survival (exit) is found to be greater (less) when their branches are located in municipalities with greater (lesser) levels of social capital. In addition, social capital may substitute for equity capital, whereby banks that benefit from the strong patronage of the communities they serve may operate with less equity capital. However, banks with the maximum equity ratio observed tend not to benefit from social capital. The effects of social capital on banks’ survival are robust to alternative competition measures (e.g., the redefined timing of bank exits during the Norwegian banking crisis and the use of time-varying bank performance measures).

The notion that stakeholder financial institutions can prosper in an environment propitious to their business model as evidenced by high levels of civic commitment is an interesting one. The implicit conclusions seem to argue for the benefit of investing in stakeholder-oriented businesses as long-term going concerns even if they may not be as profitable as their more commercially focused counterparts. The research and analysis that support this thesis are rigorous and worthy of multiple reads. Although the long history of Norway’s savings banks provides an ideal set of circumstances for testing corporate social responsibility, it would be worthwhile to investigate whether there are similar circumstances in other parts of the world. How does one measure trust, the ways in which the local citizenry stays informed, and how communities evidence altruism? Differences in regulation, demographics, and culture could make for an interesting investigation.